Many traditional banking loans are being replaced in Europe by corporate bonds, private placements, and small retail bonds. According to the Financial Times, European property organizations raised almost €15.4 billion ($19.98 billion US) in the first nine months of this year, up from €8.3 billion ($10.76 billion US) in 2011.
According to Bloomberg, non-banking funding totals will reach about €20 billion ($25.9 billion US) by the end of the year, a record yearly total. One euro is worth $1.30 in the United States. lusail city map
Morgan Stanley believes that during the next few years, the so-called extra funding market will grow to €200 billion ($259 billion US).
On the 134 bonds issued so far in 2012, the average coupon interest is 4.74 percent. However, not all coupon interest is equal.
Unibail-Rodamco, a French real estate investment trust, for example, issued €750 million in five-year bonds with a 0.75 percent coupon. However, tiny, generally family-controlled businesses raised between €1 million and €5 million in fresh issue.
"Previously, many banks would lend long term money to real estate companies and borrow short term to earn a profit on the spread," Bart Gysens, senior property analyst at Morgan Stanley, told Bloomberg. They are now being forced to match funding and lending considerably more closely, resulting in a loss of profitability."
Instead than funding acquisitions or expansions, the majority of the debt being obtained is being used to replace existing bank loans.
According to Bloomberg, lending to real estate companies has dropped dramatically in the last five years as European banks focus on clearing billions of euros of debt accumulated prior to the financial crisis.
Some of the continent's major lenders, like Germany's Commerzbank and France's Société Générale, have stopped financing in the real estate sector.
The spike in bond issuance is happening for two reasons, according to Hans Vrensen, global head of research at London-based consultants DTZ.
"If you're a property developer looking to raise a huge sum of money rapidly, there isn't a bank in Europe that can handle it right now."
Furthermore, many enterprises in the area are eager to diversify their financing away from traditional bank finance."
According to Bloomberg, the funding gap is projected to widen as revisions to Basel III, which will take effect next year, boost the amount of capital banks must have to counter the risk of holding real-estate backed debt. Basel III is the third agreement in a series of global banking regulations.