PropList Blog
Lender Strategies
Some lenders are reportedly refocusing on their core business strategies rather than further developing new lending strategies which they had previously been starting to expand. Lenders may also be constrained by their own source of funding. It is important for prospective borrowers to understand how this might impact the capital available for their relationship lenders to provide future financing.
Unlike in the US, European lenders may be less vulnerable to mass margin calls on mark to market accounting, which underpins the repurchase agreement financing mechanism used by mortgage REITS and debt funds in the US and which has been widely commented on in the US real estate finance market. However European lenders that rely on corporate lines as part of their capital may find it harder to access these. Such lenders who have structured products that rely on loan on loan financing to make their return hurdles may focus on other strategies. For example, one lender explained that rather than focus on their stretch senior product which is reliant on loan on loan financing to make the required returns, they would focus in the short term on rescue or bridge financing opportunities.
Borrowers should ask themselves whether their proposed lender has ring-fenced capital that is currently uncommitted and sterling denominated. We understand at least one lender with a proven fundraising track record has prudently decided to hold off launching a new fundraise this year. If other lenders follow suit, those that have mostly or fully committed funds will have less capital to finance new deals. This may also give those lenders with smaller legacy books and plenty of dry powder a big advantage in snapping up financing opportunities.
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