Real estate investors are increasingly eyeing alternative lenders amid the uncertainty and chaos brought about by the novel coronavirus, according to a team from JLL.
The COVID-19 crisis affected numerous professional industries, and it spurred rising defaults and losses in commercial real estate.
Alternative lenders, including debt funds, insurance companies and pension funds, "are making European inroads—and COVID-19 looks like it is accelerating that diversity," Tom Brook, debt and structured finance director at JLL, said in a recent post.
"Rewind a decade to the global financial crisis and Europe's lending landscape was much more traditional," Brook said. "Today's more balanced pool of lenders helps support liquidity and a better-functioning credit market."
Brook estimated that nearly one-third of today's real estate lending in Europe is done through non-bank alternative lenders. Banks, however, remain the leading source of debt in European real estate, according to JLL.
As Globe Street reported in late March, many lenders and capital sources were leaving the CRE market. Sam Greenblatt, CEO of alternative lender Electra Capital, said at the time: "We have a lot of inquiries from existing clients and existing intermediaries. Then, we have some calls coming from people that lost their commitments from lenders and are not able to move ahead with their transaction because of the circumstances."
Debt funds and insurance companies have been "relatively unscathed," as "financial powers grapple with significant price rediscovery," the JLL post said.
"Balance sheet lenders can innovate and are able to adjust their returns depending on their risk appetite," Edward Daubeney, EMEA senior director of debt and structured finance at JLL, said in the post. Most lenders, Daubeney said, have boosted margins to capture the volatility of real estate investing in the virus era.
Nick Loup, Chelsfield Group vice chairman and CEO of Chelsfield Asia, said in recent prepared remarks that "the global recession provides a once-in-a-generation opportunity for investing."
The U.S.-based pension fund Chelsfield Asia Fund 1 said it is planning to target properties with value-add potential in Hong Kong, Shanghai, Singapore and Tokyo.
A JLL report last year noted that alternative lenders saw new business opportunities in 2018 when "lenders were extremely cautious to lend on ground-up construction in 2017 due to fulfilled allocations for that product, market and borrower exposure, and conservative underwriting."
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Mike Scarcella
Mike Scarcella is a senior editor in Washington on ALM Media's regulatory desk. Contact him at [email protected]. On Twitter: @MikeScarcella. Mike works on a slate of newsletters: Supreme Court Brief | Higher Law | Compliance Hot Spots | Labor of Law.
