Back Leverage In European CRE: Key Structures

As debt funds continue to expand their footprint in the European commercial real estate (CRE) market, the use of back-leverage – long established in the US – is increasingly influencing how transactions are structured and funded by both US and European debt fund lenders.

The appeal of back-leverage to all stakeholders is evident. For banks, intermediating through back-leverage rather than lending directly at the asset level can deliver more favourable capital treatment while enabling greater exposure to the CRE sector in a streamlined manner. For debt fund managers, it enhances returns and supports larger-scale lending. And for CRE borrowers, it provides access to required funding without resorting to senior/mezzanine layering.