While real estate debt intermediaries have been a feature of the US market for decades, the need for them simply did not exist this side of the Atlantic, until this cycle.
Historically, a predictable roster of real estate investors – domestic and occasionally pan-European – would tap a relatively static list of banks to source their debt. Since the financial crisis, however, the profile of Europe’s property investors has evolved, as have their sources of capital. Navigating the debt markets can be challenging.
That is why a gradually growing community of debt advisory firms has emerged. Most dislike being characterised as brokerages, punting lending mandates to the lowest bidder. Instead, they emphasise the bespoke advisory services they offer; examining a client’s debt needs, crafting the correct capital structure for the situation, and seeing it through to documentation and eventual draw-down. “Whatever you do, don’t call us brokers,” implored one advisor.
This speaks to the fact that debt advisory remains something of a niche practice, with the European markets significantly less brokered than the US – in which intermediaries play a key role across vast volumes of financing business.
Eastdil Secured has played the leading role in exporting the US brand of real estate debt advisory to the UK and continental European markets. With its enviable US contact book, the firm has positioned itself at the centre of some of Europe’s largest property finance deals in recent years.
The expansion into Europe of fellow US brokerage firm HFF, with its recent opening of a London office, demonstrates the conviction among some US firms that European real estate is heading in the same direction as their home market.
HFF is yet to prove that it can replicate its US model this side of the Atlantic, but the competitive tension it will create with Eastdil could act as a catalyst for Europe to gradually become more like the intermediated US market.
The real estate advisory space is examined beginning with an analysis of HFF’s arrival.an analysis of HFF’s arrival.
Mind the cliff-edge
Hindsight is a wonderful thing, but a UK steering group has concluded that it can be employed to monitor when the market is heading for a correction, giving lenders plenty of time to dial back their activity accordingly.
The catastrophic crash of 2008, fuelled in part by the creation of a lending cliff in property finance, prompted the UK’s Property Industry Alliance to assemble senior industry figures to examine boom and bust in real estate lending. The core finding is that by adopting a measure of ‘adjusted market value’, which monitors current indexed property values against an inflation-adjusted long-term trend line, peaks become predictable.
Plenty more testing of the method lies ahead, but the initial findings suggest that lenders need to take notice if they are to avoid the late-cycle lending mistakes of the past. An in-depth analysis of the method, and how it could be adopted, can be found from page 10.
Enjoy the issue.