Annington PIK Notes: Hybrid High Yield/CMBS Bonds Help Fill Europes Real Estate Funding Gap
By CONOR DOWNEY, CHARLES ROBERTS, & KARL BALZ
As Europe’s commercial real estate debt market enters its sixth year of “credit crunch” disruption, it is increasingly clear that traditional bank lending will not be able to meet the demand for new finance. The bank debt available at present is largely provided by German banks with funds raised in the Pfandbriefe market. The reliance of these banks on Pfandbriefe restricts them to providing low LTV debt on prime properties in amounts typically below £100 million. The insurance and private equity/fund sectors have yet to make an impact in direct real estate lending. European CMBS has shown the first signs of recovery with three publicly offered deals since 2011, but it will be some years before it reaches the volumes previously seen in the market. Other than CMBS (which has just begun to re-emerge), none of these sources of debt are expected to be available for secondary assets, peripheral locations, distressed borrowers or anything but the most simple property types to any significant extent, at least in the short-term.