The UK and Continental European markets are still suffering from a lack of funding for non-core assets, with a funding gap estimated to amount to EUR 35 bn this year, Natale Giostra, head of CBRE's UK & EMEA Debt Advisory team, said during EXPO REAL in Munich. ‘Bridging the funding gap: that is the main topic in the credit markets at the moment. We estimate the lending gap to be around EUR 35 bn at present, of which as much as EUR 20 bn in the UK,’ Giostra said.
The UK and Continental European markets are still suffering from a lack of funding for non-core assets, with a funding gap estimated to amount to EUR 35 bn this year, Natale Giostra, head of CBRE's UK & EMEA Debt Advisory team, said during EXPO REAL in Munich. ‘Bridging the funding gap: that is the main topic in the credit markets at the moment. We estimate the lending gap to be around EUR 35 bn at present, of which as much as EUR 20 bn in the UK,’ Giostra said.
As traditional property lenders are retrenching their activities and strengthening their balance sheets, the market has seen a widening gap between available funding and companies' need to finance and refinance their portfolios. Giostra: ‘With the collapse of the CMBS market, investment banks have virtually withdrawn from the real estate debt sector. German lenders are still very active, but they are mostly financing core property. The world of secondary assets is still largely underfinanced.’ Giostra expects new types of alternative lenders to fill the industry gaps, such as insurance companies, mezzanine financiers and senior lending funds.
Insurance companies in particular are emerging as property financiers but their loan issue mostly focuses on core assets, being in competition with the type of product financed by the German lenders. As such, insurance groups are considering expanding their offer to other products. ‘Insurance companies are now seeking ways to diversify their financing models. At the same time, new mezzanine funds are being created but their debt offer is quite pricey, so mezzanine financing is mostly being used to refinance assets in addition to the traditional lender. While the bank finances to 65%, the mezzanine fund adds a further 10-25% of debt to the operation.’
Giostra envisages the creation of new senior lending funds in the coming months to close the European lending gap. ‘There is so much equity available in the market. Companies will start realising that a good way to invest it is not only in direct property, but also in debt, for instance by setting up a senior lending fund,' he said.