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Market evolves as alternative lenders play a bigger role

High demand and challenging market conditions are leading traditional banks to cooperate with alternative lenders, experts agreed at Real Asset Media’s European Debt Finance & Investment briefing, which took place recently at Corestate’s Frankfurt offices and online on the REALX.Global platform.

Norbert Kellner, Head of Syndication, Berlin Hyp

“As a typical senior lender I believe banks also need to change in these times of uncertainty and changing markets,” said Norbert Kellner, head of syndication, Berlin Hyp. “There is no panic in the market but rather close cooperation. There are many non-bank partners that we are very happy to work with to navigate these difficult times. There is definitely space for private debt to come into the market.”

As traditional lenders have adopted a conservative approach first during the pandemic and now in a situation of slowing economic growth, high inflation and geopolitical uncertainty, they have opened up the field for alternative finance providers to fill the gap.

“In our experience banks are still risk-averse, more creative solutions are needed and subordinate lenders are being allowed in,” said Matthias Sandfort, group head of debt finance, Corestate Capital Advisors. “We see more banks partnering with alternative lenders.”

It is a positive development that provides borrowers with more options and an alternative to the traditional senior/junior side.

“A huge number of alternative lenders have been coming into the market in the last three years, credit funds as well as institutions,” said Kim Jana Hesse, head of capital partners, FAP Finance. “More banks are now open to club deals with them.”

Regulation has played a role too, as Basel 3 was expected to lead to a reduction in banks’ lending ability, and that funding gap is now available to alternative providers”.

“Across Europe the size has doubled since 2016 and in terms of target equity it is now close to €60 billion,” said Iryna Pylypchuk, director of research and market information, INREV. “It is a healthy evolution of the market, with banks and alternative lenders working side by side.”

Demand has been strong and conditions favourable for the “newcomers” to the European market.

“It’s a very good situation for alternative lenders,” said Nadja-Christin Hoppe, executive director, head of sales & corporate finance, Corestate Bank. “With banks on the sidelines, they’re seeing better risk/return profiles that normally would be financed by a traditional lender.”

The direction of travel is clear, as Europe is still well behind the US, where non-traditional real estate lenders account for over 50% of the total.

“The US market is more diverse and more mature, but in Europe the UK has been progressing much faster, while in Continental Europe we’re still at an embryonic stage,” said Pylypchuk. “Both temporary and structural issues point to strong sentiment and continuing demand.”