Lenders split as funding gap grows and caution prevails

Currently the real estate market is challenging for lenders who are behaving defensively when it comes to lending against new assets, explained Edmond de Rothschild associate director Etienne Naujok.

Speaking to Real Asset Insight’s Richard Betts Naujok said that senior banks are partially withdrawing owing to higher capital requirements. “That obviously opens up a high funding gap which is in need of capital providers that can offer flexible financing solutions across the capital stack.”

The market is seeing fundraising for two different types of strategies. The first is a conservative debt strategy that benefits from higher base rates and offers senior or even whole loans.

The second is flexible capital providers that can provide finance across the capital stack from senior financing to mezzanine or even preferred equity financing solutions.

“We are currently in the fundraising stage for our new mandate,” Naujok said explaining that Edmond de Rothschild lies between the two. “On the one hand, we want to be conservative in such a market environment, where we provide senior focused loans but also whole loans, selectively, and mezzanine financing, if the sponsor and the collateral fits us.”

He said that what has changed is that lenders are more disciplined and cautious in their underwriting when providing loans. The same applies for banks and alternative lenders too.

Lenders need a good view on the fundamental changes that are occurring such as remote working and the discussion about the green transition Naujok said.

“You obviously need to have a good view on the transition you’re facing and lend on assets where you see clear liquidity for this product and where you see clear lease potential.”

He said this kind of potential is needed at a time when yields are shifting and values are expected to fall further. “That’s crucial from a lender’s perspective in terms of sectors and the sectors you want to be allocated in.”