Lender activity to grow as refinancing drives demand

Lending activity across Europe is expected to increase in the remainder of the year, according to the latest Lender Intentions survey from CBRE. The survey found that almost two-thirds of lenders expect to increase origination activity, with refinancing expected to be the main source of demand. Non-bank lenders such as debt funds, insurance companies and investment banks are expecting moderately higher activity levels (76%) than traditional banks (56%). “Suppressed levels of investment activity remains the main challenge to the European debt market, as the willingness and appetite to lend is absolutely there,” said Chris Gow, head of debt and structured finance, Europe, at CBRE. “This is why refinancing is expected to drive the majority of activity, but based on the survey results, we anticipate development loans being another key source of demand.” Gow said distress was no longer the major worry for lenders that it was a year ago, not because there is no distress, but because most lenders had evaluated their problematic situations and would deploy work-out strategies in the coming 12-24 months. “We can see in our current pipeline that investment levels are gradually recovering and we expect acquisition loans to account for a greater market share as the year progresses,” he said. According to the report, the preferred sectors for lending are industrial and multifamily, each selected as the top sector by 34% of respondents. Sentiment has improved across all major sectors except for office, which remains more challenged, with a notable uptick in appetite for hotels. The survey also shows that 83% of lenders surveyed are willing to lend to “alternative sectors”, with the living subsectors and life sciences proving the most popular. When looking at senior loans on prime assets in the office, retail and hotel sectors, most lenders stated that they were prepared to lend at between 50% and 60% LTVs and slightly higher for prime industrial assets at 55-60% LTV. For multifamily and purpose-built student accommodation assets, this was higher still, with LTVs of upwards of 60%. Sustainability was also revealed as an integral part of lenders’ underwriting strategies, with more than half of the lenders surveyed willing to offer a margin stepdown for loans against assets with good ESG credentials, mostly in the range of 5-20bps. Photo by Tom Nicholson/LNP/Shutterstock