EUROPE - Insurance companies are beginning to enter the European real estate debt market, although it may take some time before they are as active as their counterparts in the US.
Peter Denton, managing director at West Immo, told delegates at the IPD/IPF Property Investment Conference 2010 that Solvency II regulations would encourage European insurance companies to lend against real estate.
"Lending on property will, for the first time, become interesting for insurance companies," he said. "I spoke to a European insurance company this morning, and they have just had a board decision to commit €2.5bn in new lending to property next year.
"We will see an increasing number of insurance companies following suit in the provision of debt."
The comments were made shortly after CB Richard Ellis released its European Capital Markets report for the third quarter, which said a number of alternative lenders - most notably insurance companies and institutions - had entered the European debt market.
The research found that the European real estate debt market was loosening up as more financing options became available and new lenders entered the market.
CBRE said the trend was bringing Europe more in-line with the US, where institutions have long been active and account for nearly 20% of commercial real estate lending.
However, CBRE's Debt Advisory team said there was still a way to go before institutional lenders' presence in the European market became as significant as it was in the US.
Several barriers to entry have been identified, such as a lack of document standardisation, limited transparency and limited early repayment penalties.
Commenting on the current sentiment in the European real estate lending market, Natale Giostra, head of debt advisory for the UK, Europe, Middle East and Africa at CBRE Real Estate Finance, said: "It is encouraging to see there are an increasing number of options available for financing real estate transactions.
"However, we expect a tightening of traditional lending channels next year due to concerns about the volume of loans maturing shortly."
The scale of insurance company lending is dwarfed by the size of the wall of refinancing facing the European market, according to Andy Armstrong, head of real estate HSBC, who shared the stage with Denton at the IPF/IPD conference in Brighton, England.
He said UK real estate debt was £42bn in 1999 and had risen to £280bn today, 60% of which is on the balance sheets of two nationalised banks - Royal Bank of Scotland and
Lloyds Banking Group - along with Ireland's National Asset Management Agency (NAMA).
The two nationalised banks were aiming to reduce their property loan books by £30-40bn each, while NAMA is unwinding a £27bn UK property loan book, Armstrong said.
He added: "£150bn of that debt is coming to maturity over 2011 to 2013. If the nationalised banks don't want to keep it, where is it going?
"While there will be alternative debt markets, are they going to come forward that quickly?"
