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CBRE: debt remains attractive during the late-cycle as significant new capital raised in H1

Momentum is arguably strongest in the continental logistics market, where a confluence of lenders seeking to re-weight exposure away from retail and investors aiming to develop and grow their portfolios has led to an increase in financing for logistics development schemes.

Paul Coates, Head of Debt and Structured Finance at CBRE, explains:

“Where financing has been sought on a prudent basis – 50%-60% LTC for development with significant preletting, or 50%-60% LTV for standing investments – we have seen deep pools of lenders competing aggressively to provide debt.

“The same cannot be said for retail, where as we said many lenders are looking to reduce exposure. The majority expectation in the market appears to be that although European retail has suffered less than the UK so far, thanks to lower internet penetration, the UK’s present may be Europe’s future.

“That said, a small number of lenders believe that the ‘doomsday view’ has been overdone, and are willing, selectively and with careful underwriting, to step into the void by providing a range of senior, whole loan and mezzanine financing options, albeit at a price.

“In the UK itself, deals are generally taking longer to complete, as ever greater care and diligence is spent in the underwriting stage. That said, volumes are still robust, and we continue to see appetite for large scale development lending – contrary to expectations perhaps, lenders are willing to look through short-term insecurity to longer-term value.”

The balance of projects has shifted a little, added CBRE, from office and hotel schemes earlier in the year to a greater emphasis currently on logistics and various forms of residential, especially PRS. But while UK lenders’ decisions may be longer in coming, they do eventually arrive, which is “more than can be said for the political sphere,” CBRE wryly obverses.

james.wallace@realassetmedia.com