Capital raised for European direct real estate investment continued to strengthen with a further €6bn ready for deployment in 2013, contrasting with continued fragility in financing markets.
In the first half of this year, the total available capital for deployment next year across Europe, the Middle East and Africa (EMEA) region has risen by $8bn (€6.1bn) to $115bn (€88.7bn), for which the aggregate equity and debt split is $58bn (€44.72bn) equity and $57bn (€43.95bn) debt, respectively.
Globally, the amount of equity available has remained flat globally, at $139bn, while equity and debt capital combined increased by 4% to $311bn, according to DTZ Research’s The Great Wall of Money report which tracks new capital targeting direct real estate investment.
These figures make for a timely release at Europe’s three-day EXPO REAL conference which kicked- off yesterday in Munich.
This €88bn of European equity and debt masks huge variations in the drivers which lead to capital deployment.
These differences are a hallmark of our times.
Equity in Europe is seeking distress to capitalise on, while most debt is seeking stress-proof security.
Equity is opportunity-driven almost entirely across the risk profile, while debt is fragmented: the majority is encumbered by legacy, forced into a long game; while an increasingly competitive game has emerged among those who are able to place debt among top secondary and prime stock.
Between which is an unaccounted for ‘middle’, comprising average stock and unconvincing borrowers continuing to drift.
Kasia Sielewicz and Nigel Almond, co-authors of DTZ Research’s The Great Wall of Money, wrote: “This increase [equity] is a surprise given the continued uncertainty in the Eurozone, [which] reflects pent-up demand as legacy funds struggle to deploy capital as investment activity remains weak.”
Limited deal opportunities remain the most significant problem for both sides.
“Across Europe, the bid-ask spread between what opportunistic investors want to pay, and what banks are willing to accept for collateral sales remains wide, stalling the deployment of capital. As banks focus on their secondary portfolios and growing regulations forces further deleveraging we expect this to narrow,” wrote DTZ’s Sielewicz and Almond.
Volumes totalled just €50bn in the first half of 2012, below the average of €65bn since 2003.
Investors in Europe also remain cautious on gearing with the average LTV flat at 49%, the lowest of all regions.
In the past six months capital raised by funds which is ready for deployment in European real estate debt has risen by $1bn to $4bn, according to DTZ.
“Many of these funds are assessing the opportunities arising from the loan sales undertaken by Europe’s banks who are under increasing pressure to deleverage, or to provide new lending capacity.”
“Those funds specifically targeting loan portfolio sales in Europe are likely to have a small window of opportunity to deploy capital. We estimate there to be sales in excess of €20bn on the face value of loans, although the number and value of loan sales is likely to diminish over the next 12 months,” predicts DTZ.
An increase in combined equity and debt capital was recorded over the first half of this year across all regions, except Asia Pacific which registered a 4% decline to $80bn as investors targeting this region were able to put capital to work faster than elsewhere.
Sielewicz, head of investor research and lead author of the report, said: “Looking forward new fund raisings have slowed and now stand 3% lower at $51bn, albeit above levels seen over the last two years.”