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As inflation goes up, it is expected to see an increase in interest rates on loans. At the same time, we are seeing an escalate in development prices in the real estate sector. In a volatile market like the current one, debt funds become attractive to guarantee liquidity, especially if associated with equity.
Talking about general real estate investments in Europe, according to preliminary data from CBRE (Coldwell Banker Richard Ellis), it reached €152 billion in the first half of 2022, being the strongest ever first half of a year.
According to Real Estate Capital Europe, private real estate debt managers features organizations tracked by them raised $80.3 billion between them during the years 2017 to 2021 – an increase of 12.6% compared to 2016 to the end of 2020 period.
Mauro Savoia, Chairman and CEO of Three Stars Capital Partners, says that debt funds are able to work during complicated market environments, such as the one Europe faces right now, because “they provide a good financing solution” in the current uncertain conditions.
For the past two years and a half, with COVID-19 and all the challenges resulting, a lot of funds to raise money for debt, so they are ready to invest in new projects. At the same time, Gregoire Millet, Director at Starz Real Estate explains right now there is a gap for liquidity in the market and projects in need of money to be executed.
During covid, Millet explains that we had two parameters for debt funds: the one that was raising money and could escoal all the investments right the way, mostly backed up by investment banks, that could give up the leverage.
And there were debt funds, like Starz, relying on leverage, which had a hard time competing with banks, with a lot of management to do and raising funds to invest as soon as possible and trying to achieve leverage and invest again. “Depending on how it was structured, some people had a good year and others were folded.”