In recent weeks, several managers have revealed strategies designed to capitalise on the opportunity to procure loan deals amid less competition.
According to Bobby Fletcher, real estate director at advisory firm Alantra, managers are faced with the prospect of growth amid a volatile macroeconomic environment. “Lenders that are still able to offer a differentiated debt package and can meet the individual, bespoke requirements of the borrower [better than] the rest of the market will just continue to gain market share.”
In January, QuadReal Property Group, the Vancouver-headquartered manager, formed a partnership with London-based Precede Capital Partners, through which it will provide up to £1 billion (€1.1 billion) in residential development financing.
Jay Kwan, head of Europe at QuadReal, said in January the firm had a long-term plan to extend its credit business from North America to Europe. “Current market dislocation only makes it more interesting to do so now.”
Meanwhile, UK manager abrdn decided the current climate is right to expand its UK-focused lending business into continental Europe. It is aiming to raise €1 billion for a senior lending strategy.
“Europe is slightly behind the UK in that it is still very bank-dominated,” explains Martin Barnewell, investment director of commercial real estate debt at abrdn. “A smaller percentage of the market is non-bank lenders, and I think with regulation and the changes in those markets, you will see those non-bank lenders grow in importance.”
Chenavari, the London-headquartered manager, is also expanding in continental Europe. In January, it launched a Paris-based lending business, with a focus on funding sustainable retrofitting strategies. Gilles Castiel and Alix Baret Lardenois, former heads of real estate debt at French asset manager SCOR Investment Partners, were hired to spearhead the platform.
“The Paris Agreement and the EU Taxonomy create constraints for each and every owner of real estate in Europe,” Castiel commented at the time of the launch. “In 2050, the real estate sector must be net zero in France and that will apply to buildings that are not new in the majority of cases. This means a huge amount of capex is required to reposition those assets.”
Entrants to the property lending market continue to emerge. Swiss asset manager Union Bancaire Privée had invested on occasion, but in February told Real Estate Capital Europe it is fundraising for its first dedicated real estate lending vehicle – aiming to raise €300 million to finance residential development across Europe.
Colin Greene, fund manager of the UBP Social Investment Private Debt Fund, says it will target a gross annual return of base rate plus 8-9 percent. He argues banks’ lending decisions are often escalated to their head offices, and such institutions are targeting larger transactions.
“While we have these trends, the banking system is not providing all of the financing that is required,” he says, adding this has an adverse repercussion on borrowers looking for smaller loans of between €10 million and €40 million.
If the results of a recent survey of institutional investors are anything to go by, capital allocations to European real estate credit strategies can be expected to increase in the next two years. In the Investment Intentions Survey 2023 by industry bodies INREV, ANREV and PREA, non-listed real estate debt was the most popular investment area among respondents, with 62 percent planning to increase their allocations to it.
Selected credit strategies announced this year
abrdn: UK manager targeting €1bn for continental European lending
Chenavari: Launched Paris-based lending business targeting ESG retrofit finance
Precede Capital Partners: Canada’s QuadReal provided up to £1bn to the manager for a residential development financing strategy
Union Bancaire Privée: Swiss firm seeking €300m for residential development loans fund