More distress for real estate debt could be on the horizon

The macro-economic environment has been tough on the real estate market, and while there is still demand for debt, lenders are continuing to be cautious.

CapitalStackers chief executive Steve Robson said they are busy with new inquiries, which he attributes to “the fact that senior lenders are offering less and we’re a bit of a niche product in the junior debt space”. Despite the inquiries, he said the deal flow is slower and they are becoming more cautious when looking at new deals.

“We always adopted longer build periods and longer sales tales than the borrower would do,” he added.

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Across the board property deals are down, industry insiders say, which is not surprising considering the cost of borrowing has gone up with higher interest rates.

Proplend chief executive Brian Bartaby said he has been seeing more refinancing deals than actual purchases, as these are taking longer with more negotiations due to interest rate rises. He hopes that the rate rises will now start stabilizing and help bring back transactions.

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Real estate transactions have dropped by 61 per cent in Europe year-on-year, according to the Bayes European Commercial Real Estate Lending report published in October, with the €2trn (£1.7trn) debt market running at a sluggish pace for loan refinancings.

It has become increasingly difficult for borrowers to secure financing for mid-size assets, in secondary cities or locations and development projects, according to the lead author Dr Nicole Lux.

“The European debt market is seeing its most difficult year post the Global Financial Crisis in 2008/09, and we expect that more distress is yet to come due to the longer-term debt maturities in the European market,” Lux said.

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