NEW YORK CITY—Lending activity shows significant improvement in peripheral European markets as pricing begins to stabilize, with the number of active European RE lenders up 47% since Q1 2012. Alternative non-bank financial institutions continue to take up a more significant share of an increasingly diversified mix of active lenders in Europe, while the drive into non-core markets including Spain, Portugal and Italy gathered pace during the first half of 2014.
This summation comes from Cushman & Wakefield’s European Real Estate Lending Update, published Tuesday.
C&W’s corporate finance team analyzed the activity of 182 European lenders of which, alternative lenders, including insurance companies, property companies, private equity and debt funds now account for 40% of the total (16% in Q1 2012).
The report tracked a total of about $44 billion (€32.7B) of real estate lending during H1 2014, including about $36.7 billion (€27.3B) of origination (new investment lending, new development lending and refinancing). Given the increasing risk appetite among lenders, it is expected that the second half of the year will be just as active.
The core markets of Western Europe – UK, France and Germany – remain the top targets for real estate lending with 60% of all tracked loans during H1 2014 secured by assets in these markets. Interest in non core markets has increased however driven by new opportunities and demand from lenders to move up the risk curve in search of superior returns.
Whole loan financing is becoming increasingly popular with many senior debt providers, while average LTVs across Western Europe and CEE markets are now more evenly aligned.
While margins in the majority of markets have continued to compress, the pressure has eased during the second quarter.
According to C&W’s report, the all-in-cost of financing in the UK for a 50% leveraged transaction, secured on a prime UK asset has fallen from 6.53% in H1 2008, to approximately 3.39% in Q2 2014.
European property debt funds continue to play a vital role, with Cushman & Wakefield currently tracking 39 funds looking to raise nearly $30 million (€22.1B) to target real estate debt.
After a promising 2013, the European CMBS market has slowed in H1 2014. Despite this, investor demand remains strong and market commentators see further issuance in the near term.
The availability of loan-on-loan financing has grown rapidly during H1 2014, with CWCF recording over $7.4 billion (€5.5B) of debt being secured across nine transactions in the first half of 2014.
“Despite the supply of debt steadily increasing in most European markets, margins seem to have stabilised over the past quarter. This has helped accelerate the movement up the risk curve for many lenders,” said Frank Nickel, chairman & CEO of Germany, EMEA Corporate Finance.
“Lenders are aggressively competing for the right assets with strong fundamentals. This profile has now extended to locations and sectors that would not have been attractive 6-12 months ago. This trend has been captured in the transactions we have been involved in so far this year,” added Mike Morrison, partner, EMEA Corporate Finance.