Fund managers operating within Europe’s burgeoning real estate debt market needn’t look far to see what’s in store.
“Every time I come here, it feels like the conversations we have feel like the ones we had in the US two or three years earlier,” Ray Krauch, a principal at Mesa West Capital, told the audience at Private Debt Investor’s Capital Structure Europe conference on Tuesday. “If you accept the US as a roadmap of … what Europe’s going through and will go through, there’s still a lot of opportunity in this space.”
While most US banks managed to delever their balance sheets in the immediate aftermath the financial crisis, European banks have yet to complete that process, panelists said. That pullback from traditional lending has created opportunities for fund managers who provide mezzanine capital for the real estate sector.
“The core opportunity in the market remains the same,” said DRC Capital managing partner Dale Lattanzio. “We are still in the early stages … something like 30-35 percent of the way through the deleveraging process that will occur over the next few years.”
The pullback has allowed debt funds access to a greater selection of assets, said Steve Edwards of Tyndaris.
“The quality of the assets is very good, there’s maybe some value add that can be done,” he said. “The underlying real estate at this point in the cycle, there’s lots of it, just in the UK and Germany.”
Not everyone thought the US market provided a readily accessible roadmap for European managers however. James Tarry, a real estate debt fund manager with Aviva Investors, cited the role of CMBS in the US as an example of a key difference between the markets.
The availability of capital through commercial mortgage backed securities represents only a fraction of what is on offer in the US, he said. In Europe: “It was a little bit of incidental financing around the edges.”