Ireland debt funding gap seen at 10 pct,
Europe's highest

LONDON, March 29 (Reuters) - The
gap between demand for real
estate debt and credit offered by European banks may hit 115
billion euros ($154.6 billion) in the next two years, possibly
slowing a broader market rebound, research out on Monday shows.

Real estate consultant DTZ's (DTZ.L)
report found lenders
are originating far fewer loans than the market wants, pending
more shake-outs in their mortgage books, even as calm returns to
commercial real estate pricing across Europe.

This gap varies across countries, but 56 percent of the
European debt funding gap is estimated to relate to just two
countries, the UK and Spain. France, Germany, Italy and Ireland
account for a further 28 percent, the report showed.

Larger markets with higher absolute levels
of outstanding
debt have higher funding gaps than smaller markets.

In terms of relative exposures to overall
stock invested,
the report estimated Ireland has Europe's largest debt funding
gap, at 10 percent, compared with 7 percent and 8 percent in the
UK and Spain respectively.

In
contrast, Germany and France have more modest relative
debt funding gaps at 2 percent and 3 percent.

EQUITY PLUG

Based on a separate analysis, DTZ
estimates there to be 58
billion euros of equity available to target direct real estate
investment in Europe in each of the next two years.

This 116 billion euro warchest is
sufficient to finance the
European debt funding gap, but many opportunity-driven debt
investors can only meet high total return requirements if banks
sell loans at significant discounts to par, DTZ said.

"There have been a number of obstacles,
both on the equity
as well as the debt side, that have so far prevented the
effective matching up of the available new equity to finance the
debt funding gap," Kostis Papadopoulos, co-author of the report,
said.

DTZ said both parties were
slowly becoming more incentivised
to resolve a stand-off over pricing as resistance to bank
'extend and pretend' strategies grows and smaller lenders move
to sell unwanted loan stock before bigger banks come to market.

"On the equity side, we see pressures
from the limited
commitment periods and possible further downside in the letting
markets," Co-Author Nigel Almond said.

"On the debt side, we expect policy unwinds, reserve
requirements and continuing problems with wholesale funding
markets (to motivate sales)," he said.
(Reporting by Sinead
Cruise; Editing by Andrew Macdonald)
($1=.7439 Euro)
(See www.reutersrealestate.com for the global service for real
estate professionals from Reuters)