The debt fund market may be here to stay in certain sectors but will struggle to originate senior debt on the same level as the clearing banks, said a panel at this week’s 8th Annual Investment Summit.
The panel, led by John Feeney, managing director and global head of corporate real estate at Lloyds Bank, and Peter Cosmetatos, chief executive of CREFC Europe, said the alternative lending market in Europe was certain to have a position at the riskier end of the market.
“Some of the senior strategies have been undermined by the return of bank lending,” said Feeney, but added that “relative value lenders have definitely played a bigger role of late, which is a good thing.
He added: “We have a healthier ecosystem. It’s not so predicated on bank lending and it’s not based entirely on opportunistic capital. The capital that is coming in is going into markets that for one reason or another the banks don’t want to go.”
Cosmetatos agreed, saying: “The more mezzanine level providers will have a place in the market. Whether those that want to originate or stay in senior debt will survive in the longer term once the broader institutional money stabilises, I don’t know. That feels more challenging.”
Feeney also felt that should these mezz lenders get “wiped out” in any downturn, it would not be so systemically important.
In addition to mezzanine lending, alternative capital was well suited to lending on speculative development, said Feeney, following the burnt fingers that clearing banks have suffered in the past, as well as new capital holding requirements.
Alternative lenders have stayed in the market despite the increased competition as the returns from real estate debt and a lack of CMBS issuance have replaced the returns from more traditional bond investments.
What Feeney saw was the alternatives remaining in the market not by being leads on deals but by taking part in the cheaper, syndicated end of the market.
jack.sidders@estatesgazette.com
