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Alternative financing for RE to complement bank lending

Martin Braun.

The demand for alternative financing for real estate will continue to be strong over the next few years and it will complement rather than replace traditional bank lending, experts agreed at Real Asset Media’s European Debt Finance & Investment briefing, which was held recently at the Corestate offices in Frankfurt and also online on the REALX.Global platform.

“The financing environment will stay difficult for the next two or three years, so alternative lenders will play a more important role going forward,” said Martin Braun, founding partner, Nexus Capital Advisors. “Traditional lenders have become more selective, they only finance investments that tick all the boxes and they are not interested in non-core products, while investor demand is very strong.”

Demand has kept up throughout the pandemic and is likely to keep growing as things return to normal. Covid-19 has had no impact on pricing either.

“Investors, developers and real estate players buying portfolios need quick and reliable financing,” said Johannes Märklin, member of the management board, Corestate Capital Group. “Banks will only take a small part of this volume, so other sources of funding are coming and will continue to increase”.

There is also a need for short-term bridge financing while players wait for bank lending to be approved, so speed is of the essence.

Despite the pandemic, traditional banks have had a good year as well. According to new figures, senior lending went up 60% in Germany this year.

“The last 12 months have been much better than we anticipated,” said Assem El Alami, head of international real estate finance, Berlin Hyp. “Now it’s almost back to normal, with very little impact on our portfolio. We lent very little on hotels and we have very little shopping centre exposure, so it’s been a good year for Berlin Hyp.”

In such a vibrant market there is not only room, but a real need for, both traditional and alternative forms of financing.

It is definitely not an either/or situation, said Märklin: “Private debt is not a substitute for bank financing but it’s complementary. There is a very big opportunity for us where banks don’t participate and our forecast is that institutional investors will deploy even more money on the private debt side in 2022.”

Corestate expects domestic capital as well as foreign investors from North America and Asia, including high net worth individuals, to be more active in the European market in general and in Germany in particular next year.

“We have been told by a couple of Asian investors that they are pulling out of the US and focusing on Germany instead,” said Märklin. “Germany is and will remain the largest real estate market in Europe.”