The following Property practice note Produced in partnership with Rohan Campbell of Maple Teesdale LLP provides comprehensive and up to date legal information covering:
Following the financial crisis, the real estate finance market saw a retreat of conventional bank lending and an influx of non-bank lenders (NBLs) including insurers and real estate debt funds. Through 2012 and 2013, the absence of bank lending enabled these NBLs to strengthen their position and become established players in the market. With the return to confidence in the real estate investment market and bank lending from 2014, some NBLs, in particular real estate debt funds, are moving up the risk curve away from the senior debt space. This has resulted in a competitive market for real estate debt across the capital stack.
Banks, insurers and debt funds have different strategies and focus on optimum deal size, asset class and loan purpose. Four commonly used flexible loan structures are:
flexible senior loans
stretched senior loans
mezzanine loans, and
preferred equity loans
Banks have a strong presence in this area along with some insurers, albeit the senior loans provided have been at conservative loan to value ratios or loan to gross development value ratios and loan to cost ratios. Real estate debt funds also provide senior finance but tend to focus more on non-prime assets, development assets and more highly geared transactions, where it is possible to achieve the necessary returns on senior debt for their investors.
Senior loans typically require:
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