Refinancing the name of the game as transactions pause

Next year is likely to start with a whimper rather than a bang, experts agreed at Real Asset Media’s Debt Finance & Investment briefing, which took place this week at Norton Rose Fulbright’s offices in Frankfurt.

John Krant, Managing Partner, Salux Real Estate

“We predict that transaction volumes will be 40-50% lower than what we have seen in the last few years,” said John Krant, managing partner, Salux Real Estate. “We expect the market to be very subdued for the next six months.”

‘Wait and see’ seems to be the default mode as there is little visibility as to what the future holds.

“There is huge uncertainty but if you wait too long it might be too late,” said Oliver Platt, managing partner, Arcida Advisors.

The uncertainty is compounded by the fact that the current crisis has multiple causes, he said, from rising interest rates to the war in Ukraine and from the impact of home working to the growth of e-commerce.

“The majority of requests used to be for acquisition financing,” Krant said. “But now that’s changed and most are refinancing requests. Whether it’s banks or mezzanine funds, people want their money back.”

Refinancing seems to be the name of the game as more people are seeking to buy more time.

“I think H1 in 2023 will be very quiet on the acquisition front,” said Debora Sobel, head of European debt origination, Allianz Real Estate. “Now it’s all about extensions, which are being pushed back to next year. It will be very interesting to see how they are addressed when the time comes.”

Debora Sobel, Head of European Debt Origination, Allianz Real Estate

Lenders are keen to get their money back and are unlikely to encourage this trend. “You cannot expect the banks to prolong or extend, because there’s too much pressure on capital,” said Platt.

Banks have learned the lessons of the GFC and are in a better position, as their own policies became more stringent and regulation imposed higher capital ratios, leading to a healthier market.

“Senior lenders are not in big trouble, as they have not been seduced by big lending volumes and high leverage but have been quite disciplined,” said Assem El Alami, head of international real estate finance, Berlin Hyp. “We’ll see how private debt and alternative providers manage the current situation.”

A consolidation is to be expected in the sector, said Krant: “We’ve seen a lot of loan requests coming in now and no one knows where valuations are going to be. As the equity risk kicks in, a lot of mezzanine lenders will have to take a haircut next year”.

The current crisis is changing the financing landscape. As banks become more conservative, the funding gap will become bigger and will need to be bridged.

“From a lender’s perspective it’s a good time to lend”, said Sobel. “We focus on large tickets, €200 million on average, and some of our competitors are retreating from that space, which creates more opportunities for us”.