“U.S. banks are looking to capitalize on a dearth of financing for Europe’s commercial property market that’s driven lending margins to five times the level prior to the 2008 crisis.
Citigroup Inc. (C), Morgan Stanley (MS), Bank of America Corp. (BAC) and Wells Fargo & Co. (WFC) are following insurers and distressed investors allocating capital to the region as local banks, which overextended during the last boom, are forced to contract amid new regulations. Europe faces an $82 billion shortfall between the amount of real-estate debt maturing through this year and the funding available to replace it, according to real-estate broker DTZ.
The scarcity of capital means lenders can charge as much as 3.75 percentage points over benchmarks for the safest pieces of commercial mortgage debt, about five times the spread in 2007, according to Alvarez & Marsal, an adviser on real estate transactions. Those margins will enable banks to revive the market for commercial mortgage-backed bonds, which parcel loans and slice them into securities of varying risk, after it largely shut in 2008.
“Nature abhors a vacuum,” said Robin Priest, a managing director of Alvarez & Marsal’s real-estate business in London. “The need for debt finance is much greater than the bank-market supply,” he said. “This is therefore positive for the CMBS market.”
Europe’s recession caused the amount of new lending for commercial property in the region to drop by about 77 percent from 2007 through 2011, according to estimates from Michael Haddock, a London-based research director at CBRE Group Inc.