Debt funds looking to raise €22b of fresh capital, says C&W

A total of 41 debt funds are looking to raise €22.1 bn of capital in 2014, based on the maximum target size, according to Cushman & Wakefield’s new European Real Estate Lending Review report.

C&W forecasts, however, that over the next 12 months, around €5 bn will actually be raised as European and global investors become increasingly familiar with the debt fund opportunity.

The next months are also likely to continue to see a resurgence of CRE loan securitisation and CMBS markets. Over €8 bn was issued last year, representing an eight-fold increase compared to 2012.

With the publication of the CMBS 2.0 Guidelines and re-emergence of investor interest in such products, it is likely that Europe will follow the US trend and see larger volumes in 2014, with C&W predicting an issuance this year of between €12 bn and €15 bn.

'The increase in the number of active lenders has helped drive down pricing in a number of markets around Europe within a very short timeframe,' said Mike King, a senior analyst in C&W's Corporate Finance team. 'With competition intense, we expect to see these lenders move up the risk curve and increase their penetration of the previously labelled ‘non-core’ markets, to take advantage of the plethora of opportunities available.'

The year 2013 was also characterised by the return of the leveraged buyer. With a 30% uptick in capital lent against European CRE since 2012, activity has moved steadily from refinancing to new lending. During 2013, many lenders announced upward revisions of their lending targets, highlighting the increasing amount of capital targeting CRE lending.

Despite this, in most markets, borrower credentials remain key to the availability of finance - the quality and accuracy of information presented to lenders has become of paramount importance.

A noteworthy feature of the financing market in 2013 was the increasing appetite for lending against secondary assets/locations. While lenders remain focused on sound covenant strength, there is a demonstrable willingness to provide finance for secondary assets in core locations or prime assets in core locations. The main drivers for this trend have been an improving macro-economic background in many European countries, increasing competition and a drive for higher returns from some factions of the lending market.

Development finance lending is also on the rise, having increased from 31% to 42% in two years.

Geographically, Western Europe remains the top lending target with 70% of all loans secured by assets within the UK, France and Germany. However, an encouraging number of lenders have started looking at ‘non-core’ markets, given the opportunities which have emerged.

The number of active lenders targeting Spain, Portugal and Italy increased by 37%, 17% and 11% respectively over the year. Elsewhere, the appetite for the dominant Central and Eastern Europe (CEE) markets increased by 17%, while the percentage of active lenders in the Nordics showed little fluctuation. The volume of CRE loans provided within Spain and Italy has tripled since 2012. In the core markets of UK, France and Germany, the volume of loans granted increased by an average of 17% over the period.