A strategy for uncertain times: A combination of structural and cyclical developments have given real estate debt an appealing risk-return profile in today’s European market
One of the results of post-GFC increased regulation in the banking sector has been the rise of alternative lending sources in the real estate debt market.
While traditional banks still remain dominant players, their stake in the market has decreased significantly. In the UK — Europe’s most transparent market — banks were the originators of 95 percent of loans in 2007. By mid-2018, their share of new originations had dropped to 85 percent. This gap has been filled with new debt sources, such as specific real estate debt funds, and is set to grow.
Incoming regulation, including Basel IV and rules that require higher capital reserves to be held against real estate loans, will continue to drive banks towards the perceived safety of mainstream vanilla real estate lending. Ultimately, this will benefit alternative lenders, who will step in where banks have retrenched.
This ongoing restructuring of the real estate lending landscape has opened new paths for invest