From a small northwestern observatory…

Property Investor Europe sent me a report today about the shortfall in real estate funding in Europe.  The implications are a bit nerve wracking.

First, some background — European commercial real estate investors place significantly more emphasis on “traditional” bank lending than Americans. As such, the sort of private-debt network that exists in the U.S. has not grown in Europe.

According to a report by the research firm Swisslake, central bank liquidity flows gave been directed at small and diversified loans, which are in high demand.  However, commercial lending in Europe is actually facing cuts of €500 Billion or so.  In addition, banks are increasing equity requirements, leaving real estate with large financing gaps, Swisslake calculates that only about $3.8 Billion headed towards Europe in the last year from non-bank lenders.

However, this is creating a market opportunity for private debt funds.   Reportedly, 30 new funds have been launched in 2012, adding to the 20 new funds created in 2011.  These funds have increased their market share to 20%, up from 15% at the beginning of 2012.  Intriguingly, many former equity fund managers are now shifting to private debt funding.