Le mie ricette per la real estate communityIn this report, AEW evaluates all-in interest rates and loan margins for commercial real estate (CRE) investors in the European markets by using for the first time granular loan-level data and estimating historical CRE loan loss rates.
· Our granular loan-level database shows a number of interesting trends:
o Loan margins remain elevated at about 200bps, despite coming down from 260bps peak in 2013
o The average all-in interest rate for European CRE loans is at a historically low level of 2.1% pa as of 2Q19
o This is only possible, since the 5-year swap rate is at unprecedented near-zero historic lows, in line with bond yields
o German all-in rates have been consistently low, due to strong lender competition and efficient covered bond funding
o Retail loans have become more and logistics loans less expensive, as lenders adjust pricing for changing fundamentals
· Despite record low borrowing costs, restraint and discipline by investment fund managers and institutions helped by regulatory-constrained banks limits the system-wide risk of excessive financial leverage.
· Our CRE loan-level model shows strong results in predicting the all-in interest rate by using LTV, origination year, property type and collateral locations as explanatory variables.
· At current CRE loan pricing, lenders are be able to absorb potential losses through their loan margins and other fees as long as they are in line with historical averages. Our top-down estimate for historical CRE loan losses are 70bps pa for European banks and 93bps pa for UK banks. Both are ahead of CMBS-funded CRE loan losses of 21 bps pa for Europe and 24bps pa for UK.
Source : Company