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Since 2022, big real estate deals led by U.S. private equity firms have become more difficult in Europe, in part because of a sudden shortage of debt capital from investment banks. Smaller deals have sometimes been easier because capital has continued to flow relatively freely through some continental European banks.
While more traditional real estate lenders in countries such as Germany and the US are currently experiencing problems, increased confidence in the availability of loan-on-loan funding for jumbo deals could see a resurgence of larger investment bank-led fundraising in parts of the market.
Loan-on-loan financing, in which banks underwrite the senior tranches of entire loans arranged by real estate debt funds, has become more important in Europe in the second half of the last decade and is linked to a broader increase in the importance of non-bank lenders on the continent.
Debt funds are now in many cases even more important in this space than banks, and the risk-reward dynamics of real estate lending are less favorable for local commercial lenders, in part because property values are still falling in parts of the market.
For the big U.S. investment banks, as well as the larger international French and British banks, the desire to help grow these bond funds is matched by the eagerness of their investment banking divisions to foster relationships with big private equity clients such as Apollo, Ares, KKR and Starwood, not just in real estate but across the entire investment banking spectrum.
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