Real estate survey 2014: Direct lenders target funding vacuum left by universal banks

David Wigan

Direct lending for commercial property deals is a niche, but expanding, segment of the alternative financing universe that is plugging the funding void left by a diminished bank lending sector, where deleveraging is far from complete.

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With real bank credit remaining well below Q4 2009 levels in all developed markets bar France and Japan, according to the BIS, demand for alternative sources of funding is rising – particularly in Europe.

The funding gap between European maturing commercial property debt and the amount banks were prepared to refinance hit €42 billion last year, according to advisory firm Navigant.

Direct lenders focus on mid-market, secured debt financing transactions that are too small for traditional debt capital markets but require more leverage than banks are willing to provide, usually in the €25 million to €200 million range.

Most direct lenders use a debt fund structure to provide commercial property financing on behalf of institutional...