March 24th, 2020

Lenders hesitant for new PBSA and coliving financing, but anticipate a rebound in the second half of 2020

Andrew Hornblower is a Director in JLL’s Debt and Structured Finance team. Based in London, Andrew and the team cover the UK, Ireland and Continental Europe, with further debt advisory professionals in Madrid, Frankfurt, Stockholm, Warsaw and Bucharest. Throughout Europe, JLL is arranging €1.51Bn of financing across 16,200 beds in the Living space.

As COVID-19’s persistence in the global picture becomes clear and the economy reacts, an immediate question for European PBSA and coliving stakeholders is the availability of financing for new projects. Last week, JLL released, COVID-19: Global Real Estate Implications, which provides an initial assessment of the impact across real estate sectors. The structural and demographic trends underpinning PBSA and coliving, however, signal that these projects can anticipate sector-specific scrutiny: How permanent are changes in living, working and learning? How will operators deal with new concepts of liability and risk? We’ve asked Andrew Hornblower, a director in JLL’s EMEA Debt and Structured Finance team based in London, to provide insight on the debt market for the PBSA and coliving sectors.

“It feels like 9/11 and the GFC wrapped up into one big mess…”
a deflated loan originator at a leading investment bank grumbled before hanging up the phone on Friday.

We have seen in the past few weeks:

  • Risk Free Rates Cut: The USA, UK, Australia, South Korea, South Africa and Saudi Arabia recently slashed their benchmark rates. The ECB is under pressure to follow suit but are holding fire…for now.
  • Equities Plummet: The FTSE 100, CAC 40 and Euronext 100 indices have lost 28%, 32% and 31% of their value over the last 30 days, respectively. The S&P and DAX have experienced similar, precipitous drops.
  • Fixed Income Volatility: Corporate bond spreads, a key proxy for real estate debt, have materially widened 150-250 bps and fluctuated 50+ bps daily.

This ominous prelude is meant to highlight causal factors that drive availability and cost of debt capital. Rapidly becoming a cliché (apologies), the combined magnitude, immediacy and universality of these factors is “unprecedented”.

Real estate is downstream from macroeconomics. The ripple effects of volatility in the global financial markets reach all property types, including student accommodation and coliving.

Setting aside the events of the last 30 days, debt liquidity for PBSA and coliving is strong.

HQ’s of lenders with existing UK, Irish and/or continental European PBSA exposure span the globe, and demand exists for loan sizes ranging from €10M to €500M+. In the last 12 months:

  • LaSalle (USA) provided a €20.5M development loan in Spain
  • Investec (South Africa) provided a £64M construction facility across three UK projects
  • Natixis (France) provided a €100M+ euro development & investment facility for portfolio in France
  • RBC (Canada) provided a £200M+ facility for an existing portfolio in the UK
  • Bank of China (China) participated in a large syndication for an existing portfolio in the UK

Coliving is a more nascent sector, yet mainstream lenders such as Deutsche Bank have lent in the space.  At least 50% of the wider debt market indicates openness to co-living opportunities that “tick all the boxes”.

There is therefore fundamental lender appetite for PBSA and coliving exposure, though for quoting new financings the current environment has pushed most lenders to press the proverbial “pause button”. There are exceptions, though the market’s “herd mentality” has resulted in the vast majority of lenders following suit. Encouragingly, nearly all in-process loans have closed throughout the market volatility due to reputational and relationship concerns.

The shortest timeframe we have heard for this quoting respite is 2 weeks, while the longest is through June, with most lenders falling in the 2-4-week range. Their focus over this time will be on their existing clients, pipeline and loan book.

Expect sector-specific questions as the market regains momentum, including:
  1. Structural Shift: What if COVID-19 has set in motion permanent change to how and where students learn? If classes move online and international students stay home, how will specific projects weather this reduction in demand?
  2. Construction Risk: For development projects, how will supply chain delays and contractor staffing impact hard costs and overall build timeframes? Given the consequences of late deliveries in the PBSA sector, lenders will be hyper-focused on mitigating this risk.
  3. Operational Challenges: If COVID-19 becomes a 6-12+ month ordeal, how will 2020-2021 lettings be impacted? How will operators avoid being accused of negligence when residents or family members get sick?  People are living closely together in PBSA and coliving properties – how will operators prevent rapid transmission?


Nevertheless, there is reason for optimism. Insufficient provision of purpose-built product in most markets across the UK, Ireland and Continental Europe underpins long-term resilience. Further, the debt markets possess unprecedented levels of “dry powder”, something that a several month hiatus will exacerbate. We can look forward to a resurgent second half of 2020.