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EURO PROPERTY DTZ’s latest Global Debt Funding Gap
report, published in November, stated that the global net debt funding gap in the property sector had shrunk by 17% to $117bn (€87bn). Europe continues to have the biggest gap, $86bn, although this was down by 20% on DTZ’s May 2012 estimate of $107bn. The remaining $31bn is in Asia Pacific and there is no funding gap in the Americas, the firm says. However, the weaker economic
outlook and growing pressure from regulators are forcing banks to ramp up their deleveraging, restricting their ability to provide property finance. This has more than doubled Europe’s gross debt funding gap to $190bn owing to the difficulty in refinancing the legacy debt burden.
“The performance of property funds over the past decade is a complex picture, with returns affected by a range of factors, including fund vintage, style and structure”
But helping to reduce the gross debt funding gap in Europe are new sources of financing: insurance companies, debt funds and corporate bond issues. “We estimate there to be $75bn of new
finance available from insurance companies and new senior debt funds over 2012-13. We have also seen growth in new bond issuance, with a net $29bn available in the same period. This $104bn in new lending capacity has helped to shrink Europe’s $190bn gross debt funding gap to a net gap of $86bn,” said Nigel Almond, DTZ’s head of strategy research. The firm says that, globally, there is $280bn
in equity capital available, which is sufficient to bridge the remaining debt funding gap. Available equity in Europe, at $116bn, is more than sufficient to bridge the $86bn gap and in the Asia Pacific region, the $70bn available is more than double the $31bn net funding gap. DTZ says there are over ten insurance
companies in Europe and more than 30 funds providing debt financing that can be expected to provide $75bn of additional lending
capacity over 2012-13. The continued growth in corporate bond issues could provide additional net funding of $29bn. About 74% of German institutional investors
say that bank lending to real estate has not improved since the period following Lehman Brothers’ insolvency in 2008, according to a recent study by Schroder Property. However, only about 38% of German institutional investors think there is a shortage of available finance. Schroders’ product manager for continental
Europe, Philipp Ellebracht, says the apparently conflicting perceptions are explained by the lengthening time it now takes to agree new loans. And he adds that banks are likely to extend a property loan by about two years in order to prevent the liquidation of a portfolio. Although banks have restricted lending as a result of regulations such as Basel III, the industry has responded with different solutions. Insurance companies such as Allianz have
extended their property lending and real estate debt funds have been launched by private equity real estate and asset management companies such as AEW Europe, Henderson Global Investors, HVB’s subsidiary iii-investments and Signa Holding. Nevertheless, about 60% of institutional
investors consider it to be difficult or even extremely difficult to obtain funding for commercial property deals, although all those polled agreed that arranging funding for commercial property is “not impossible”.
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