The Russian invasion of Ukraine and the prospect of higher interest rates have not yet impacted lenders’ appetite for the European real estate market, according to French bank Natixis.
Banks are still “very much open” for business owing to their “large pockets of liquidity”, Alexis Meunier, head of real estate for France, Benelux and Switzerland at the French lender said on a webinar on 11 May. The covid-19 pandemic and the Ukrainian crisis have had only a limited impact on the cost of capital for borrowers, he added.
Meunier said debt funds and insurers were also undertaking property lending because yields in the private debt market were “good and safe” compared to sovereign debt.
However, Meunier said that one effect of interest rate rises was that the refinancing of low yield, risky assets had become more complex. He said lenders have also begun adopting fixed rate structures to capture the increased swap rate and are preferring short to medium term maturities.
Insurers and debt funds, he added, were also opting for shorter maturities to allow them to reinvest capital and obtain higher yields if interest rates increased further.
Meunier argued economic and political conditions have not forced lenders to reduce loan-to-values. “There is no real impact on the leverage senior lenders can provide,” said Meunier, adding that the maximum LTV on a senior loan is typically at 60-65 percent while there is also “good liquidity” of junior tranches, of up to 75-80 percent LTV and with coupons of between 5-8 percent.
Borrowers can find the cheapest capital for stabilised offices, residential and logistics assets, he said, with the “best lending profiles”.
Borrowers with environmentally sustainable assets would also find more liquidity. “Green issues are more and more in the art of what lenders want to do. It can help [borrowers] to get better financing conditions when they can meet those green criteria,” explained Meunier.
Meunier noted an improvement in the supply of debt to the troubled retail sector. He said retail property investors should be finding it easier to obtain finance for the most resilient regional shopping centres, high street units or retail parks.
However, borrowers seeking lending for development or redevelopment with no pre-let will find it more difficult to source capital. “Lenders are focusing on the best locations and are no longer able to address complex or second ring locations,” said Meunier.
Lenders remain wary of hospitality, Meunier added. “Hotels have not performed so well in the last year… and lenders are not ready to come back,” he said, adding that LTVs were about 40-50 percent for this type of asset.