Real Asset Insight #6 June 2020

Insight & Strategy – European Debt Finance & Investment
Residential development should find
backing in post-crisis lenders’ market
Retail and hospitality sectors among asset classes that could
struggle for financing as pandemic undermines prospects
It’s a lenders’ market and they are being
more selective in the current environment,
according to experts.
‘From an investment point of view terms have
swung very much in favour of lenders, both from
a pricing and covenanting position,’ says Emma
Huepfl, managing director, European credit
strategies, at CBRE Global Investors.
‘Borrowers will have to work harder to get
financing, but there will be interest from new
investors in debt due to dislocation,’ she adds.
‘I definitely see a changing landscape ahead in
terms of participation.’
It will become more difficult to get financing for
what are seen as weaker asset classes. ‘It
is a good time to invest in debt, but I would
underline that you must differentiate between
asset classes, because there are clearly winners
and losers,’ says Norbert Kellner, head of
syndication at Berlin Hyp.
Hotel financing is under stress, for example,
because of the expectations that the hospitality
sector will have huge difficulties.
Retail is a more nuanced picture, says Kellner:
‘We still finance retail parks, which have shown
they can cope well with the crisis, and also
some high street shops. But financing for
shopping centres, which were already having
difficulties, will be much harder.’
When liquidity gets stretched it tends to focus
on the better borrowers, says Huepfl: ‘It will be
difficult to take lending opportunities to credit
committees if your assets are in a sector that’s
in trouble like hospitality or retail.’
RESIDENTIAL STRENGTH
Residential is one asset class that should ride
out the crisis, given the chronic shortage of
homes in most European markets, the likelihood
of more working from home in future and the
new emphasis on wellness and quality of life.
‘There is a need for development finance for
resi. From our point of view, making sure there
is liquidity for these sustainable projects is a
win-win because they have a positive impact on
society,’ says Kellner.
As well as ticking the impact investing box,
lending money for residential development
also has a time lag that allows a long-term
view beyond current difficulties. ‘It may seem
counter-intuitive to lend money to a market in
disarray, but you could find yourself on the other
side of the pandemic, once the development
is completed, and you can rent or sell your
units or find alternative uses,’ says independent
consultant Anthony Shayle.
‘From an
investment point
of view terms
have swung very
much in favour
of lenders.’
Emma Huepfl,
CBRE Global Investors
‘The way ahead depends on how much
permanent change there will be in the
way people behave.’
Jonathan Lye, Auxillium Financial Risk Management
be a positive recovery before the end of
the year. Q4 will look a lot more like Q1.’
The view from Germany is optimistic, as
the market never ground to a halt, not
even at the peak of the pandemic. ‘We’ve
completed the deals we started in Q1,
when there was a lot of activity, every
deal has been studied and examined
and no one has pulled out of any deal,’
confirms Carsten Loll, partner, real estate,
at Linklaters. ‘But we also initiated and
completed a deal in Hamburg during
lockdown, which was extraordinary.’
Looking ahead, the sentiment is positive,
he adds: ‘Clearly 2020 will not be a
repeat of 2019, but given where we were
just a few weeks ago we can see things
are changing for the better. Normality will
return in the second half of the year.’
That means past issues will resurface.
‘There are still immense levels of liquidity
that need to be invested,’ Loll says. ‘It will
come in a big wave and the lack of product
will return to being the main problem.’
Issue 2 July 2020 | Real Asset Insight 63