Why it is tough at the top of the real estate lending business

Lower bank lending volumes, the dominance of investment banks in emerging markets and growing pools of capital in the non-bank sector; clear trends emerged while compiling the latest Europe’s Top 40 Lenders.

The ecosystem of Europe’s real estate finance market is evolving, with organisations of many stripes choosing to deploy capital by lending rather than buying – even if the leaders of the enlarged pack can still be identified.

Our annual list of those organisations we see as Europe’s Top 40 Lenders – those most actively providing commercial real estate debt capital where needed – will be published on www.recapitalnews.com next week. As ever, compiling it has been an informative exercise. Here’s some of what I’ve learnt.

1. The leaders are still visible, but many are doing slightly less lending. For a lot of organisations, notably the commercial banks, last year’s volumes were down following a bumper 2016. This possibly reflects increased competition for senior loans. Lenders also say that, at this late stage of the cycle, they are more selective in what they will finance.

2. The large US investment banks are dominating in the emerging and value-add spaces. Wall Street’s giants are making the most of their private equity clients’ hunt for added value in a low-returns market, in the process writing big cheques against deals including Spanish non-performing loans, cross-border logistics and hotel portfolios. The resurgent CMBS market is supporting their lending.

3. There is huge firepower in the private debt space. Several managers have raised hundreds of millions of euros across funds and segregated mandates since we last compiled Europe’s Top 40 Lenders. The challenge they face is deploying the money in a market offering dwindling returns. For some, this has encouraged a shift towards senior and whole loan lending, as the risk-adjusted case for mezzanine weakens.

4. To be a top lender, experience is essential. Those providing the deepest liquidity to the European property markets are those banks, insurers and private debt fund managers which entered, or re-entered the market when the recovery began at the start of this decade. Debt might be in vogue, but it is those that have built loan portfolios, client relationships and a track record this cycle that remain most active.

The full list of Europe’s Top 40 Lenders 2018, will be published across a series of articles next week, beginning with the UK and German banks, continuing with the North American and other European banks and concluding with the non-bank lenders. It will be followed by a downloadable presentation with the key data on the organisations which made the list.

Our Top 40 is designed to provide insight into the market, but also provoke discussion. Not everyone will agree with our choices, and feedback is welcomed. Compiling the annual list is a fascinating, but challenging task – and we would be keen to know who you would have chosen.

Email the author: daniel.c@peimedia.com