A new type of lender is stepping forward in the commercial property market. As the market begins to expand from traditional areas of strength, such as London and Frankfurt, to other markets, non-traditional lenders are offering funding to investors.
An example of this new type of player is a venture of Prudential Real Estate Investors and Dutch pension-fund manager Algemene Pensioen Groep.
It has raised €265 million to fund junior loans and preferred-equity investments. Its primary focus will be in the Netherlands.
Like other players in this new category, the Pramercia Real Estate Capital V fund will be looking to fill a gap left by the banks, which have been trying to reduce their exposure to commercial property.
Robert-Jan Foortse, the head of European property investments at Algemene Pensioen Groep Asset Management, said recently that the Netherlands is in the same position that London was two years ago. It is a market where there is limited debt funding currently available, and property values have slightly corrected.
Nontraditional lenders include private equity firms and insurance companies. Both entities are increasing their lending in Europe.
From the beginning of 2012 to the same period in 2014, the proportion of traditional banking sources extending loans to commercial property borrowers dropped from 67 per cent to 55 per cent, according to figures provided by Cushman& Wakefield. Their willingness to fund commercial loans fell in part due to increased regulations following the downturn.
Non-bank lenders have the opportunity to bridge the gap between the funds required by borrowers and what is being provided by traditional banks. The number of private equity lenders and debt funds in Europe has increased by 29 per cent.
According to financiers there are at least six European mezzanine-debt funds in the market attempting to raise €1.7 billion.
Mezzanine loans are more risky and occupy a capital structure between senior debt and equity. If all the funds meet their targets, 2014 could be a record year for this type of fundraising in Europe.
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