News
A Guide to Doing Business in Hong Kong – 2025
01 April 2025
- Introduction[ This item has been marked as Never Publish]
- Introduction
- Let’s Talk Brexit
- What does a Biden administration mean to U.S. real estate?
- Is real estate investment under threat?
- Everyone's talking about ESG, but what does it mean?
- PropTech by numbers
- Location, location, location
- Investing in U.K. real estate: ownership transparency
- Sovereign Wealth Funds invest into U.K. real estate through U.K. REITs
- Real estate innovation: the future of real estate
- Real estate trends in the U.S.
- The role of ESG in corporate governance
- Anti-money laundering in the U.S.
- The U.K. retail crisis
- Japanese knotweed: is Europe leading the way?
- New developments in German real estate
- Corporate criminal liability - Have you assessed the risk?
- Sustainability in Europe
- Serviced apartments: A new trend in the German hospitality market
- Are residential rent controls on the horizon for the UK?
- Drones for real estate: What you need to know
- Data breach and cyber security incident exposure in the European real estate industry
- Modern slavery in the contemporary world of business
- Motoring ahead with the electric vehicle revolution
- Agrarian land and its relevance in the development of real estate projects in Mexico
- The impact of Brexit on real estate
- Smart contracts
- The year of the dedicated property stock exchange?
- The power of the brand
- The changing landscape of real estate taxation in the UK, Germany, France, and the U.S.
- In the spotlight: student accommodation
- The new Opportunity Zone program
- Cyber security in real estate
- Tokenization of real estate
- Energy efficiency in Italy - state of the art
- Real estate debt funds: where are they now?
Real estate debt funds: where are they now?
By Jo Solomon
For several years now, the market has seen the emergence and continued growth of real estate debt funds in Europe. While always a large presence in the U.S. market, real estate debt funds traditionally had a much lower profile in European real estate lending. The global financial crisis changed this with the downturn in the commercial real estate markets creating a credit drought as banks dramatically reduced their lending. Chief among the new lenders seeking to fill the gap were non listed debt funds.
Since then, the market has seen a proliferation in the number and size of real estate debt funds. However, since reaching a peak in 2017, investment fell more than 40% during the course of 2018. Is this a reflection of waning interest in the asset class or something else?
While it is clear that traditional lenders are firmly back in a dominant position, they do not have pre- crisis levels of liquidity, allowing the real estate debt funds to cement their position in the market.
Additionally, the borrower community has found that assets which do not neatly fall within set lending parameters are more challenging to finance with traditional lenders. Step forward debt funds, some of which will lend against assets and asset classes that are outside the core business of other lenders within the market.
Debt funds can also lend higher up the capital stack than many traditional lenders as banks are subject to capital adequacy requirements which make higher leverage more expensive to provide. Again, debt funds are not constrained in the same way with many pursuing whole loan strategies to highly remunerative effect.
Despite debt funds having more flexibility in terms of risk and leverage, there appears to be limited appetite at present to venture too far up the risk curve. The ability to deploy capital continues to be an issue across the market (both debt and equity) and given current uncertainty, fund managers must be all too aware of making promises to investors they will not be able to keep or worse, losing investments if property prices fall.
One thing is certain however, real estate debt funds are here to stay and have not proved to be a temporary stop gap while the banks sorted out their balance sheets.
