Borrowers have greater scope to ‘push the envelope’

The growing diversification of real estate lending sources is giving borrowers more scope to negotiate with their financiers, attendees at the PropertyEU Debt Finance Investment Briefing in Frankfurt heard.

‘There is definitely competitive pressure in some market segments. Borrowers could push the envelope to an 80% LTV,’ Christophe Murciani, director of debt advisory at Jones Lang LaSalle in Paris, told the briefing.

Murciani believes borrowers are still trapped in a number of misconceptions. ‘Borrowers are shy. They’ve heard that the banks are retreating and not lending anymore and if they are, the terms are unacceptable. But the market is alive, lenders are extremely active. There are a number of solutions to meet individual requirements.’

While new players are entering the market, in France the banks are still the largest providers of debt financing and are still active, Murciani said. ‘Bank strategies change every three to six months. They are still active, but they need to be monitored because they change.’

Refinancing remains the biggest hurdle, but borrower concerns about losing control to their financiers at a later date are often misplaced, Murciani said. In France, there have not been so many NPL (non-performing loan) transactions, he pointed out. On the contrary, many lenders are willing to give borrowers more time to recoup their loan as that is often in their own interest as well, he noted. ‘We’re seeing a new breed of mezz lenders with a different lender approach. They want to be medium-term partners, not aggressive and opportunistic lenders. That will help the market deleverage,’ he predicted.

In cases where a loan needs to be refinanced on short-dated income, it may make more sense for a bank to extend a loan for a longer period - i.e. until after the lease has expired to give the borrower time to find a new tenant, Murciani explained. ‘There’s a lot of thinking going on to do reasonable business with borrowers.’