COMMENT: From funding gap to lending surplus

US private equity giants like Blackstone and Lone Star continue to grab the headlines with news that they have raised
several more billions of euros for distressed assets and situations in the European real estate market.

They are by no means the only opportunistic players converging on Europe. Indeed, as Ari Danielsson, managing director of specialised loan servicer Reviva Capital, pointed out at the PropertyEU Distressed Investment Briefing in London in September, there is overall much more capital than product at the moment.

‘Anyone hoping that deals will flow in large quantities in the short term, will be disappointed,’ he noted. Inevitably, the influx of capital from opportunistic US players in particular is frustrating the efforts of local specialists who are being hit from other sides as well due to the rising costs associated with European regulation and declining fees. But the good
news is that the market is moving again and that recovery is visible in some quarters.

In fact, what was unthinkable just a couple of years ago in the midst of the debt drought is now becoming a reality in at least one market in Europe: Germany’s real estate financing market is moving towards a lending surplus. Improving economic data, coupled with an influx of non-bank lenders, mean that the debt funding gap that has prevailed for the past four years may soon be a thing of the past. As always, timing is key and the US players that have followed in the
slipstream of the first movers may find that the juiciest morsels have already been taken by the time they get their feet on the ground on this side of the Atlantic.

But new markets are opening up. Many may still dismiss the unloved Romanian and Hungarian markets as politically
risky, economically unstable, starved of debt or simply overbuilt, but local experts active in the region argue that they could prove very rewarding in the long term due not least to developments in the manufacturing and offshoring industries. New segments are also opening up. A staggering rise in investment volumes and the entry of several new institutional players in the UK student housing sector point to an unmistakable trend: a new mainstream asset class is emerging. With pioneers such as Carlyle and Bouwfonds REIM leading the way, Continental Europe is now following
suit. All in all, the evidence is growing that the European real estate market is entering a new - and healthier - phase.

Judi Seebus
Editor-in-chief