It’s a lenders’ market and they are being more selective in the current environment, experts agreed at Real Asset Media’s European Debt Finance & Investment Briefing, which was held online recently.
‘From an investment point of view terms have swung very much in favour of lenders, both from a pricing and covenanting position,’ said Emma Huepfl, Managing Director, European Credit Strategies, CBRE Global Investors.
‘Borrowers will have to work harder to get financing, but there will be interest from new investors in debt due to dislocation,’ she said. ‘I definitely see a changing landscape ahead in terms of participation’.
As lenders are more selective it will become more difficult to get financing for what are seen as weaker asset classes.
‘It is correct to say that it’s a good time to invest in debt, but I would underline that you must differentiate between asset classes, because there are clearly winners and losers,’ said Norbert Kellner, Head of Syndication, Berlin Hyp.
Hotel financing is under stress, for example, because of the expectations that the hospitality sector will have huge difficulties.
Retail is a more nuanced picture, he said: ‘We still finance retail parks, which have shown they can cope well with the crisis, and also some high street shops. But financing for shopping centres, which were already having difficulties, will be much harder’.
When liquidity gets stretched it tends to focus on the better borrowers, said Huepfl: ‘It will be difficult to take lending opportunities to credit committees if your assets are in a sector that’s in trouble like hospitality or retail’.
Residential is one asset class that should do well out of the crisis, given the chronic shortage of homes in most European markets, the likelihood of more working from home in future and the new emphasis on wellness and quality of life.
‘There are asset classes we wouldn’t finance now, but residential is a very interesting sector,’ said Kellner. ‘There is a need for development finance for resi. From our point of view, making sure there is liquidity for these sustainable projects is a win/win because they have a positive impact on society’.
As well as ticking the impact investing box, lending money for residential development also has a time lag that allows you to have a long-term view beyond current difficulties.
‘It may seem counter-intuitive to lend money to a market in disarray, but you could find yourself on the other side of the pandemic, once the development is completed, and you can rent or sell your units or find alternative uses,’ said Anthony Shayle, independent consultant. ‘There are definitely opportunities in the residential sector through development. The need for homes will not be affected by the pandemic’.
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