Editor’s letter: Get used to uncertainty

Daniel Cunningham
Daniel Cunningham

If 2016 was the year the table was turned over, 2017 is the year when the pieces need to be picked up.

Cast your mind back 12 months. The world was an unsettling place, but most European real estate debt specialists were confident that the market would weather the global economic and political headwinds. Few genuinely predicted that the UK would vote for Brexit, fewer still that the US would vote for Trump.

The UK’s EU referendum vote in particular had a destabilising effect on real estate lending, at least for a time. Many paused and quietly stepped back from the market while they pondered exactly what Europe’s changing political landscape meant for their businesses. We enter 2017 with many questions still unanswered. It’s time to accept that, throughout this year, uncertainty needs to be taken as a given.

Although we now know what sort of a Brexit the UK is pitching for, the twists and turns of the negotiations will be at the front of property investors’ and lenders’ minds. In continental Europe, elections in the Netherlands, France and Germany during the year could futher test the strength of the EU. The ripple effect of US economic policy under Trump also has the potential to upset markets in Europe.

Many property lenders will not sit back and wait for clarity. Investment capital continues to flow into Europe and demand for debt finance remains high. For some lenders, that means sticking resolutely to financing core assets at conservative LTVs. For others, it means embracing additional risk. Less liquidity in certain jurisdictions and sectors means there are considerable opportunities out there for those willing to venture up the risk curve.

Italy is a good example. With the government approving a €20 billion bank bailout, now might seem an unlikely time to enter the market, although some property people we spoke to in our analysis of the situation expect the accelerated work-out of banks’ non-core portfolios to generate substantial loan portfolio sales.

Europe’s so-called ‘alternative lenders’ are adapting their strategies in order to make the most of changing market conditions. In this month’s special report we examine how non-bank lenders are targeting high-yield business. We also catch up with those debt fund managers that are convincing investors to buy into their follow-on funds.

One non-bank lender that likes to take on a little more risk than the average investor is Canada’s CPP Investment Board, the subject of this month’s profile. Fresh from writing a £240 million mezzanine loan for Quintain’s Wembley Park scheme in London, the team explains the circumstances in which debt rather than equity investment makes sense to them.

On a personal note, this month’s edition is my first as editor of Real Estate Capital, after a year as deputy editor. Andy Thomson remains senior editor, overseeing PEI Media’s debt titles. I am delighted to be assuming the role and I look forward to covering the market in what promises to be a fascinating year.