New mezzanine finance funds targeting the Nordics to take advantage of tight bank financing may find their return expectations make them too expensive, panellists told PropertyEU's Investment Briefing on the Nordic markets in London last week.
'There are a number of mezzanine funds being raised or in the process of being raised. Their current return expectations make them expensive, ' said Anders Tagt, managing director at Deutsche Pfandbriefbank.
Tagt's view was supported by fellow panellist, Thomas Persson of Catella Corporate Finance. 'There is a definite need for mezzanine financing but I still think they are too highly priced. If they want a 15-20% return it is going to be hard to squeeze them in. But if they lower their requirements there will be a lot of demand for mezzanine finance.'
The number of banks lending to property in the Nordic region is limited and their focus is on core assets in core locations. The availability of debt financing for new projects is particularly constrained which has held back development in the Nordic region.
Sweden, the largest of the Nordic real estate markets, has four to five local banks who are actively lending for real estate investment deals. German banks Helaba and Deutsche Pfandbriefbank are also focusing on the region. As a result of the tight financing situation, local pension funds and insurers have been able to maintain their dominance in big-ticket office and retail transactions. Swedish institutions can only do all-equity transactions in the case of direct purchases, but this makes it difficult for investors who need debt to compete.
Swedish institutions, Persson noted, have also branched out to other property segments and locations outside the main cities by funding special vehicles that can use debt financing. About 10 such vehicles have been created in recent years and they now own about EUR 10 bn worth of assets.
Deutsche Pfandbriefbank is in the process re-opening its Stockholm office under Tagt's leadership as the bank views the Nordic property markets as stable performers relative to much of the rest of Europe.
The bank closed its office in Sweden in the wake of the credit crisis as the group restructured its operations and split its lending portfolio between strategic assets and bad debts which are owned and managed by a workout vehicle.
Tagt said he hoped to get regulatory approval to re-open the office shortly. Deutsche Pfandbriefbank will focus on financing for investment transactions with both existing and new clients, and may gradually look at financing for two to three project developments a year.
Read more on the Nordic markets in the April edition of PropertyEU Magazine. Click on the link below to subscribe: