Key Takeaways from BCLP’s Pan-European Real Estate Roundtable Event
BCLP’s Pan-European Real Estate team recently hosted a round-table event with Managing Directors at Alvarez & Marsal to delve into the current landscape of the European commercial real estate market. The discussion, held on 27th February 2024, covered a range of topics, from the real estate debt market and refinancing pressures in 2023 to the outlook for 2024, challenges in the German real estate market, and trends in cross-border restructuring processes.
In 2023, European commercial real estate faced twin pressures – debt pressures and market pressures. Interest cover ratios (ICRs) came under scrutiny as higher interest payments and increased operational costs put pressure on investors. Loan-to-value ratios (LTVs) were also a key metric for lenders, affecting investor demand and valuations. Refinance walls and valuation uncertainties further added to the challenges faced by the market, with cost inflation and a difficult equity raising market exacerbating the situation.
Looking ahead to 2024, the second half of the year is expected to see increased activity, particularly in sectors like ‘beds, sheds, meds, breads, and bytes’. However, distress is likely to increase as borrowers face pressure from lenders, and political uncertainties, such as the upcoming UK and US elections, add to the complexity of the market. Lenders are expected to be more proactive in enforcing non-performing loans, with challenges persisting in sectors like German real estate.
Speaking of the German real estate market, it is currently facing significant distress, with transaction volumes down, insolvencies up, and commercial property prices dropping. German insolvency restrictions add a layer of complexity for directors, putting pressure on management teams to comply with stringent regulations. The outlook for the German market remains cautious, with hopes for a gradual recovery from mid-2024.
The discussion also touched upon cross-border restructuring trends, highlighting the increasing use of Part 26A restructuring plans by German real estate owners. The recent Court of Appeal decision in Adler shed light on the evolving nature of restructuring plans, becoming more litigious and expensive.
In conclusion, while there is optimism for increased activity in European commercial real estate in 2024, ongoing pressures and uncertainties suggest challenges ahead. Lenders may exert their rights more assertively, driving restructuring activity, while real estate owners may turn to restructuring plans to navigate distress. The landscape remains complex, with stakeholders needing to navigate changing regulations and market dynamics to achieve desired outcomes.
