Specialist Property Lenders and Private Credit: Financial Stability Considerations

In this Note, we focus on non-bank lenders that lend almost exclusively to the commercial real estate (CRE) sector and are set up as Special Purpose Entities. These Property SPEs (PSPEs) are typically sponsored and financed by international financial intermediaries that engage in the private credit markets. They also rely on third party financing thatis highly concentrated in the European banking sector. PSPEs represent the majority of new lending by non-bank lenders to the CRE sector and they typically provide large loans to developers (€8.3mn average loan size). This activity benefits the domestic economy by deepening and widening the availability of credit to a supply-constrained property development sector. Increased sensitivity of domestic credit provision to international financial conditions, concentration risk, and exposure to opaque international private credit markets are key financial stability risks stemming from PSPEs. A reduction in credit supply from PSPEs could directly affect the real economy through the property market channel and indirectly through spillover effects to the broader financial system.