There appear to be two counteracting forces at work in the real estate debt markets in the early part of 2016.
On the one hand, there is some caution and nervousness. Market players are looking at events out of their control, such as the negative effect of woes in China on stock markets around the world and wondering whether there may be signs of a new crisis looming in 2016.
While the real estate debt market has acted with what is perceived to be pragmatism and a high degree of responsibility since the past crisis – with loan-to-value (LTV) ratios being held steady at reasonably conservative levels – there are concerns about the frothiness of real estate equity investment and the possible implications of this for the market as a whole.
Some observers express the view that the relative slowdown by banks seen in European lending in the final quarter of last year was only a temporary phenomenon.
With activity having been maintained at healthy levels through the majority of the year, many lenders hit their annual targets early – and either reined back completely or dabbled selectively (while holding their ground on the terms of the loans).
However, with new targets for 2016, the theory goes that activity should soon get back to normal if it hasn’t already.
That’s one way of looking at it. However, others express the view that, far from constituting a mere blip, the signs of a genuine and lasting change in market conditions can be detected.
They think that macroeconomic volatility, combined with the concerns about real estate equity, are sufficient to have put a brake on activity that will not be easily released – and that the expectation should be of a flat year ahead.
Then again, it’s plausible to conclude that if lending remains subdued in some areas, it will probably increase in others.
The year of development finance
One market source recently told us that they expect 2016 to be “the year of development finance” in a London context, as investors seek higher returns and banks target higher margins – although the source also stressed that this is predicated on the banks being able to identify high-quality borrowers.
In this, the February 2016 issue of Real Estate Capital (a very Happy New Year, by the way!), we explore opportunities to lend to operating assets. We take a look at the motivations and challenges for lenders in the healthcare, hotels, resorts and student housing sectors.
This issue also includes a profile of Atlanta-based Quadrant Real Estate Advisors and a country special on Ireland, as well as a selection of topical news and analysis pieces and our data round-up at the back of the issue.
Forward notice that our March 2016 issue will include our Review of 2015, including all the results from our annual awards poll. Don’t miss it!