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Traditional bankers are being forced to rethink their strategies as the European real estate lending landscape becomes more diversified, according to Christophe Murciani of JLL.

‘A few years ago, banks lent anything to anyone. Since 2007, they have had to think again about their origination strategies,' said Murciani, director of debt advisory at Jones Lang LaSalle in Paris.

'They are being forced to look for the sweet spots where there is still demand. As a result, many lenders now have a distinct origination strategy as they find their own special focus.’

Murciani was speaking at the PropertyEU Debt Finance Investment Briefing on Tuesday hosted at the Frankfurt office of law firm Ashurst. The panel also included Daniel Mair from Ernst & Young and Derk Opitz from Ashurst.

While many lenders still focus primarily on core assets and locations, the market is now becoming more diverse, Murciani said. ‘There’s room for other players. Basel III has led to less liquidity, but we have seen a rebound in the market since the relaxation of capital requirement rules in January. There has been a shift and we are seeing increased competition and aggressive origination volumes.’

Nevertheless, Murciani does not believe a systemic shift is changing place in the real estate lending landscape. ‘ I don’t think we’re seeing that in terms of volumes. But new players are changing the way lenders see the market and where the added value lies. We’re seeing different lender behaviour and moves to define a more specific business plan.’

As market recovery sets in, traditional lenders are staking out their own market segment and position, he continued. ‘Lenders are focusing on their own skill sets and what makes more sense for them in terms of lending opportunities. In 2005 to 2007, lenders were shooting off in all directions. That’s a major change in the market today.’

Some lenders are seeking higher returns by focusing on higher LTVs and ticket sizes, while others are focusing on regional markets, development or value add strategies or areas where banks are retrenching, he added. ‘The development finance market is still lagging, but overall we have reached the stage that the risk-return spectrum is now fully recovered.’

The capital market is also growing in importance as a source of financing, Murciani said. In 2013, listed European real estate companies issued €5.5 bn in corporate bonds, he noted: ‘That’s double the figure in 2011.’

While bond issuance is still gaining popularity in the listed real estate market sector in Europe, Ernst & Young’s Mair sees it as a ‘temporary fix’. ‘I think the bond market will remain a phenomenon and it works well, but I don’t think bonds are a natural source of finance for real estate companies. There are opportunities when a bond issuance can be advantageous, but usually bonds are too expensive.’

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