The Debt Market 7 Years After The Global Financial Crisis

In 2014 7 years after the global financial crisis there was a considerable change in the european debt market. The amount of real estate lending increased drastically. The cost of debt fell and the progress made by banks in terms of managing their legacy of historic loans accelerated.

The CBRE’s analysis suggests that the that the total Commercial Real Estate (CRE) debt in Europe increased by a whopping €23 billion. One of the main reasons for this was the an increase in new lending. Keep in mind this analysis includes the 49 billion of debt sold in portfolio sales in 2014. It is estimated that the new debt rose by 47% when compared to the same figure in 2013. This figure is still less than half of what it was in 2007.

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How The total volume of Commercial Real Estate debt increased in 2014 by €23 billion

There were a number of reasons for the increase in new debt during 2014. One of the reasons simply being the growth in the commercial real estate market. Investment transactions increased by 29% in Europe during 2014, Giving us a number exceeding €216 billion.

There was also a change in the types of transactions being done. The market was previously dominated by industrial style investors using very high proportion of equity until late 2013.

This has changed during the last few years due to increased activity by higher risk investors.
This shift in investment has been shown in the Irish ,Spanish and Portugeuse Commercial Real Estate Markets all seeing record high levels. Also the types of property being traded in the more established countries such as the UK with the strongest yield shift being in secondary and tertiary real estate outside of London.

The influx of new institutional leaders during 2013 was another was one of the more notable changes in the debt market.

The majority of institutions have made long duration loans a priority with high quality real estate. As a result the margins on lending have fallen.

The profit to be made by banks on loans have fallen so much that these types of institutions no longer wish to compete in this side of the market. Insteed they looking for higher profit margins in riskier business orientated parts of the real estate market. This has assisted in the boost in the secondary and tertiary property markets previously described in this article.
According to the CBRE regulatory capital considerations will most lightly provide a floor on bank debt margins. the CBRE also foresees a rise in the loan to value levels as well as an increased interest in secondary lending.

Their model suggests that the increase in new lending against transactions have affected the total stock in commercial real estate debt in a small but positive way since the end of 2013.

From 955 billion to 978 billion. It should also be stated that this doesn’t mean that banks are not making headway in terms of addressing the legacy.

The Legacy Loans percentage has been becoming smaller. They now account for only 24% of the total of the debt stock loans completed in 2007.

An increasing amount of legacy debt has been transferred or sold by banks to third parties. The Sale of legacy loans accelerated very quickly reaching €49.2 billion over the 2014.