Real estate restructurings are ‘flavour of the day’ as crisis hits

Transactions are at a standstill and lending activity is muted, but there’s plenty of restructuring work to be done, delegates heard at Real Asset Media’s Trends 2023: European Debt, Finance & Investment briefing, which was held in Frankfurt recently.

“Real estate restructurings are the flavour of the day so as a restructuring lawyer it’s a good story for us,” said Mike Danielewsky, partner, Bryan Cave Leighton Paisner. “Our team has been completely booked since June 2022. Senior lenders are at a standstill, which is sensible, and they are still considering how to deal with these situations in the correct way, so there’s a real funding gap.”

There’s a lot of unnecessary complexity in the restructuring arena, not just in the large real estate financing structures but in the small ones as well.

“We see structures in the market that are so over-engineered that you get the impression they wanted to win the Nobel Prize,” said Danielewsky. “It’s like a Mikado game, if you take out the first six then the whole structure crumbles.”

While the lawyers are busy, senior lenders are coming to terms with the changes in the market after the spike in interest rates and the slowdown in transactions.

“We’ve been financing a lot in the project finance sector with mezzanine partners and we’ve seen that restructuring can be a positive with the right approach,” said Norbert Kellner, head of syndications, Berlin Hyp. “It’s a good thing that we haven’t seen aggressive devaluation and repricing, because the smaller players couldn’t cope with it. And let’s face it, it would also have a huge impact on equity investors’ portfolios.”

European banks have been more accommodating, especially if compared to the US, where there has been more immediate value destruction.

“In Europe so far we’ve only seen pockets of stress,” said Anders Hemmingsen, managing director, European investment team, Strategic Value Partners. “The mezzanine lenders are coming in to help the banks and investors like us are coming in to fill the funding gap. There’s a bit of a stalemate at the moment, but there’s lot of capital on the sidelines waiting and looking for high returns. In the next 18 months that’s where the real high octane activities are going to be.”