LONDON-The banking crisis has opened up interesting opportunities for investors to buy distressed debt, says Paul Severs, finance partner at London law firm Berwin Leighton Paisner.

He told a panel at the European Real Estate Opportunity Private Fund Investing Forum in London last week however that investors need to be cautious and consider wider issues, including possible government intervention in the marketplace. Because of the still-limited condition of bank financing, the unwillingness of Pfandbrief-financed German banks to lend over 60% loan-to-value, and conservative lending ratios of non-German institutions, mezzanine financing – pseudo-equity that funds higher parts of the debt structure – is coming to the fore.

"It is still a minefield out there. Investments and investment structures are being constantly tested by unprecedented market conditions," Severs said. "We are advising our clients who are buying real estate related debt to consider wider issues such as the likelihood of government intervention in addition to the more obvious factors such as the position in the capital structure, total leverage, real estate yields and lease run-off dates."

Severs, who chaired a panel entitled Taking Advantage of the Distress: European Debt Fund, added: "The contraction of advance rates by banks has opened up the mezzanine finance area and a number of funds have been launched to cover this space." Earlier this year the top-rated AAA segment of many securitised capital structures represented good value, he added.

Demand is now growing fast for asset servicers, special servicers and related advisory services to handle complex funding challenges. He has produced a booklet offering practical advice on buying and selling different types of real estate debt. It covers the process for buying large portfolios and outlines documentation for the acquisition of loans or securities.

With over 720 lawyers, including 190 partners, in more than 65 countries around the world, Berwin Leighton Paisner has offices in London, Abu Dhabi, Brussels, Moscow, Paris and Singapore. Clients include FTSE 100 companies and financial institutions, major multinationals, the public sector, entrepreneurial private businesses and individuals.