Troubled banks hold key to uncertain property market

By Bridging Loan Directory -

The increased presence of new lenders will have no significant impact on “near paralysed” European property markets in the short term, according to the latest ‘Emerging Trends’ report from PwC/ULI.

Mezzanine lenders will depend on senior debt in the market, and insurance companies – such as Aviva and AXA, currently boosting their lending activity in European markets – will take time to build appropriate capital-deploying infrastructures.

Both new sources of finance and existing bank lenders will continue to focus on prime, with little funding available for the acquisition of secondary assets.

“When debt is found,” the report said, “it will be short-term and expensive, as financing costs for banks continue to rise, even without the capital cost of meeting regulatory requirements.”

Of 600 investors and industry players polled, only 6% believed more finance would be available this year than last.

More than half believed there would be “substantially less” finance available for real estate investment.

According to the report, banks will hold the key to any recovery in 2012. In addition to their currently uncertain appetite to lend for real estate investment, a second banking crisis caused by sovereign debt could force them to offload assets.

The report said: “Many ‘Emerging Trends’ interviewees believe 2012 could be the year investors have been waiting for, and asset and loan sales will come.

“They have hoped for it every year since the downturn began, but finally they may find what they have been looking for.”

Despite the continuing disconnect between investors and banks on pricing, the report predicted that, whatever the outcome, distress sales will be a “more prominent feature” of the market this year than last

In the meantime, the survey revealed a shift towards non-core specialist asset types, including perceived ‘growth’ areas such as solar energy parks and wind farms, gas-storage infrastructure, and income-producing assets such as healthcare facilities.

The report predicted investors this year would continue to focus on asset-specific strategies rather than national markets, cities or sectors.

“Making investment decisions has become a granular process, and few places are considered a sure bet,” it said.