Appetite for lending may have returned in Europe, but limited availability of product remains a concern, according to Roland Fuchs, head of European RE Finance at Allianz Real Estate.

Appetite for lending may have returned in Europe, but limited availability of product remains a concern, according to Roland Fuchs, head of European RE Finance at Allianz Real Estate.

Lack of product is even a concern for banks interested in moving up the risk curve, he told a recent Outlook Briefing held by PropertyEU at the Paris office of law firm Taylor Wessing. ‘If you have an equity-rich buyer who has difficulty deploying capital and needs to invest 30-40% of the transaction sum, they don’t need an 80% LTV. The high leverage ratios that we saw in 2006-07 are not prevalent at the moment. What we’re seeing now is that money from investors with very deep pockets is still flowing into Europe, so it is not a matter of prudence or tight banking behaviour that is keeping LTV levels relatively low, it is the big amount of equity that still needs to be deployed.’

MOVING UP THE RISK CURVE
Fuchs claims financing is available if opportunities arise for higher-risk loans. ‘That’s what we see going on in Spain at the moment. The market is characterised by a large number of transactions, often involving the recapitalisation of companies, investment in distressed equity positions or investments in secondary loan positions. In all these transactions that are higher up the risk curve, financing is available again to a large extent by American, European and German banks. All those partners follow their clients and as those clients go into those markets, it’s just a matter of time before the financiers will follow. If investors are there, financiers will follow.’

Getting into a more challenging market like Spain does not necessarily mean going up on the yield curve, Fuchs noted. ‘Rental levels in Madrid have fallen from €35-40 to €20-25. Getting back into this market in an excellent location is not necessarily a high-risk investment. The point of entry might be very defensive and very interesting. It’s just that the number of opportunities are not there. The market may become more liquid if all the portfolios that are being traded are spread out but at the moment there’s still a lack of product for both investors and financiers.’

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