Stable growth for the European unlisted real estate debt market (Inrev)

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According to the Inrev Debt Vehicles Universe 2022 study, the European unlisted real estate market has grown steadily to reach 98 vehicles with a total net worth of € 60.3 billion. Over the past seven years, vehicles in this market have more than doubled in number and size.

This development is represented in particular by the United Kingdom, the most developed market for unlisted real estate debt in Europe. A fact confirmed by the Bayes Business School’s recently released H1 2022 commercial real estate loan report, which reveals that at 38%, non-bank loans in the UK outperformed those of banks and construction companies for the first time.

Strong increase in closed vehicles

The majority (85.1%) of the total market capital is concentrated in closed vehicles and 64.3% is focused on a senior loan debt strategy. The number of closed vehicles has increased significantly, from 37 in 2016 to 80 in 2022. European unlisted debt market, “says Inrev, adding:” This is also reflected in the AIFMD review proposals, which state that a debt originating from more than 60% of its net assets Loan inventory should have a closed structure to avoid liquidity imbalances. “

In addition, 60 of the 80 closed vehicles on the market have a mechanism to extend their maturity date, “which constitutes a risk mitigation mechanism in the event of a major market correction or a change in market sentiment. Investors.”

Senior debt funds represent the largest portion of the market, accounting for 54 of the 98 vehicles and € 38.8 billion of total equity. In terms of loan generation, relatively few vehicles aim for a pure loan acquisition strategy. “Combined, combined loan generation strategies and direct loans dominate with 83 vehicles and € 54.3 billion in target equity, which is 84.7% and 90% of their respective totals. “

In addition, vehicles with blended loan generation strategies are the most important with an average target capital of € 880 million. The average size of vehicles focused on loan acquisition and direct loan strategies is € 690 million and € 490 million, respectively.

UK attractiveness

Multi-country funds account for 70.1% of target equity funds and dominate the launch of new funds. At € 840 million, the average size of these vehicles is double that of a counterpart with a single-country strategy (€ 420 million). “Interestingly, of the 46 vehicles with single country strategy, 36 focus on the UK, notes Inrev. The average size of UK-focused funds is € 470 million. This figure is significantly higher than that of funds focused on another European market, where the average size is € 170 million. “

Only 15 vehicles on the market follow a single-sector strategy, and they are small (around 180 million euros on average). Among them, 12 are focused on the residential sector.

Over the past three years, ten newly launched vehicles have been added, with a combined equity target of € 6.78 billion, or 11.2% of the total market. Their characteristics reflect general trends, explains Inrev. “Eight of the ten vehicles follow a multi-country and multi-sector strategy and the other two are multi-sector funds from one country with a UK focus. Only one of the newly launched funds is an open structure. It should be noted that, at 680 million euros, the average size of their vehicle in terms of target equity is above the average for the entire universe, which is 650 million euros. “

Iryna Pylypchuk, Director of Research and Market Information at INREV, said: “The expansion of the European unlisted real estate debt market offers a more diverse financing choice and healthy competition for traditional lenders. Confirming this growth, we are now starting to see the first signs of regulatory authority involvement. The European real estate market is under enormous pressure for decarbonisation and traditional lenders are largely on the sidelines when it comes to restructuring loans. The big question, then, is to what extent non-traditional lenders will fill a funding gap, especially when it comes to an ESG-centric debt proposal. “

“In theory, there is something to be excited about. However, the test now is whether the segment will continue to support investor appetite. Will it rationalize or become more fragmented? you ask.

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