Real estate debt funding globally is a huge machine – turning over $400bn annually in the US, and approximately €225bn in Europe, of which the UK makes up roughly 25-30%. The European figure, however, is a very broad estimate because at any point in time, debt investors (lenders) and borrowers have no clear measure of available capital in the market or solid statistics on overall transactions from which to benchmark activity.
In this respect, CRE debt is an anachronism of the modern investing world.
The UK and Germany benefit from reports produced by De Montfort and Regensburg Universities – much re-quoted market studies, but reliant on lender co-operation and self-certification. An institutional grade benchmark and loan level data are still a long way off. This is in stark contrast to the USA where such data is available and increasingly detailed and tech-enabled. As this disparity grows, it may become a material barrier for global capital choosing between the two markets.
At a time when growing pension and insurance funds are targeting CRE debt, and in a world of smart solutions, major changes in market transparency ought to be afoot, yet change in Europe has been notably slow.
The barriers to transparency start with the regulatory environment. Lending against commercial real estate is not in itself a regulated activity, and debt investors are subject to different scrutiny depending on their organisational structure. The most regulated end of the spectrum is UK banks, where the Bank of England has power to collect information and require capital to be held. Debt fund managers may be required to be AIFMD compliant, but other lenders may not have to report their activities to anyone. No single body is therefore authorised to collate information.