It is striking that large parts of the European CRE finance market are dominated by short-term, floating rate bank loans, notwithstanding the fundamentally long-term nature of real estate as an underlying asset class. While such bank loans provide flexibility that is valuable to many and obviously has an important role to play in the overall market, we believe that markets like the UK’s would benefit from a stronger presence for longer-term and fixed-rate loans.
A bigger market share for such loans would enhance competition and choice for borrowers, as well as strengthening financial stability and the resilience of credit flows to the CRE sector across the cycle. It would also provide a natural home for insurance capital, especially in an environment where (sadly, for many European insurers) the applicable regulatory regime is very hostile to CRE debt in securitised form.
An initial attempt in 2015/16 at a work stream on this subject attracted plenty of interest in collectively making the case for longer-term and fixed rate loans so as to popularise them to the borrower community. However, lack of bandwidth prevented us from taking the work forward.
We would be very happy to revisit the idea if the appetite is there in the industry. Please contact David Dahan (email@example.com) if that might be of interest.