Debt advisors have become part of the furniture

Before this cycle, there was little need for borrowers in European real estate markets to turn to intermediaries for advice. Now, debt advisors’ expertise is valued by many in the sector.

The autumn edition of Real Estate Capital, to be published in print in September and on, will feature a first for us – a comprehensive directory of the real estate debt advisors active in Europe today.

The directory, which features 42 organisations that report raising €111.6 billion of finance for clients between them in 2019, will serve as an essential tool for borrowers and lenders seeking external expertise in the financing market.

In addition to the directory, our editorial team investigated how debt advisors currently see the European market – and how borrowers and lenders view advisors’ role in it. Europe is nowhere near as heavily brokered as the US. But our conversations reveal the growth and increasing diversity of financing options in Europe in recent years have led to advisors becoming an intrinsic part of the European market.

Here is a sneak preview of key points from our coverage:

Advisors argue their services are more relevant than ever amid covid-19

Lenders and borrowers alike agreed there is merit to professional debt advice in a dislocated financing market. As one UK investor told us: “In a turbulent market, access to knowledge is at a premium. And that is something that advisors can bring to clients.”

As lenders’ financing parameters change in response to the crisis, meaning some are unable to support existing clients, debt advisors have the opportunity to convince borrowers they can find capital solutions.

The lender-advisor relationship is becoming more essential

In the US market, lenders are dependent, to a degree, on brokers delivering financing mandates to them. In Europe, lenders – particularly debt fund managers – say they are increasingly gaining access to dealflow through advisors. One UK mid-market lender said as much as 70 percent of his firm’s business comes through advisors representing borrower mandates.

“You are unlikely to do 10 deals with the same borrower. But you can do multiple deals with a good advisor,” said the lender. “They save a lot of time on the lender side and they know your product.”

There is much discussion about the value advisors deliver

During our conversations with borrowers and lenders, there was some debate about whether advisors can drive better loan terms – lower pricing, for instance – from lenders than if sponsors source their own loans. While some said they can achieve slightly cheaper margins, most agreed that chipping loan pricing down is not the main reason to hire an advisor.

Rather, market sources generally agree the real benefit provided by intermediaries is access to financing options, knowledge of current lender appetite, and cost savings achieved through certainty of execution and the running of a smooth process.

Advisors are prepared for when things get messy

Advisors have, so far, seen little distress in the market, unlike after the 2007-08 financial crisis, when some spent significant time restructuring and recapitalising sponsors’ debt piles.

But advisors predict that lender leniency to troubled borrowers will not go on indefinitely and that they may take a less forgiving stance in the next two quarters, creating the need for restructuring advice. A time may come when debt advisory specialists need to roll their sleeves up and deal with problems in clients’ portfolios, rather than focus solely on raising new finance.

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