Areas of the UK property market remain under-served by adequate finance, despite the a surge of new entrants into the market.
Savills this week reported that 46 institutions had begun offering debt for the first time during the last 12 months. In its influential report authored by William Newsom, senior director of valuations, the company said the total number of lenders entering over three years stood at 150.
However, Peter Cosmetatos, chief executive of CREFC Europe, has warned that those developing commercial property schemes below the radar of major institutions may find it tough to access debt funding.
Commenting on the Savills report, he said:
“New lenders are welcome, but where parts of the market are crowded others – notably development and small ticket deals – remain under-served. Variety and innovation in sources of debt and debt products can help address that.”
Record low returns in fixed-income investments and continued yield compression in prime real estate has accelerated the emergence of European real estate debt as an investible asset class in recent years.
Downward pressure on bonds, quantitative easing in the EU and Japan and the likelihood that record low interest rates will persist for some time has created a perfect storm for a booming property debt market place.
Regulatory pressure for insurers to reduce real estate equity fund investments also plays a role, with the majority of new lenders being classified as ‘alternative’ to traditional banks.
One important feature of the new real estate debt landscape is the growing presence of multi-asset investors. Risks are managed by bringing together equity real estate and fixed income expertise to focus on real estate lending, as an alternative to CMBS or other low yielding corporate bonds.
CREFC Europe believes that investors’ hunt for yield – combined with continued constraints around new supply, tightening regulation and a prolonged retreat by many banks – has created the conditions for a structural diversification of the real estate debt market. However, as non-traditional capital increasingly seeks out and finds opportunities to enter this market, the lack of reliable data and transparency is becoming ever more apparent.
The group, which represents lenders and debt investors, works with regulators and policymakers as well as the industry to improve understanding, education and transparency in the market place.
CREFC Europe’s chief executive wants to see a more strategic and holistic approach to support a sustainable and effective real estate finance sector. This would enable investment capital to reach development projects and Europe’s regions beyond the major gateway cities, benefiting the real economy as well as investors.
Peter Cosmetatos added: “The growing market presence of debt funds and alternative lenders has been immensely positive for the sector – and not simply because it has driven down pricing for borrowers. Investors are able to access the attractive characteristics of real estate debt returns, while financial system resilience is enhanced by a more diverse range of products and strategies.
“Now we have to address the informational challenges of the real estate debt market, especially as the recovery of CMBS, the only really transparent part of the market, remains uncertain. This is important to help both investors coming into an increasingly competitive asset class, and regulators keen to protect the financial system from the next property crash.”
For more information, please contact:
Andrew Teacher at Blackstock / +44 7968 124545 / email@example.com
Peter Cosmetatos at CREFC Europe / +44 7931 588451 / firstname.lastname@example.org