“Off-the-radar” secondary assets in established UK markets offered the best opportunity for good returns from real estate debt, according to a report by TH Real Estate.
Though other European jurisdictions may appear to offer higher returns, these are also accompanied by increased risks and liquidity constraints, according to the UK Commercial Real Estate Debt report.
“Lending criteria has been rationalised and tightened from the parameters seen before the financial crisis. For enhanced returns, lending against strong secondary and well-positioned regional assets now presents a compelling investment opportunity,” said Christian Janssen, head of debt at TH Real Estate.
“It is those assets currently ‘off-the-radar’, namely good secondary assets in established markets, which present the most appealing opportunity for cherry-picking transaction with robust return characteristics.”
Despite significant margin compression in the UK, there were indications it was starting to bottom out. Senior UK loans are being priced at LIBOR +125 to 225bps. In Germany, where the real estate debt market is very competitive, in some cases margins for loans on comparable assets are tighter than 100pbs.
The report highlights the depth and creditor-friendly legal framework of the UK’s property finance market; in 2014 had the most effective and creditor-friendly legal framework in Europe. Enforcing security in a case of loan default typically takes days as opposed to months or even years in other European countries.