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There’s no doubt that 2021 was an outstanding year for European structured CRE credit activity. And as attention turns to 2022, the scene is clearly set for it to be the most exciting, innovative and ground-breaking year since CMBS broke onto the European scene in the early noughties.
Truly, 2021 was a bumper year for CMBS activity and, following in the footsteps of 2019, a new record was set, marking the highest level of issuance since 2007. This can be considered no small feat given the dramatic and immediate impact that the pandemic had on primary issuance in 2020 and the fact that 2021 was also a year blighted with uncertainty surrounding the pandemic. CMBS can clearly be said not only to have weathered the COVID-19 storm but also to have truly flourished.
Against this impressive backdrop of CMBS activity, we saw the emergence of a new and exciting structured CRE product with Starz Real Estate stepping up to the mantle and bringing Europe’s first-ever CRE CLO to the market. This can be considered a game changer for European CRE lending as, in effect, the market has a new financing tool that is ideal for non-bank lenders. Further, given the CRE CLO structure affords lenders a greater amount of flexibility and control with respect to underlying loans, this can be considered an ideal instrument to finance those more transitional CRE assets where there is currently an abundance of supply. The CRE CLO is a product that has experienced exponential growth in the United States over the past eight years, and given that Europe has typically lagged behind the United States, there is every possibility that we will experience the same here. With other CRE CLOs rumoured to be in the pipeline, this is definitely an exciting space to watch.
Ultimately, what 2021 has really demonstrated is that the capital markets have proven themselves to be an important source of capital to finance European CRE and, therefore, the sincere hope is that the market will continue to build on these solid foundations to make 2022 another year of record CMBS issuance and for CRE CLOs to properly take off. Time will only tell how these products will fair, but one thing that is abundantly clear is that we are about to embark on a conveyor of escalating rates, and with that, we have the rocket fuel to spur exponential growth in structured CRE credit.