Property finance specialists expect stable or moderately increasing debt supply – exclusive

The availability of real estate debt finance in Europe over the next 12 months will either match or exceed current supply, said 80 percent of respondents to a property debt sector survey conducted by online real estate investment platform BrickVest, the results of which it shared exclusively with Real Estate Capital.

However, only 12 percent of respondents said they expect significantly more supply, with 28 percent indicating they expect availability to increase only moderately. A further 40 percent of respondents said they expect supply to stay about the same.

This indicates a growing caution among Europe’s real estate lenders, BrickVest co-founder Thomas Schneider told Real Estate Capital. “A lot of German banks are more focused on syndication than origination at the moment,” he said. “It’s no secret our market is hot and there is uncertainty surrounding Brexit, so some lenders are more conservative than in recent years.”

BrickVest also asked respondents what they expect to happen to lender and borrower appetite for real estate debt strategies in the next two years. A total of 67 percent said they expect it to increase.

BrickVest, which is launching an online debt platform for origination and syndication, received 100 responses to its survey, comprising 32 borrowers, 20 loan originators, 33 debt providers that participate in loans indirectly and 15 other debt market participants including advisors and service providers.

Lender and borrower respondents were asked to select three key challenges in the current debt market from a list of factors. Difficulties sourcing lending deals accounted for 32 percent of overall lender responses. The equivalent factor for borrowers – difficulties in obtaining funding – accounted for 53 percent of overall borrower responses.

“Lenders are struggling with shrinking returns, and to source the right deals, many are being forced to explore new markets or sectors,” Schneider said.

According to respondents, real estate debt is most likely to be allocated to value-add, core-plus and development financing opportunities in the next two years, which Schneider suggested reflects the participants in the survey, many of which were non-bank lenders and developers.

“To achieve the returns their clients expect, borrowers need to increase leverage, so that creates pressure for borrowers and lenders in matching their appetites for debt,” Schneider said.

Views on financial covenants were mixed: 39 percent believe covenants including loan-to-values and interest cover ratios have become more restrictive in the last year, although 29 percent believe the opposite – that covenants have been relaxed.