Lenders are as asset class-focused as investors, and they find it easier to finance a sector that has the wind in its sails, experts agreed at Real Asset Media’s recent Debt Finance briefing. In the last year or so residential has been in huge demand, while leisure, hotels and retail have been seen as no-go areas.
The focus on resi has helped the growth of alternative lenders because many banks are tied by regulations and cannot finance resi as a matter of policy. The door was wide open for others to step in.
“In the last 18 months we’ve mainly financed resi in Germany, which is 70% of our portfolio,” said Martin Bassermann, chairman of the board, Helvetic Financial Services. “And 70% is allocated to the top seven cities, safe-haven assets which can withstand any crisis, and the remaining 30% to B cities in Germany, which are strong and fast-growing.”
What makes the secondary market interesting is that rents in the B cities are well behind the A cities so there is more upside potential, he said.
“In the Netherlands alone there is a predicted shortage of one million homes in the next ten years,” said Daan Reekers, CCO, Adelaer Group. “Interest in resi has accelerated as it’s been seen as a winner during and beyond the crisis.”
Focusing on core was probably a good strategy during a difficult time, but now there is a need to move forward and follow how the market will change.
“At the moment no one wants to have anything to do with hotels but I am absolutely sure that it will look completely different in a year’s time”, said Bassermann. “We still don’t finance retail at all, but that could change in the future as well.”
Investors are beginning to distinguish different retail types
All lenders want to decrease their exposure to retail, while investors are beginning to make a distinction within sectors because urban convenience retail, for example, is in a very different category to an out-of-town shopping centre.
“You cannot put all of retail into one bucket,” said Duco Mook, head of treasury and debt financing EMEA, CBRE Investment Management. “Investors are making distinctions, it is time lenders did too. Resi and logistics clearly have been the winners in this cycle, but now lenders need to look again and have to open up to offices and alternative sectors too.”
Both investors and lenders are cautious on the office sector because it has been penalised by the shift to home working during the pandemic. But offices are also worth looking at again.
“The office is certainly not dead,” said Mook. “Location has always been important but now it’s become even more crucial, because the office has to be much better than working from home.”
Both the building and the context have to be attractive, which means there are opportunities on the development side as well, because of the demand for new, healthier and greener assets.