European debt space becoming more 'finely divided'

As the European real estate debt market continues to develop, more sophisticated strategies will evolve, according to Dale Lattanzio, managing partner of DRC Capital, the London-based real estate debt investment platform which was spun out last month from US private equity firm Duet.

‘The debt space is becoming more finely divided,’ he said, pointing to the creation of new platforms for different types of products from senior and mezzanine loans as well as distressed and non-performing products. ‘The senior side is still developing, and investors will have the opportunity to get involved and think about the right form and risk-return and the best way to develop these products.’

The property debt market is in its early stages, Lattanzio added. ‘It has just begun, capital is being amassed and we’re seeing new entrants - institutions such as pension funds and insurers acting directly, funds and banks which continue to write down their debts.’ He added that some players would team up while others were creating their own platforms on a standalone basis. ‘It’s taking time, but there are signs more activity is coming from the institutions.’

Lattanzia made the comments during a panel at the annual Inrev conference in Vienna last week. He said it would be possible to obtain acceptable returns in the real estate debt arena without the need for leverage. ‘There are opportunities in the debt market, and not only for classical entrepreneurs...There will be lots of opportunities for asset management, restructuring and advising.’

Jim Garland, managing director and global co-head of real estate in merchant banking at Goldman Sachs, agreed investors would inject more money into real estate debt in the next few years. ‘There are unprecedented opportunities and equity (investment) is not very exciting.’

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