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Colin Throssell

The "cautious optimism" of lenders in the debt market

Colin Throssell (Head of Property, Treasury) talks about how debt availability across Europe, much like the underlying investment markets, is markedly two-speed currently and can very clearly be split along the lines of jurisdiction and asset quality.

Debt availability across Europe, much like the underlying investment markets, is markedly two-speed currently and can very clearly be split along the lines of jurisdiction and asset quality.

For vanilla, prime assets in the UK, Germany and a handful of other Northern European countries, debt is available for quality borrowers. In fact, the draw of such assets is such that, between them, wholesale and retail bonds, traditional bank lenders, insurers, debt funds and even CMBS exits are driving down margins to levels not seen for some time.

The story is markedly different for those assets that fall outside this criteria; assets which are considered secondary or that have a “story” (such as developments), assets outside the main cities and, in particular, assets located in Southern Europe remain either debt starved or punitively priced. Much like the investment markets, however, it cannot stay this way forever and soon and opportunity and competition will require lenders to look to lend more broadly than currently.

The “cautious optimism” on display recently from the various lenders we met at the MIPIM international real estate conference reflects this; lenders have balance sheet to lend and will compete hard if a transaction is within their “sweet spot” (by reference to location / jurisdiction, asset class and borrower quality etc.) whilst many are quick to change tact (and emphasize the advantages of a “quick no”) when a transaction is outside this space. A Lenders ability to successfully execute such a narrow focus cannot last forever, however, and a growing number of lenders are, to some degree or another, beginning to discuss the potential for ‘stretching’ their lending criteria in order to find and fund ventures where there are greater opportunities for pricing and relationship gains (assuming the two can co-exist!).

What is interesting is the apparent disconnect between where the lenders and investors will look to for these opportunities. For those investors at MIPIM, it was clear that Spain and Ireland were the hottest “opportunistic” European destinations. It would appear that the willingness to face up and take the pain in both these jurisdictions (in large part via the creation of bad banks; NAMA in Ireland and more recently SAREB in Spain) has created a platform for realistic negotiations and pricing for investors – what has been referred to as ‘transparent professionalism’. For lenders, however, it would seem that the very same process has crystallized losses, and the wounds remain too fresh and in many cases too large to be tempted back at this stage. Instead, lenders tend to place those jurisdictions where they have been able to “extend and pretend” (such as Italy), rather than facing up to sharp correction (such as Spain), further up their “opportunity” agenda. Here, corporate memory is not so burdened by actual losses, irrespective of future risks, when it comes to decisions on where lending and capital ought to be allocated.

One would not expect this disconnect to last long: the relationship between property market performance and available finance is symbiotic, and so it will be interesting to see who admits to being wrong first.

Colin Throssell

Colin Throssell

Global Chief Financial Officer

Colin's biography