Alternative lenders enter Europe property market

Insurance companies and other ‘alternative’ institutions have entered into the property lending business in the last quarter

Alternative property lenders such as insurance companies have entered into the market at senior and junior debt levels, according to property services firm, Richard Ellis.

In its third quarter European Capital Markets report, the firm said a number of alternative lenders, most notably insurance companies and institutions, had entered in the last quarter.

“This reflects the changing dynamics of the sector as alternative lenders seek to improve returns through commercial real estate lending,” the report said. It added: “This growing interest brings Europe more in-line with the US, where institutions have long been active and account for nearly 20 per cent of commercial real estate lending.”

Nevertheless, Richard Ellis identified number of barriers to entry, such as lack of document standardisation, limited transparency, and limited early repayment penalties. 

Natale Giostra, head of UK and EMEA debt advisory services, said in a statement: “It is encouraging to see that there are an increasing number of options available for financing real estate transactions. However, we expect a tightening of traditional lending channels next year due to concerns about the volume of loans maturing shortly.”

Aside from new players entering the market, the third quarter saw some mixed signals in the lending market. While key lending terms were stable across most of Europe, lenders’ appetite for larger loans and higher loan-to-values  started to grow in those markets where economic and occupier market fundamentals were stronger such as Germany and France.

Increased competition between banks, particularly over prime deals, has played a pivotal role in the move towards “more aggressive lending” terms and more noticeable attempts to open up the syndication market.

However, there is an increasing divide between these markets and those with higher budget deficits and weaker economic outlooks, such as Spain. Following the downgrade of Spanish sovereign debt, most banks have less capacity to lend, and their cost of money is higher. Subsequently, the key lending terms in Spain have become stricter, with the maximum loan size falling and higher margins being demanded, said Richard Ellis.