While most analysts differ in their assessment of quite how high the funding gap for new loans and refinancings is across Europe in this and coming years, the existence of such a gap is not in doubt – the question everybody is asking of themselves and others is – who or what is going to fill it.
The independent Switzerland and Singapore-based research consultancy Swisslake puts the figure at more than €200bn by the end of 2013, and in its most recent capital raising report says that nearly 27% of the overall equity flowing into European property funds last year was aimed at debt funds. The report suggests that half of the debt gap is due to the strictrer requirements on banks’ equity holding, which is now beginning to seriously affect well-covered markets such as Germany, the Netherlands, France and Scandinavia. “The potential for loan provision seems infinitely high”, says the report, with about €1 trillion in pending refinancings over the next four years, which banks will be unable or unwilling to complete.
Swisslake specialises in direct and indirect property investment worldwide, and can draw on a database of nearly 3,500 funds and more than 1,300 fund managers. According to its research, last year saw 15 new debt funds with a target equity volume of €7.1bn being issued, raising their share of the overall volume of European property funds to 27.4%, up from 15.9% in 2011.
These include nine core, five value-add and one opportunistic fund. They are mainly focused on the UK and Germany as target markets, particularly as both offer large bank portfolios which are being wound down.
The average target equity volume of the funds is €473m, significantly above the long-term average of €320m. A total of 36 funds with a target volume of €20bn are currently in the placement phase. Swisslake expects these debt funds will become a permanent fixture of the European private equity property fund industry, although it does express doubt about the ambitious goals of several initiators.
The highest yield potential, naturally enough, is in mezzanine financing, with target yields of 7% to 15% per annum depending on LTV and duration, (with potentially more juice from processing or liquidation charges). The report sees potential in the sector of up to 40% more than in pre-crisis days.