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Positive shift in capital markets as banks vie for business

The recovery in prime real estate values and investment market turnover in the second half of 2009 has improved sentiment in the European debt markets, according to CB Richard Ellis’ (CBRE) latest Capital Markets Report.

In the report, CBRE assesses banks’ propensity to lend to the commercial property sector across Europe. Latest indicators reveal the first signs of a positive shift in sentiment amongst banks since early 2008, albeit heavily concentrated on the top end of the market.

Following the recovery in the European real estate investment market in the latter half of 2009, driven predominantly by increased appetite from equity buyers and an improvement in capital values, banks now find themselves in a more confident position to lend. This shift in sentiment has subsequently led to increased competition amongst debt providers to offer improved lending terms on loans secured against prime real estate.

Natale Giostra, head of UK & EMEA debt advisory at CBRE real estate finance, comments:

“Key lending terms for prime real estate stock and credible tenants have improved significantly over the last couple of months. Maximum loan size is generally increasing, with maximum LTVs also on the increase at around 60%-70% when secured on prime real estate, whilst margins have fallen across most markets.

“What is particularly worth noting is that this trend is not confined to the UK. We see a theme of consistency running throughout Europe, with Italy, the Netherlands and Spain also reporting an increase in maximum LTVs to 65-70%”

“These positive signs in lending will eventually ripple into the CEE and Hungarian markets. However, we will have to be patient for now,” adds Tim O’Sullivan, head of capital markets at CB Richard Ellis Hungary.

Despite the recovery in sentiment, debt market activity remains distinctly polarized mirroring the direct real estate investment market. Lending outside the prime segment of the market remains limited, most notably in respect of development finance, which continues to remain broadly unavailable in many markets. Those banks that are prepared to lend outside the prime real estate remit have employed more stringent financing terms, and margins are considerably higher. (press release)