Pool of European mezz lenders shrinks

Fifty four mezzanine real estate lenders classify themselves as ‘active’ in Europe now, versus 69 at the end of the first half of 2011, according to a new report from CBRE.

The study examines the depth and breadth of Europe’s mezzanine lending market. It outlines that this fall was anticipated, and that CBRE expects this rationalisation of lenders to continue. Some 59% of all ‘active’ lenders are discretionary asset managers, with four new players entering the market in the last 12 months.

CBRE said that decisions to retire from the market were largely driven by the inability of some lenders to achieve return rates thought possible 12 months ago. For example, all five family offices active in H1 2011 have exited mezzanine lending, returning to the direct market where opportunities are thought to be easier to source. In the 2011 survey, their average reported return requirement as a group was 19%, the highest of any surveyed.

The contraction in ‘active’ lenders has not, however, led to a reduction in mezzanine lending levels. In the year to H1 2012, nine lenders announced nine commercial property and nine residential development transactions, representing over EUR 500 mln of real estate debt. Full-year 2010 and Q1 2011 saw a total of six transactions representing EUR 450 mln of real estate debt.

In addition, commitments to mezzanine lending programmes by experienced core lenders continue to grow, with six mezzanine lenders currently raising equity for follow-on debt funds, covering a range of risk profiles. CBRE is also aware of a total of 15 asset managers that are marketing debut debt funds across the region, covering a range of strategies.

Natale Giostra, head of EMEA & UK Debt Advisory, CBRE, said: 'The overall reduction in liquidity in the European debt markets is impacting on the volume of mezzanine transactions. However, it is encouraging to see growth in mezzanine lending levels as well as the continued rationalisation of the market towards a core of committed lenders. As many mezzanine transactions remain confidential, we expect true activity levels to be substantially higher.

'In addition, we have seen increased interest from the market in raising new equity for strategies including core senior, low and high yield debt. We therefore expect future fund raisings to incorporate a range of debt strategies with flexibility in markets and assets, rather than a single track strategy, which should see a growth in lending capacity and activity over the next year.'