Real estate finance comes to the fore 

After a couple of decades’ experience, it becomes quite easy to discern when there is a genuine big problem in the real estate investment industry. It is when finance is discussed above all else.

The November issue of PropertyEU reflects this. As Jane Roberts’ deep dive report shows, everyone is concentrated especially on short-term debt.

Now, I know that not every segment of the real estate industry is stressed about rising interest rates. Alternative lenders sense a renewed opportunity for new loans and refinancing as traditional banks step back. Meanwhile, firms such as Mount Street say their loan servicing and advisory businesses have never been busier.

Last month, our team attended the Expo Real trade show in Germany, to hold interviews with a cross-section of the real estate industry. I was there too, and it was striking how many times people remarked that small-to-midsized developers in Germany were effectively out of the equity given the downturn since last year’s valuations and the commensurate rise in interest rates.

This is where some people feel there is the biggest market dislocation, and hence some potential opportunity.

What has struck me this month, though, is something else. I wish I had a euro for every time it’s been said that since the GFC of 2008, overleverage is a thing of the past. People said, whatever black swan event happened next, at least borrowers were not dangerously overleveraged.

Today I wonder if that is wholly accurate. My spies tell me they have been approached by developers – particularly from Germany and Sweden – with over 90% LTVs based on last year’s valuations. Is it possible that these two countries were judged as having the strongest real estate markets in Europe?

And is it possible that in order to make deals work, investors needed ever-higher leverage assumptions to pay the price vendors wanted?

The logical charge is that banks played ball and lent to very high LTVs, going along with all kinds of assumptions, including that rents will grow to the sky.

Talking of growing to the sky, as a change of tone in this issue, check out the interview with Belgian developer, Ghelamco. This family-owned business has an array of impressive developments to its name in Belgium and Poland, and is now striking out in the UK where MD Marie-Julie Gheysens is leading two high-profile projects in London. Looks like a future-proof portfolio is in the works


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