Real estate lenders to up capital by 22% but still prefer core

EUROPE – Lenders will increase by 22% the capital available to the European property market this year – but an influx of new lenders has made little difference to the continued preference for prime assets in core markets.

According to a survey of 109 lenders published this week by Cushman & Wakefield, lenders are still primarily targeting their domestic markets and the 'core' markets of the UK, Germany and France.

Although it forecasts a slight increase in interest in Southern European markets – assuming borrowers will accept the lending terms – Michael King, senior analyst in EMEA corporate finance, said lenders would only look at assets in premium locations backed by strong covenants.

Against an increase in senior debt activity – including 10 new entrants and another 10 re-entrants last year – the report found evidence that the mezzanine market was beginning to "plateau and mature" amid hefty competition.

Only five new players entered the mezzanine market in 2012, although King suggested some lenders were willing to move up the capital stack in search of returns.

Among non-bank lenders, 35 debt funds are currently trying to raise €24bn.

Yet despite the emergence of insurers and debt funds as debt players, banks are seeing an opportunity to re-enter the market, using their balance sheets to lend against real estate.

"These traditional lenders still play an important role, and core real estate lending will remain a viable option to grow their balance sheets," said King.

The survey noted two significant departures from previous reports.

The first has been a 41% increase among lenders willing to provide finance to new customers in order to meet higher lending targets.

The same targets have resulted in an increase in the number of lenders – 28%, up from 18% in 2011 – willing to underwrite loans above €100m.

It also anticipated a resurgence of the European CMBS market following the publication last year of a new set of 'CMBS 2.0' guidelines designed to address investors' continuing concerns with the structure of vintage securitisations.

King cited an increase in the number of lenders who see securitisation as a viable exit route, suggesting optimism in the US CMBS market could filter through to Europe this year.