Alternative financiers broaden scope beyond core as competition rises

Non-bank lenders are widening their scope to secondary markets and value-add investments to cope with increased competition in the financing market.

Growing competition for the financing of core assets is forcing alternative financiers to diversify their offer in terms of duration, markets and lot sizes, according to panellists at PropertyEU’s European Debt Finance and Investment Briefing held during the Expo Real trade fair in Munich in early October.

Morten Gustafson, director at Catella Corporate Finance, said that alternative lenders have a hard time competing against the local mortgage banks but added that opportunities remain compelling in construction finance and in non-core markets. ‘Strong mortgage banks are still the most competitive debt providers for core assets and for loan-to-values of up to 60% but if you can offer higher leverage, you can still find your place.’

Anthony Shayle, managing director and head of Global Real Estate - UK Debt at UBS, which manages $54 bn of real estate assets globally, said alternative lenders should increasingly seek to diversify their offer of products which should ultimately result in a more efficient debt market for everyone. ‘Everybody should recognize that there is demand for financing not just in the core space but also for core plus and value-add as well as for products offering different maturities and lot sizes,’ Shayle added.

‘Competition is a key factor for a healthy lending market, and it doesn’t necessarily drive margins down. It just makes sure that price is a reflection of risks and rewards because different sources of capital should provide different types of debt.’

To fill the financing gap in the value-add and core plus space, UBS Global Asset Management is currently preparing the launch of a new European hybrid debt fund targeting a size of several hundred millions, Shayle added. The vehicle will have a higher risk profile compared to average senior debt funds, targeting assets with elements of growth, including forward-funding and development loans.

The presentation and videos are available at European Debt Finance & Investment Briefing