LaSalle Investment Management, owned by the world’s second-largest property broker, may become the most-active provider of subordinated debt for U.K. commercial real estate this year as banks scale back lending.
The unit of Chicago-based Jones Lang LaSalle Inc. said it has already made six junior and mezzanine loans totaling 150 million pounds ($316 million) this year and expects the figure to exceed 200 million pounds by the end of June.
“Our pipeline is super strong,” Amy Aznar, LaSalle’s head of special situations and structured investments, said in an interview in London. “We can pick and choose between deals and sponsors.”
A total of 339 million pounds of junior loans and mezzanine loans were made last year in the U.K. by lenders other than banks, according to estimates released last week by De Montfort University. European banks may curtail real-estate lending by as much as 700 billion euros ($891 billion) during the next five years as they shrink balance sheets to meet stricter capital rules, Morgan Stanley estimates. Over the next three years, 120 billion pounds of commercial real estate loans will mature and need refinancing, according to LaSalle.
Junior and mezzanine lenders rank lower in payment priority than senior creditors in the event of a default and the additional risk means interest rates typically exceed 10 percent.
As banks scale back their lending, newcomers can step in to provide credit and get attractive returns combined with less risk than they would have directly owning properties, said Michael Zerda, a director in Aznar’s team of seven.
Dozens of new funds have targeted the growing commercial real estate funding gap for junior and mezzanine debt because of the attractive yields.
LaSalle’s loans helped finance two purchases by private-equity firm Blackstone Group LP of distribution warehouses in the Midlands and northeast England totaling 418 million pounds. Aznar said her team is also close to making its first loan in Germany.
LaSalle raised more than 400 million pounds during the past two years to make loans and its 100 million-pound UK Special Situations Fund I has almost deployed all its capital, mostly through lending.
“A lot of investors are interested, so it’s logical that there may be more capital raised in this area,” Aznar said.