Europe’s non-listed real estate debt market continues to get stronger as it nears a total of 100 investment funds with a collective target equity of more than €60 billion, an INREV study published this week reveals.
The Amsterdam-based data company’s 2022 Debt Vehicles Universe Study showed for the first half of the year, despite broader financial market headwinds, there has been sharp rise in the number of closed-end vehicles and a strong trend toward senior loan debt strategies.
One result of the market’s expansion is a more diverse choice of funding and healthy competition to traditional lenders, says INREV’s director of research and market information, Iryna Pylypchuk.
“The European real estate market is under huge pressure to de-carbonise, and traditional lenders are broadly on the side lines when it comes to retrofit lending,” she said, adding that the firm is starting to see the first signs of regulatory involvement. “The biggest question is to what extent will the non-traditional lenders fill a funding gap, especially when it comes to an ESG-focused debt proposition.”
The study also singles out the UK as Europe’s most developed non-listed real estate debt market with its non-bank lending in the first half of the year surpassing that of banks and building societies by 38 percent – the first time on record.
The UK’s quickly changing political and economic landscape, however, could mean fundraising may slow down in the months ahead.
“In theory, there is plenty to be enthusiastic about,” said Pylypchuk. “However, the test now is to see whether the segment will continue to sustain investor appetite. Will it become more streamlined, or might it become more fragmented?”
From a much broader perspective, INREV data shows more than 85 percent of total equity raised for debt funds worldwide is concentrated in closed-end vehicles and 64 percent is focused on senior loan debt strategies with senior debt funds accounting for 54 of the 98 vehicles and €38.8 billion of the total target equity.
It also highlights a sharp rise in the number of closed-end vehicles, which has gone up from 37 in 2016 to 80 in 2022.
Another takeaway from the report is that over the past seven years, fund vehicles worldwide have more than doubled in number and size.
In terms of loan origination, relatively few vehicles target a pure loan acquisition strategy.
Combined, mixed loan generation strategies and direct lending dominate with 83 vehicles and €54.3 billion in target equity, representing 84.7 percent and 90 percent of the respective totals. Vehicles with mixed loan generation strategies are the largest with an average target equity of €880 million. The average size of those focused on loan acquisition strategies and direct lending is €690 million and €490 million, respectively.