[Edaily Marketin KIM SUNG-SOO Reporter] The key theme for the real estate finance market in the second half of this year appears to be “selection” rather than “recovery.”

This is because, while the market for alternative capital is expanding as banks adopt a more conservative approach to real estate financing and the equity burden on project financing (PF) sponsors increases, funds are not flowing into all real estate sectors.

As banks continue to resolve non-performing assets and manage risks, while PF equity requirements are also being tightened, the funding gap in the real estate finance market is growing increasingly larger. In this process, the size of the domestic commercial real estate (CRE) loan market accessible to alternative capital is estimated to reach approximately 32 trillion to 45 trillion won annually.

However, the expansion of the market does not mean that investment standards will become less stringent. On the contrary, analysts predict that alternative capital, seeking to fill the void left by banks, is also likely to carefully scrutinize collateral value and cash flow to “separate the wheat from the chaff.”

Banks Pull Out, Alternative Capital Enters… 45 Trillion Won Market Opens Up

According to the financial investment industry on the 25th, a funding gap is widening across the real estate finance market as financial institutions wind down their non-performing assets.

Amid the deleveraging and risk management trends that have persisted since the Legoland incident, the banking sector is taking a conservative approach to providing funds for real estate project financing (PF) and commercial real estate.

In addition, the amount of equity capital that PF project sponsors must raise themselves has increased. In accordance with the financial authorities’ “Plan for Improving the Real Estate PF System,” the equity ratio for new PF projects will be raised by 5 percentage points (p) annually over a four-year period starting next year through 2030. Ultimately, this ratio will rise to 20% of the total project cost.

According to Aegis Asset Management’s Strategic Research Division, this is expected to result in a cumulative equity shortfall of approximately 11 trillion won. For project sponsors who previously relied on bank loans, this means a greater burden to secure additional funds.

This is why new sources of funding have become necessary, given that banks are finding it difficult to actively supply funds to project finance (PF) and commercial real estate (CRE) as they did in the past. Consequently, the size of the domestic commercial real estate (CRE) loan market accessible to alternative capital is estimated to reach approximately 32 trillion to 45 trillion won annually.

More specifically, analysts project that opportunities will arise in the following areas: △ approximately 10 trillion to 21 trillion won in refinancing of existing CRE loans secured by physical assets; △ 2.2 trillion to 4.3 trillion won in new CRE loans; and △ approximately 20 trillion won in new project finance (PF) loans related to commercial real estate.

Refinancing Market: A Major Source of Revenue

for

Alternative Capital

In particular

, the refinancing market

—where existing loans come due—is expected to become a major source of revenue for alternative capital.

This is because, even when loans mature, if banks reduce their existing exposure or take a conservative approach to new lending, borrowers will need to find new sources of funding. If an asset has sufficient collateral value and generates stable cash flow, there is a greater chance that alternative capital will fill the gap left by banks.

In particular, if real estate prices or financial market conditions have changed since the time the loan was originally taken out, it may become more important for borrowers to seek new funding sources rather than simply extending their existing loans.

From the perspective of alternative capital providers, refinancing is a market where investment decisions can be made with relative certainty. This is because, for assets that have already been completed, it is possible to verify occupancy rates, collateral value, and cash flow.

However, the figure of a “45 trillion won market” does not necessarily mean “45 trillion won in investment opportunities.”

Just as banks have tightened their loan screening, alternative capital has no reason to lower its investment standards. In fact, given their demand for relatively high returns, they are likely to assess asset risks even more meticulously.

“We Won’t Buy Just Any Real Estate”… Collateral and Cash Flow Are Key

This “selective trend” is expected to intensify in the commercial

real estate

investment market in the second half of this year.

With bank lending becoming more stringent and the equity burden on project finance (PF) developers increasing, the competitiveness of the asset itself will inevitably become the key factor determining whether an investment is made.

In the office market, prime-grade assets are expected to have a relative advantage. For logistics centers, investment demand is likely to concentrate on large-scale, automated assets, while for hotels, it will likely focus on high-quality assets supported by demand from foreign tourists.

Rather than simply offering high rental yields, securing stable tenants and cash flow will become increasingly important. Conversely, it is unlikely that alternative capital will actively flow into assets with uncertain profitability or insufficient collateral value.

Ultimately, even if alternative capital fills the void left by banks, the gap between “assets that need money” and “assets that can generate cash” may actually widen.
For

Data Centers, “Power and Tenants” Are More Important Than “AI Demand

”

“Data

centers” are cited as the asset class where the selection criteria for alternative capital will be most clearly evident.

Driven by the proliferation of generative artificial intelligence (AI), the domestic data center market is projected to grow at an average annual rate of over 15% through 2028. In terms of demand alone, data centers are among the most attractive growth assets.

However, in the market, the question of “whether power supply has been secured” is becoming just as important as “how much AI demand will grow.”

While domestic data center power demand is rising rapidly, the pace of supply expansion is failing to keep up. By 2027, available power supply is projected to cover only about 64% of the total power demand.

Power grid constraints are also reshaping the location strategy for data center development. Large-scale data center projects are more likely to expand in the outskirts of the Seoul metropolitan area and in non-metropolitan regions, rather than in areas like Seoul where securing both location and power is difficult.

In the future, simply securing a site for a data center may no longer be enough to demonstrate investment appeal. Whether power supply has been secured, construction can actually begin, and high-quality tenants with AI demand have been secured are expected to become the key criteria determining asset value.

Money Flows Only to ‘Good Assets’… Clear Qualification Criteria

Ultimately, in the real estate finance market in the second half of this year, the “direction of capital” is expected to be more important than the “total volume of capital.”

As banks reduce their loan supply and the equity burden on project finance (PF) developers increases, the market for alternative capital is expanding. However, not all assets will benefit from this trend.

While new capital may flow into assets with sufficient collateral value and stable cash flow, projects with poor business prospects or weak collateral value may actually face greater difficulty in securing financing.

Analysts predict that the “eligibility criteria” for each asset class will become even more distinct: prime office properties, large-scale and automated logistics centers, hotels driven by foreign demand, and data centers reliant on power supply and tenants.

An official in the financial investment industry stated, “The market where alternative capital can fill the gap left by banks is clearly growing,” but added, “Just because the supply of funds is increasing doesn’t mean investors are willing to take on more risk.”

He added, “Ultimately, in the market during the second half of this year, the key issue will be which assets can secure funding, rather than how much capital is injected.”