Goldman Sachs Group, Inc. (NYSE:GS) has a new market firmly in its crosshairs. This time the investment banks wants to open a new $3 billion property debt fund to be able to get a piece of the real estate financing short across Europe.
The Real Estate Principal Investment Area (REPIA) is said to be currently investigating how they would be able to create a fund that would cater to providing senior and mezzanine loans to property investors. The department also said that the properties would be at a higher risk so that there is chance for a higher return.
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The European financial crisis has created a debt funding gap which means that there is a gap between debt that needs to be refinanced and the money to do the refinancing. European banks are cutting lending to keep its cash reserves up to avoid any cash shortage in the event of a double dip. What is even scarier is that according to CBRE Group, there is 960 billion euros ($1.3 trillion) of outstanding debt across Europe and 575 billion is to be repaid in the next three years.
Other financiers have come into the country to take advantage of the funding gap. Prudential, AXA Group, more notably Blackrock. These organizations are currently working the debt gap and making some money off that.
This is a good opportunity for Goldman. Your competition does not matter that much because there is so much demand for refinancing the debt gap. Therefore it should be a chance to bring in more money and bolster cash reserves and other operations in the US.
Europe still lingers in a debt crisis and since banks are too scared to lend, that is a great chance for other banks such as Goldman Sachs to come into the continent and take over while the domestic banks run for safety.
The fact that Europe owns 575 billion euros in three years is a little worrisome. How are they going to pay off that huge amount of money? This could be another sore spot for the region and it could send shocks to the rest of the world, including the US.
The bottom line here is that Europe, despite what everyone thinks, is still not out of the woods yet. This debt gap is hurting consumers and the real estate market but lucky for Goldman Sachs this is a golden opportunity to get a property debt fund open for Europe.
Seth Klarman and David Tepper have both noted that they are looking to invest in distressed opportunities in Europe. In Klarman’s latest shareholder letter, he noted that his hedge fund was expanding the London office as part of the effort.