PERE Forum Frankfurt: debt capital insufficient to satisfy refinancing need

Panelists at the PERE Forum Frankfurt painted a fairly downbeat assessment of the real estate lending environment this week.

At the end of the first day on Tuesday, experts said that though real estate markets had begun to pick up again and that debt capital was available for the certain assets and borrowers, it was unlikely there would be enough capital available to plug the entire refinancing gap for loans taken out in 2006 and 2007.

Rob Clayton, director at Duet Private Equity, Ralf Kind, director of real estate banking at Barclays Capital, Bernhard Scholz, member of the management board at Deutsche Pfandbriefbank, and Sebastiano Ferrante, co country head, Germany, for Tishman Speyer said select borrowers would be able to work with the German pfandbrief covered bond market as well as investments banks to meet their capital requirements.

In addition, alternative sources of debt and mezzanine capital would lessen the impact of borrowers refinancing needs.

But, they warned that these measures would still be unlikely to fill the entire gap.

Panel moderator, Peter Jun of Arminius Funds Management, who was formerly at Lone Star in Europe, said the current lending environment required all parties to work together in a creative way employing patient and transparent dialogue.

Summing up the panel discussion afterwards, he said there would have been more alternative lenders entering the market, but that one source – namely insurance companies – would be adversely impacted by Europe's Solvency II regulation currently up for consultation.

Jun said: “It looks like it is going to be too expensive internally for insurance companies to provide certain debt. It is a gray area at the moment and needs to be watched.”

Going into 2011, Jun said there was a great deal of equity on the sidelines which should result in more transactions. On the other hand, he said, the financing markets will only gradually open up.

Though the German pfandbrief market was opening up, it was not as robust as it once was, he said.

Further, while the CMBS market in the US was somewhat burgeoning, in Europe it was “non existent”.

“There is capital available, but it is probably insufficient to cover the entire tidal wave of refinancing needs of vintage 2006 and 2007 loans,” he said.