Alternative financing: key for the real estate sector in the next three years
€72 billion. This is the financing volume the real estate sector will require over the next three years, according to the report ‘The Lending Property Telescope,’ prepared by consultancy firm EY. Of this amount, €56 billion will be allocated to “income-generating” projects, while the remaining €16 billion will be directed toward residential development for retail sales.
Difficulties in accessing capital in a high-interest-rate environment have persisted throughout 2024. According to this analysis, such challenges have benefited debt funds, which now account for 21% of the volume (€2.3 billion).
However, Spanish banks have maintained a significant role in credit provision. Over €6.8 billion (excluding mortgages for individuals and developers) has given them a 63% market share and a total exposure of €35 billion in debt. Meanwhile, international banking activity has remained at the same level as the previous year, largely due to the absence of “core” transactions.
How do loans from debt funds differ from those offered by banks?
The EY report notes that the average term of bank loans is around six years, while loans granted by debt funds typically have a duration of less than three years. This is due to their “Value Added” nature, which involves supporting investors during the initial stages of the business plan until stabilization is achieved, with an associated risk factor tied to the project’s nature. Regulatory constraints, which are much stricter for banks, also play a role.
This shorter average term has led to increased credit activity in recent years, fostering competition and improving conditions for investors. The rise of increasingly innovative products and collaboration between traditional and alternative lenders are other consequences of this new financing landscape.
Alternative financing: the rise of real estate crowdfunding
In this context, alternative financing continues to gain ground, to the extent that experts predict it will be critical over the next three years. During this period, debt required for the development or renovation of projects will reach €20.7 billion (37% of the total estimated €56 billion).
Within alternative financing, crowdfunding is becoming increasingly established and continues to grow steadily.
According to an analysis conducted by Urbanitae, based on public data from major crowdfunding platforms operating in Spain, the financed volume grew by 71% year-on-year between January and August 2024. This positive trend follows the strong growth observed in the previous year, which saw an 84% increase compared to 2022.
This trend is also evident across Europe. Although data for the entirety of 2024 is not yet available, the Real Estate Crowdfunding Report 2023, published by the Milan Polytechnic Institute and Walliance, highlights that this sector reached an accumulated financing volume of €52.7 billion globally in 2023. In Europe, leading platforms raised more than €12.4 billion, with the fastest-growing markets including France, Germany, and Italy.