The debt market in Europe continued to tighten in the first quarter of 2011, according to a new research report issued by CB Richard Ellis. Margins have moved up in periphery and core markets, including France and Germany; mostly in anticipation of the European Central Bank's decision to raise interest rates.
The debt market in Europe continued to tighten in the first quarter of 2011, according to a new research report issued by CB Richard Ellis. Margins have moved up in periphery and core markets, including France and Germany; mostly in anticipation of the European Central Bank's decision to raise interest rates.
Lack of confidence, on-going restructuring and withdrawals from international activity, and the upcoming Basel III regulations suggest that restricted lending activity and pressure on margins will continue into 2011. Spain, where significant shifts in key terms had already taken place last year and further increases in margins were registered in Q1 2011, continues to see limited access to finance in general. An on-going reconsolidation within the banking sector is further prolonging the ‘wait and see’ attitude.
At the same time, many new players are emerging in the market today, ranging from institutions looking to issue senior loans to mezzanine debt providers. While carrying out very different lending strategies, they all have a desire to lend against core real estate. Although it will take time before they establish a significant presence, there are recent notable examples. These include, Partners Group, the global private markets investment manager, jointly with financing partner Duet Private Equity, providing mezzanine finance for the acquisition of the Magasin du Nord flagship department store in Copenhagen, as well as GIC providing a £60 mln junior loan for Blackstone's £480 mln purchase of Chiswick Park in London.
The prolonged lack of debt, the build-up of ‘legacy loans’ and the upcoming Basel III regulations have altered the landscape of the European real estate market. In stark contrast to the boom years, the role of debt has diminished and it now accounts for only about 50% of European investment activity. This is no longer perceived to be a temporary change, but a structural shift. While there are pockets of robust lending activity at the very core end of the market and a growing emergence of new types of lender, investors' heavy reliance on debt is in the past, in Europe at least.