New real estate lending has not gone cold for everyone

Although many lenders have scaled back their activities considerably, some see property credit as an enticing opportunity in a dislocated market.

The UK property lending market report published on 15 October by the Business School, formerly known as Cass Business School, suggests now is not a great time to be in the business of providing real estate loans.

It shows origination volumes in the UK during H1 were down 34 percent compared with the first half of 2019. Many lenders have been focused on fighting fires in their loan portfolios, rather than chasing new business. Of the 76 lenders surveyed, 17 did no new lending at all in the six-month period. Those that did tended to do so in refinancing deals or extensions to facilities, which suggests a bias towards existing customers.

This was not purely the reaction of traditional bank lenders. According to the report, UK and German banks’ origination volumes were, respectively, 35 percent and 49 percent down on those for H1 2019. However, insurance company lenders originated 33 percent less debt and ‘other non-bank lenders’, mainly debt funds, provided 45 percent less during the period.

It seems almost incongruous, therefore, to be told by one market observer last week that debt strategies are “hot” right now.

Yet recent evidence suggests that although many lenders are playing a cautious game, some see now as the time to put capital to work in a less competitive debt market.

On 21 October, Invesco Real Estate made a splash when it sealed a deal to take on the European property lending business of Swiss asset manager GAM. The US-based manager was already a big player in Europe’s property equity market and has a longstanding US credit platform. Now, it has taken on $300 million of European debt assets, mainly mid-market mezzanine and whole loans.

In a statement, Invesco Real Estate’s European managing director, Andy Rofe, said the dynamics shaping the European debt market were “very attractive”, and that this had prompted the decision to fast-track its credit offering in the region.

Meanwhile, Real Estate Capital reported on 20 October that Cheyne Capital had raised £500 million of fresh capital for its two latest debt vehicles. Although the London-based alternatives manager did not comment directly on the fundraising, it had issued a statement on 14 October about four lending deals, totalling £232 million (€251 million), that are understood to have been closed for the two new funds. In the statement, the firm’s managing partner Ravi Stickney described its sources of deals as “nimble sponsors” working quickly to adapt their investment strategies in response to covid-19. He added that the pandemic had significantly impaired the availability of sophisticated and innovative capital to fund these much-needed investments.

The evidence suggests appetite for real estate lending is highly dependent on individual lenders’ circumstances. It is hardly a surprise that banks, with huge existing exposures to the sector and the regulatory spotlight upon them, are less active. The Business School’s data show many non-bank lenders were in no rush to deploy the capital they had raised, during the first half of the year at least.

At the same time, some organisations will feel the prospect of doing business at a time of reduced availability of debt is clearly too good an opportunity to miss. Although many property investors have taken a step back from the market, those with a greater tolerance for risk are busy targeting deals in the sectors they believe will best weather this crisis. They need debt providers to back them.

Recent fundraisings by Blackstone, globally, and LaSalle Investment Management, for Europe, demonstrate that institutional investors view real estate debt as a good place to commit capital during this crisis. Amid a generally more cautious financing environment, those lenders with the mandate to take a little more risk can be expected to see the current market as a hot prospect.


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