In a whitepaper, entitled Real Estate Finance: Primed for Digital Transformation, Oxane Partners explores the pace of digitalisation within the real estate financing sector and suggests that the trend towards digitalisation is driven by at least three intertwined forces:
- increased technology requirements of real estate debt professionals;
- growing need for transparency by investors in real estate debt, driven by the maturing institutionalisation of the asset class; and
- a rapidly rising opportunity cost of simply maintaining the status quo.
Vishal Soni, co-founding partner at Oxane Partners, explains:
“In the decade since the global financial crisis, real estate debt investments have broadened and diversified in capital sources and in the range of secured property collateral. Banks’ gradual retreat, driven by onerous regulatory capital requirements, has opened the door for a new generation of debt investors to compete for market share in over a one trillion euro European real estate finance market – the non-bank lenders.
“These non-bank lenders have continued to grow in numbers, market share and risk appetite and include pension funds, insurance funds, private debt funds, asset managers and challenger banks. They provide investment grade loans, senior mortgages, and have ventured up the risk-curve into value-add territory, including mezzanine loans, where banks historically haven’t been very comfortable lending.”
Overall, the real estate debt market is not only getting more competitive, but the sector is also expanding into niches that were hitherto ignored by traditional lenders. According to Oxane Partners, these new debt investors are, inter alia, attracted to:
- the increased institutionalisation of real estate debt as an attractive investment option;
- the asset classes’ relative value compared to, principally, other fixed income products;
- securing exposure to certain sectors which are supported by long-term structural demand drivers; and
- a confluence of macroeconomic variables, including the decade-long era of ultra-low interest rates, particularly across Europe, as well as factors related to the current cycle’s maturing stage.
Kanav Kalia, Director at Oxane Partners, explains:
“This wave of capital brings with it increased responsibilities and challenges. Indeed, real estate debt investors are under ever greater pressure. On one hand, the increased competition calls for efficiencies in evaluating opportunities, deploying capital and managing investments. On the other, the increasing demand for transparency by both regulators and investors requires them to increase the sophistication of all core processes, from risk controls, to deal monitoring, due diligence and investor reporting.
“All of which provides the backdrop for the role of technology and digitalisation in meeting the requirements of this new breed of sophisticated investor in real estate debt.”
For the complete research report, request a copy by clicking here.