EUROPE - Potential borrowers are struggling to raise capital despite evidence of banks competing to lend for prime assets in the German market - yet it is doubtful whether newly created debt funds will plug the finance gap, according to CBRE.

According to the firm's second-quarter survey of European capital markets, Germany defied a broader trend toward tightened liquidity, with a maximum loan size in the German market doubling to €200m over the space of a quarter.

However, it found evidence of a lack of funding for smaller transactions.

Natale Giostra, UK & EMEA head of debt advisory at CBRE Real Estate Finance, said margins kept relatively low by German bank lending across much of Europe had created a gap in the market for loans that are "too small for German banks, but too big for local niche lenders".

Yet Giostra pointed out that few of the debt funds recently raised had senior lending capacity for European transactions.

"Many are mezzanine funds, and they're looking to recapitalise good-quality properties as loans come to maturity," he said.

"Everyone in lending is avoiding risky exposure. The LTV [loan-to-value] ratios on the books of major lenders are higher than they feel comfortable with.

"The more competition there is, the more of these funds you'll see and the more willing lenders will be to finance secondary properties. But we won't see competition in the market in the same shape or form as we did in 2007.

"The best advice for borrowers is to try to present to lenders as de-risked a transaction as possible."

A spokesman for Allianz, which in June entered the European property debt market with a €300m loan to Deutsche Bank subsidiary DWS fund, told IP Real Estate the German insurer intended to increase its debt portfolio - but specifically for large deals involving prime assets.

In France and the UK, the report found lending available only for prime assets and good secondary - or, in exceptional cases, to borrowers with strong track records.

Elsewhere in Europe, sovereign debt downgrades have increased the cost of capital to banks and therefore tightened criteria for borrowers.

According to the report, Spanish lenders are currently willing to finance only small transactions.