The need for debt intermediaries in the European real estate space is a much-debated topic. Some borrowers question why they would hire a third party to source a loan for them when they have known most of the lenders in the market for years.
However, the idea of paying for advice is gaining traction. This week, Lloyds and US REIT Global Net Lease announced a £230 million (€256 million) refinancing of the latter’s UK portfolio – with CBRE credited as the borrower’s advisor. Earlier this month, when Blackstone refinanced St Katharine Docks in London in a circa £300 million deal, HFF worked on behalf of the firm.
This time last year, HFF was a fledgling presence in Europe, despite being a big name in US real estate debt advisory. Although it has a long way to go to catch up with rival Eastdil Secured, it has now raised around £2 billion in Europe for clients. Eastdil, for its part, continues to be linked to some of Europe’s largest debt mandates. Others are also building advisory units, including Knight Frank, which launched a business last October. Then there are the many boutique shops offering advice to a wide range of property investors.
Europe is nowhere near the scale of the brokered market in the US; asked to estimate annual real estate debt volumes arranged by intermediaries, advisors we spoke to this summer guessed around 20 percent in the UK, less in Continental Europe, but trending upwards. The use of advisors may be growing, but swathes of the market still need to be convinced.
Conditions are in advisors’ favour. With more organisations than ever aiming to provide debt in European markets, financing deals is far less predictable than it once was. In a late-cycle market, investors are also more likely to explore unfamiliar sectors and geographies, with a little help necessary.
Those intermediaries that prove to be more than just brokers are the ones that will successfully establish themselves as long-term fixtures of the market. Most market players REC spoke to were averse to the B-word, arguing it implies firms which simply punt around debt mandates to come back to the client with the cheapest terms.
The needs of borrowers are many and varied and, in some cases, a firm acting as a broker in the market to source the cheapest debt without them having to dedicate resources to the job might be just what they need. However, advisors need to offer more.
That could mean working with a client to analyse their debt need and crafting a five-year financing strategy. It might mean working alongside a client to structure a complicated transaction, handling financial modelling and legal due diligence. Other advisors might specialise in underwriting loan portfolio purchases by opportunistic buyers, or legacy loan sales by banks working through their books.
Advisors can also demonstrate their worth by helping clients opt for the most robust loan structure for their situation. In a market with a growing number of new investor and lender entrants, the expertise of advisors – often former bankers themselves – can play a role in ensuring sensible deals are struck.
Across a series of articles to be published on www.recapitalnews.com next week, we will revisit the subject of real estate debt advisory. As borrowers and lenders work increasingly hard to find the right deals in a competitive market, advisors have an opportunity to prove their worth to those in doubt.
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