What can real estate debt offer insurance companies?
We explore the key features of real estate debt, the evolution of the lending market post Global Financial Crisis (GFC) and why it is an increasingly attractive option for insurers.
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The real estate debt markets, particularly in Europe, have changed dramatically since the Globall Finacial Crisis (GFC) of 2007–2008. A combination of factors have led to a reduction of bank capital available for borrowers, which in turn, has provided a growing opportunity for institutional, non-bank capital to meet borrower demand.
Non-bank capital now comprises 6% (~€63.1 billion) of the European real estate debt market, compared to only 0.8% ( ~€14 billion) in 2008. However, when compared to the UK, non-bank lending is around 20% and the US market, closer to 40%.Covid-19 and the implementation of Basel IV have caused banks to retreat further, creating a supply and demand gap which needs to be filled by alternative lenders.
Today’s market offers a range of real estate debt investment opportunities characterised by good relative value, especially when compared to corporate bonds of similar credit quality. An investment in real estate debt can deliver stable contractual cashflows due to its fixed income nature, whilst providing investors with an asset backed security and thereby tangible collateral that can mitigate downside risks in the event of default.
In the full paper below, we take a closer look at why real estate debt might be especially attractive for insurance clients.
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