Traditional banks cannot keep up with the growth in demand for real estate financing and that has opened up opportunities for alternative lenders, especially in sought-after asset classes like residential, experts agreed at Real Asset Media’s European Debt Finance & Investment briefing, which took place recently.
“The market has really changed and so has the investment style,” said Vincent Thyrion, partner, RSM Belgium. “We see our customers want more funding from private equity and other alternative lenders rather than the banks.”
Across Europe the market for debt advisory has opened up, experts agreed, as the banks have tended to focus on their existing clients and on core assets.
“The banks are open, but only for financing really core assets, so a lot of alternatives have come up,” said Daan Reekers, CCO, Adelaer Group. “Whether it’s mezzanine, equity or even senior debt there are other parties in the market to finance real estate. In the Netherlands in particular the banks cannot compete, there is a huge demand for mezzanine and it’s a very exciting time.”
Adelaer is the largest independent advisory firm for real estate financing in the Netherlands and it works closely with German institutions. Other European countries, including Germany, have seen a similar increase in demand for alternative sources of funding.
Demand for mezzanine and senior finance is high
“What we see is that the demand for mezzanine financing, but also for senior, is very high,” said Martin Bassermann, chairman of the board, Helvetic Financial Services. “In the real estate market there is a lot of demand for housing but also for offices and logistics and the entire banking landscape cannot possibly cover the demand for debt.”
HFC’s mezzanine funds mainly finance developments at an early stage, covering a three to four year period, so they have not been affected by the pandemic-related crisis. Quite the opposite, he said: “The last 12 months have been very positive for our business and we have an extraordinary pipeline of new products.”
Private debt is already well-established as a source of capital, but its position is likely to strengthen further in the next three years. “I spoke to a very large German developer last week and he told me he no longer needs a bank,” said Bassermann.
The market took a pause in 2020, when both investors and lenders had to take a step back, but experts agree that this year activity has returned and sentiment in the market has become more and more positive.
“Before Covid, core lenders like insurance companies or local banks were willing to finance 65% or even 70% LTV loans. But now, in the current landscape, they have decreased their leverage or require amortisation schedules earlier in the process,” said Duco Mook, head of treasury & debt financing EMEA, CBRE Investment Management. “This has opened up an opportunity for alternative debt providers in the 55-85% LTV range or even higher.”