After 2022, large real-estate deals driven by US private equity firms became more difficult in Europe, partly due to a sudden paucity of debt funding from investment banks. Smaller deals were sometimes easier as capital continued to flow relatively freely in some continental European banks.
Now, larger investment bank-led financings could be primed for a comeback in parts of the market – even while more traditional real-estate lenders in countries such as Germany and the US are experiencing problems – thanks to greater confidence in the availability of loan-on-loan funding for jumbo deals.
Loan-on-loan funding, in which banks take the senior tranche of a whole loan arranged by a real-estate debt fund, became more important in Europe in the latter part of the last decade, tying into the wider growth in importance of non-bank lenders on the continent.
Now the debt funds are in many cases becoming even more important in this sector relative to banks. The risk-return dynamics of real-estate lending have become far less suited to local commercial lenders, not least as property values are still falling in parts of the market.
Good opportunity
For big US investment banks, as well as larger and more international French and UK banks, the desire to support the growth of these debt funds syncs with the eagerness of their investment banking divisions to foster relationships with large private equity clients – such as Apollo, Ares, KKR or Starwood – not just in real estate, but across their investment-banking businesses.
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