With real bank credit remaining well below Q4 2009 levels in all developed markets bar France and Japan, according to the BIS, demand for alternative sources of funding is rising – particularly in Europe.
The funding gap between European maturing commercial property debt and the amount banks were prepared to refinance hit €42 billion last year, according to advisory firm Navigant.
Direct lenders focus on mid-market, secured debt financing transactions that are too small for traditional debt capital markets but require more leverage than banks are willing to provide, usually in the €25 million to €200 million range.
Most direct lenders use a debt fund structure to provide commercial property financing on behalf of institutional investors looking to match long term liabilities, providing attractive returns and higher leverage for borrowers – at a price.
“There’s an increasing amount of alternative money that is targeting real estate, so it’s definitely a growing area,” says Floris Hovingh, director and head of lender coverage at Deloitte. “We’ve seen a number of alternative debt funds being set up, some smaller ones and some larger ones like Partners, Pramerica, and Pricoa.”