What we learned from this year’s Top 40 Lenders

Debt providers are exploring new sectors, alternative lenders’ influence is growing, and banks are keen to push their green credentials.

This week, we published our sixth annual rundown of the lenders we see as having the greatest impact on Europe’s real estate markets. In case you missed it, Europe’s Top 40 Lenders 2019 was published on recapitalnews.com; click here for the first instalment, here for the second and here for the third. The complete list also features in our autumn magazine.

It was a fascinating list to compile. The process of gathering information on the markets’ key lenders, examining their recent activities and whittling a long list down to the final 40, offered an insight into the state of Europe’s real estate lending industry. Here are five observations from our findings:

1. The right deals are hard to find Several bankers from organisations that usually target big-ticket deals noted that fewer transactions were up for grabs. A lot of equity is chasing prime European real estate, but fewer assets are hitting the market and this is creating competitive conditions for investors and lenders alike. Data provider Real Capital Analytics noted an 8 percent year-on-year drop in continental European investment volumes in H1, to €91.8 billion. In the UK, where Brexit-induced inertia is gripping market participants, volumes were down 31 percent to €23.4 billion over the same period. Although some lenders reported lower volumes in 2018 compared with 2017, most still have strong lending appetites. Yet there is a growing awareness of the need for caution, as property investors hunt in unfamiliar territories and sectors for deals at this late stage in the cycle. Gilles Polet, head of European real estate finance at French bank BNP Paribas, told us it was “more important than ever” to be selective, given the differing economic conditions across the continent.

2. Lenders want to evolve with the market Polet also cited the “evolution of the asset class” as a reason to be selective. The transformation of real estate into a service-oriented industry was a major talking point and lenders were keen to point out that they had been financing deals for properties with an operational nature. Many of the lenders that pitched to be in our list highlighted a broadening of their lending strategies into segments of the market, such as student housing or rental apartments, that many would have steered clear of until recently because of the perception that they were ‘alternative’ assets. Accommodation, known by many as the ‘beds’ sector, has proved popular, with big banks as well as alternative lenders pointing to evidence of deals.

3. Non-bank lenders are gaining ground Europe’s Top 40 Lenders 2019 features the highest-ever number of non-banks, with 18 of the slots filled by insurers, debt fund managers or private investors. This reflects their growing influence in the sector. Indeed, some of the most interesting deals of the past 12 months, including development financings, have been done by non-banks. Private investor Cain International and specialist insurer Rothesay Life were new entrants to the list. Neither are prolific lenders, but when they decide to do a debt deal, they can go big and are symptomatic of a lending market in which unlikely organisations can win significant mandates.

4. Commercial banks are cautious, but still in the game Observers questioned how much new business UK clearing banks were doing, in contrast to refinancing deals with existing clients. However, the deal evidence provided by the big four UK banks shows they still play a significant role and have huge loan portfolios. German banks are similarly risk-averse but have some of Europe’s largest loan portfolios. German lenders are clearly concerned about doing business in the UK, and with their margins under sustained pressure in their core continental European markets, they continue to look for business outside the region, in the US and Asia-Pacific.

5. Banks are shouting about sustainability and tech We have previously pointed out that the European real estate finance market has been slow to meaningfully embrace the environmental, social and governance agenda. However, banks were keen to flag examples of ‘green’ loans, and there were innovative financings incorporating the Loan Market Association’s Green Loan Principles. More needs to be done, but lenders clearly recognise the need to make strides. Tech was another area that banks were keen to highlight. Some German lenders have acquired fintech start-ups in a bid to be part of technological innovation in the sector. Along with ESG, many lenders on our list clearly see this as an area they need to address.

Email the author: daniel.c@peimedia.com