Some markets running 'ahead of fundamentals', Starwood warns

Starwood Capital has singled out London as an example of one of a number of European real estate markets that may be 'slightly ahead of actual fundamentals'.

In a market commentary accompanying the Q3 report on its European financing business, the US private equity group warns: 'In the last few months market optimism in specific markets has further accelerated and indeed could now be slightly ahead of actual fundamentals. Nowhere is this more apparent than in London which has recently seen some tightly priced equity investments. Notwithstanding the risk cushion implicit in lending we have also observed a small number of lending transactions that are questionable on either price or structure or both.'

Starwood Capital goes on to say: 'Conversely, market optimism has also now fully engendered a resurgent desire for investors to act upon their refinancing requirements or reinvigorated interest in new investment, fostering need for creative property lending.'

Nevertheless, several sectors or geographies still remain cautious and consistent with underlying economic fundamentals such as the Netherlands or Ireland, the group says. 'But together the demand for property finance has unquestionably increased, offering greater opportunities but also requiring the company to continue to be diligent in its underwriting requirements.'

Starwood European Real Estate Finance has committed some £116 mln (€138 mln) to six loans this year. Some £1 bn of opportunities are being actively pursued, Starwood Capital said.