Europe still offers plenty of opportunities for alternative lenders and private equity companies despite increased geopolitical uncertainty, experts agreed at the Autumn Conference organised by the Commercial Real Estate Finance Council (CREFC) in London this week.
'There are markets that are really on fire in Europe,’ said Peter Denton, senior vice president and head of Debt Europe at Starwood Capital Group. 'It is not all doom and gloom'.
Brexit has increased the level of interest towards Continental Europe, said Marco Rampin, head of debt and structured finance at CBRE Capital Advisors: 'Activity is there, capital is available from all sorts of sources, the banks still have the lion’s share of the lending but there has been a definite rise in alternative lenders.'
The lending market varies from country to country in Europe, but banks and senior lenders remain cautious and conservative, which explains the recourse to alternative lenders. ‘We are in for the long haul with an alternative lending system, because there is a real need for it,' said Denton.
'We think Europe will continue to repair, although at a slow pace,'said John Bigley, principal at DRC Capital. 'We focus on the core markets and in Benelux, for example, we see a groundswell of activity. Even in Germany there is plenty to do, maybe not the huge 1bn portfolios but the smaller deals.'
Southern Europe present good opportunities: ‘The Italian and Spanish markets are the most vibrant investment markets for PE,’ Denton said. Spain, in particular, has good fundamentals, 3% GDP growth, strong consumer confidence and it has become a totally different place after emerging from the crisis.
In some respects things have remained the same for private equity in Europe, in others they have changed significantly, Denton pointed out. ‘We still try to find the elusive off-market deals, we still seek opportunities with an income perspective, we still look for something that is broken and try to fix it,’ he said. ‘What has changed is that geopolitical factors are impinging more and more on PE, which has not been the case for a while.’
Investors in Europe now cannot just focus on the deal and ignore the macro picture, because it has become more significant. An example is the ‘triple whammy’ at the beginning of December of an uncertain referendum in Italy, the new presidential election in Austria and the Supreme Court ruling in the Brexit case in the UK. All three will have ripple effects well beyond politics, and well beyond each country’s borders.
The importance and unpredictability of geopolitical factors 'complicates decision-making,' Denton said.
