Why European Banks Are Retreating (and Private Credit is Stepping In)

Summary

Thomas Lloyd-Jones of Zenz Capital discusses how Basel III/IV regulations are forcing European banks to retreat from lower middle market real estate lending, creating a widening gap for opportunistic private credit funds. He distinguishes between good risk premia (liquidity-driven) and bad risk premia (credit risk-driven), and explains his firm's focus on transitional assets with active underwriting and short-term capital deployment.

• The dominant media narrative conflates direct lending with all private credit, overlooking real estate and asset-backed lending.
• European banks are increasingly focused on large, vanilla syndicated loans due to regulatory capital constraints.
• Only 14% of bank lending in Europe is cross-border, reflecting fragmented markets and regulatory complexity.
• Private credit funds can earn a liquidity premium by lending in areas banks avoid, such as transitional real estate assets.
• The speaker's firm focuses on short-term (12-24 month) loans for pre-stabilized or development assets with active business plan involvement.
• Geopolitical uncertainty and interest rate trajectory shifts are creating stress in European middle market real estate, increasing deal flow for opportunistic lenders.
• The speaker prefers shorter-duration credit positions as there is no yield curve premium for longer-term private credit.
• Student housing in the UK is supported by strong university reputations and supply-demand imbalances, but requires careful market selection.