Spanish lending market offers good returns on debt above Germany and France

Cass Business School releases first Spanish lending study

  • Spanish senior secured real estate debt is priced at 1.80 per cent - 2.50 per cent achieving similar returns as UK commercial real estate debt at low risk
  • Diversification of lenders is continuing with debt funds and insurance companies entering the market
  • Alternative lenders are increasingly pursuing more sophisticated financing (e.g. niches, operator-run properties, foreign investments, value-add investments and project developments)

Cass Business School releases the first commercial real estate lending study for the Spanish market which is authored by Dr Nicole Lux. The volume of new business has been increasing from 2013 onwards and Spanish has developed from the primary seller of NPL’s to a stable, more sophisticated lending market.

While lending margins have been falling over the last five years banks have adopted conservative lending strategies with low loan-to-value ranges of 55 per cent – 60 per cent for senior loans, which has given room to market diversification. Insurance companies and debt funds are providing slightly higher loan-to-value lending at higher price levels.

In a persistently low interest-rate environment, many Spanish banks continue to attempt to keep their real estate business stable and in some cases to expand it. The pressure of competition, in particular in the case of investments in existing properties, remains high with French and German banks increasing their activities as well, driving pricing levels down.  Overall, the Spanish real estate debt market is smaller than the UK or German market and competition for larger loan sizes €50 – €100m is high, average loan sizes are €30 - €60m.

Report author Dr Nicole Lux said:

“After the sale of major NPL portfolios a new niche that is opening up for international debt investors is in new constructions, commercial/logistics as well as residential, where bank lending is more restricted. However, it is important to find the right project and development partner. Student housing development is also one of the areas of increasing interest and developers are looking to find sizable projects.”

The report includes a historic analysis starting from 2002 to 2018 showing especially the changes over the last five years. The study includes data collected from 25 financial institutions via public balance sheet information, personal interviews and individual loan book data.

To support the researchers to expand their research, the report can be purchased here.

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