Advisory services are becoming a more accepted aspect of commercial property markets on this side of the Atlantic, although they lag their heavily intermediated American counterpart.
While real estate debt intermediaries have been a feature of the US market for decades, the need for them simply did not exist this side of the Atlantic, until this cycle.
Historically, a predictable roster of real estate investors – domestic and occasionally pan-European – would tap a relatively static list of banks to source their real estate debt. Since the financial crisis, however, the profile of Europe’s property investors has evolved, as have their sources of capital.
In June, Savills suggested at its annual Financing Property event that as many as 250 organisations – ranging from banks to insurers to debt funds to even certain property companies – are in the market to lend these days. All these participants are making it challenging to navigate the markets to find the most suitable capital structure.
That is why a growing community of debt advisory firms is emerging across Europe’s markets. In an upcoming Special Report, Real Estate Capital will examine the state of the advisory space. It will also offer a perspective on which organisations are active, including an A-Z of the most visible players.
Some early observations: Europe is far from being a broker-free zone and there are several advisory shops of varying shapes and sizes. Most, however, veer towards the smaller end of the spectrum. Many are boutique firms, typically launched by former property bankers, while other businesses form units of major property consultancies or investment banking firms.
A unifying factor is that most dislike being characterised as brokerage firms, punting lending mandates to the lowest bidder. Instead, they emphasise the bespoke advisory services they offer; examining a client’s debt needs, crafting the correct capital structure for the situation, and seeing it through to documentation and eventual draw-down. “Whatever you do, don’t call us brokers,” implored one advisor.
This speaks to the fact that debt advisory remains something of a niche practice, with the European markets significantly less brokered than the US – in which these advisors play a key role across vast volumes of financing business.
This is, in part, due to the differences between the real estate finance markets in the two regions. In the US, local, regional and national banks provide property debt, as do CMBS conduit lenders, mortgage REITs, life companies, credit unions and private funds. Many of these lenders have long-standing broker relationships which allow them to penetrate the vast markets they serve across the commercial and multi-family sectors.
New York-headquartered Eastdil Secured has played the leading role in exporting the US brand of real estate debt advisory to the UK and continental European markets. The Wells Fargo-owned ‘real estate investment banking company’, as it styles itself, has brought its enviable US contact book to Europe and has positioned itself at the centre of some of the continent’s largest property finance deals in recent years through its combination of investment brokerage and capital-raising functions.
Accordingly, and despite the increasing activities of Europe’s debt advisors, most in the market point to Eastdil as by far the leading player when it comes to large-scale brokerage.
The expansion into Europe of fellow US brokerage firm HFF, with its recent opening of a London office, demonstrates the conviction among some US firms that European real estate is heading in the same direction as their home market – and that Eastdil should not have the big-ticket market to itself.
At this stage, HFF’s UK activities are only just beginning in earnest, although in the upcoming Real Estate Capital report its three London co-heads explain that they see an opportunity to mix investment advisory with debt-raising and corporate finance/investment banking activities as Europe’s market continues to evolve.
For the time being, Europe’s deal arrangers remain a relatively small, but valued part of the real estate finance market. HFF is yet to prove that it can replicate its US model this side of the Atlantic, but the competitive tension it will create with Eastdil could act as a catalyst for Europe to gradually become more like the intermediated US market.