Commercial mortgage bond investors, tired of waiting for the European market to recover after the financial crisis, have started lending directly Bloomberg reports.
The 2007 European real estate crash triggered a number of defaults that had a severe impact on the region’s commercial mortgage-backed securities market.
Annual sales of CMBS have averaged approximately €3.7 billion since 2009, significantly lower than the €39.9 billion mark in 2007.
Banks, which are still recovering from the financial crisis, and adapting to new capital rules have decided to pull back from property lending and money managers, who are seeing an opportunity to make a profit, are moving into the lending void.
Commercial property prices in the UK fell by 44 per cent between 2007 and 2009, according to Property Databank. As a result the price drop left thousands of properties worth less than the loans made by the banks. Prices have subsequently recovered by about 20 per cent.
According to Moody’s Investors Service, CMBS managers, who restructure deals by selling debt and foreclosing on properties, hold a record-level €18 billion of commercial real estate loans in Europe.
The ratings company estimates that the total losses on CMBS loans made before the credit crisis hit will be about nine billion euros over the next five years.
Hedge funds are originating loans because it allows them to acquire junior debt, according to Thomas Jackivicz, a managing director at Citigroup Inc. in London. The hedge funds, which want the junior debt because it offers higher yields, then look for partners to buy the senior part of the debt, Mr Jackivicz explains.
