Finloop, the digital real estate financing platform provider, expects to see a further decline in the availability of real estate debt in European markets during the second half of 2022, as lenders become more risk averse.
The company said lending costs for value-add properties and developments are particularly likely to increase further due to fewer lenders being willing to provide finance.
Finloop – which was launched in January 2020 by Thomas Schneider, former chief investment officer of online property marketplace BrickVest, and Nicole Lux, senior real estate research fellow at Bayes Business School – made the predictions in its Q2 2022 European Debt Barometer research.
It reported a decline in lender appetite for real estate debt across seven European markets in the second quarter of 2022, with a clear reduction in the number of lenders willing to finance hotels and student housing in the UK and Germany. Offices and residential were attracting the most lender attention, it added.
“Lenders have become very cautious about providing new loans, and their response time has also increased significantly when considering new financings,” the company said. “Many acquisitions are still trading at high income multiples or low yields, pushing debt affordability to minimum levels.”
The research is based on relative debt market performance for seven European markets and assesses the credit environment and debt availability for real estate investors in each market based on economic, financial and property market indicators.
Finloop reported a further sharp decline in debt affordability during the quarter. “Without significant movements of property yields, and the continued increase in lending rates, debt affordability has been the main factor of declining debt market conditions for borrowers across European markets,” it said.
It added that overall economic and lending conditions in France and Germany declined rapidly between Q1 2022 and Q2 2022.
Margins are generally up across the market, Finloop said, with lenders increasing their real estate debt margins by 50 basis points to 100bps. Leverage cuts off at 50 percent for most prime properties, as lenders seek to maintain prudent interest coverage ratios, especially in logistics, which is still trading at high income multipliers.
“Lenders are carefully looking at LTV levels requested by borrowers and may choose to step away altogether, when they see high LTVs,” Finloop said.
It went on to say borrowers still acquiring properties at high income multipliers will need to adjust their financing strategies until property yields readjust to levels matching the new risk environment.