Navigating the changing landscape of European real estate debt
Research paper
A short paper on real estate debt, presenting unique insights into the debt market and answering many of the pertinent questions out there.
Real estate debt funds
The European non-listed real estate debt funds sector is undergoing a rapid transformation, with increasing demand as investors seek to expand their portfolios and enhance returns. Shifting market conditions, marked by a 'higher for longer' interest rate environment, have led to a further rise in non-traditional lenders filling the void left by traditional banks, resulting in a more diverse lending landscape.
Size and characteristics
The INREV Debt Vehicles Universe includes information on debt vehicle characteristics such as loan strategy, size, domicile, structure and vintage. Today it represents €62.9 billion total target equity, spread across 117 vehicles. A snapshot of the universe is published every year in October.
The latest highlights show:
Favourable market conditions have pushed European non-listed real estate debt funds to a record €70 billion in target equity, doubling their 2016 level.
Over 80% of the €70 billion target equity is in closed-end structures, with senior debt being the most popular loan strategy (63%).
Direct lending and loan acquisition represent over 55% of non-listed debt exposure in this market.
Funds with vintages from 2015-2022 comprise 86% of the capital expected to come to market in the next seven years.
Growth opportunities in European Real Estate Debt
The European non-listed debt market has experienced substantial growth, more than doubling in size from 50 vehicles and a target equity of €30 billion in 2016 to €63 billion in 2023. This growth is particularly pronounced as traditional lenders exercise caution due to stricter banking regulations, such as Basel III limiting their lending capacity.
Simultaneously, high regulatory capital requirements have increased operational costs, creating an opportune space for European debt funds to thrive. This evolution is further fueled by a funding gap, with an anticipated €36 billion of assets from closed-end fund liquidations alone expected to come to the market in the next decade. The broader market estimate expects around €94 billion (AEW Research Monthly Report August 2023).
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