CBRE has today released the latest version of its European Debt Map, the only tool in the market that allows investors and borrowers to compare lending terms across 20 European countries. With coverage of the office, retail and logistics sectors, the opportunities presented by senior, mezzanine and whole loan debt can now be properly understood in a pan-European context.
Lending returns vary across countries, but looking at senior lending on prime capital city office investments some patterns emerge within the main groups of nations:
Senior debt returns, prime capital city offices, Q4 2017
Source: CBRE, Macrobond. Assumes cost of debt comprises local five year swap rate (as at Dec-17), margin, and arrangement fee (apportioned over the life of the loan).
On the risk side, generally lending standards remain disciplined. Interest Cover Ratios, for example, are uniformly high, giving lenders comfort in the ability of borrowers to service debt payments through property income. On the capital side, lenders continue to look very closely at debt yields in search of additional comfort, although in a few more established economies, debt and property yields are creeping more closely together.
Marco Rampin, Head of Debt and Structured Finance, Continental Europe, CBRE comments: “The last few years has seen a huge volume of capital raised for investment in debt strategies across Europe, by and from a diverse source of investors. Having deployed €6bn of real estate lending in continental Europe since June 2016, we have seen first-hand the strength of competition for all deals and our recent EMEA Investor Intentions Survey highlights the growing interest from investors in targeting real estate debt. This most recent research suggests that lender appetite will remain extremely keen across Europe, given the strong low-risk returns available. Accordingly, lenders should take every opportunity available to expand and deepen their network of contacts with potential borrowers, to ensure access to every possible lending opportunity.”