Residential real estate and hospitality have been tipped as the next big growth areas in asset-backed financing (ABF) due to supply/demand imbalances, as the popularity of ABF soars.
According to KKR research, the current size of the ABF market is $5.2tn (£4.1tn), but it is set to grow to $7.7tn by 2027 as more and more alternative asset managers move into the space. This is likely to lead to competition for the most attractive assets. According to several ABF specialists, this means residential real estate and hospitality.
“Arrow has been building up our real estate lending franchise for a long time in the granular, operationally heavy residential bridge and development lending sectors, which has become increasingly a focus for investors,” said Toni McDermott, chief investment officer, credit and lending, at Arrow Global.
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“The risk/reward is attractive here because of chronic undersupply of housing to meet growing demand, poor quality of existing housing stock needing upgrade, and lack of alternative financing from banks.
“Conversely, office properties, especially in secondary locations, continue to be less appealing due to uncertain recovery prospects and demand shifts post-pandemic.”
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Hayley Stewart, director, investor relations at RoundShield, says that in an inflationary environment residential real estate often benefits from underlying asset value appreciation, making for some compelling opportunities.
“We have also seen robust growth in the hospitality sector and here we see opportunities in the affordable travel market sector, as well as the luxury hospitality and high-end residential markets,” she added.
“Favourable supply-demand dynamics, given the rebound in travel post-Covid, increasing global wealth creation and the drive of many towards Europe as a destination of choice given its ease of access and rich cultural heritage are creating opportunities in the hospitality market.”
