How Banks and Alternative Lenders Are Collaborating in Europe to Expand Capital and Reduce Risk

Over the last few years, the commercial real estate (CRE) market in Europe has seen a systemic change in the way real estate debt is structured. More banks are shifting from balance sheet lending to providing back leverage, a form of debt extended against loans offered by alternative lenders.  

Also known as repurchase agreements (repo lines), or warehouse lines of credit, these facilities are well established in the U.S. but becoming more prevalent in Europe. Essentially, the debt fund sells the bottom tranche of a CRE loan in exchange for giving the bank the senior position. This collaboration helps non-bank lenders expand financing, compete better on pricing and earn higher returns on deployed capital. Meanwhile, banks can limit their exposure to the risks of direct investment, continue to participate in the CRE market, earn healthy margins and improve overall liquidity. 

“These facilities have grown with the expansion of alternative lenders in Europe,” said Eddie Baker, Senior Vice President, Primary Servicing. “Tighter regulations, especially Basel 3.1, are influencing banks to reduce balance sheet lending and move into back leverage. The banks can continue to invest in CRE, gain access to a wider product range, and avoid direct involvement in the day-to-day nuts and bolts of the assets.”  

Back leverage creates a mutually beneficial partnership that offers efficiencies throughout the process, Baker said. “Alternative lenders enjoy greater flexibility to tailor specific solutions to borrowers’ debt needs with faster execution, and then source financing in the background once the deal is closed,” he explained. “Meanwhile, providing back leverage is more capital-efficient for banks than originating individual loans.” 

About half of banks currently offer back leverage, with 20% saying they plan to provide it in the future, according to a February 2025 survey of 100 banks by Knight Frank Capital, a London-based advisory firm. A similar poll of debt funds found 25% currently use it for most transactions, and 80% plan to use it in the next 12 months. About 90% of both groups say they believe back leverage is, or will become, the market standard.  

U.S. investment banks currently dominate the space, though European commercial banks are becoming more active. Some pension funds are looking at the opportunity as well. Non-bank players range from smaller, opportunistic funds to more established firms. 

Back leverage is typically used to finance investment loans, though some banks will do construction financing. Goldman Sachs told Real Estate Capital Europe that back leverage has become a core business, with deal sizes typically exceeding €100 million. The investment bank said repo lines allow it to target a wider range of transactions, including less liquid asset classes, different jurisdictions and the full breadth of the real estate cycle, from ground-up construction to fully stabilized assets. 

These facilities require proper mechanisms and structures to ensure deals conform to both bank and originator criteria and are executed efficiently with process transparency. “Alternative lenders often seek out bank partners with dedicated teams to manage the relationship,” said Baker. “SitusAMC helps with all the due diligence that must go back and forth. We enable a much smoother and more effective process, which saves time and money, and facilitates a better borrower experience.” 

SitusAMC assists lenders in managing their repo lines, including asset management for the underwrite process, such as preparing reporting packages for credit committees approving assets for the line. This helps banks make swifter decisions and deliver funding more efficiently when the loan closes. SitusAMC also provides primary servicing on the underlying loans, and independent appraisals of an asset’s value. (SitusAMC was named Loan Servicer of the Year in Europe in 2024 by Real Estate Capital Europe.) 

“Monitoring those loans whilst they're on the repo line is no mean feat, because there are a lot of moving parts,” Baker noted. 

Though some market participants view back leverage similarly to CMBS, Baker called the comparison inaccurate. “Some banks see this as a sort of exit strategy, almost in the way that CMBS is an exit strategy,” he said. “But CMBS involves all kinds of risk, in that the bank is still involved with the asset. Back leverage is a lower-risk, highly efficient way to be in the market without originating your own loans.” 

Back leverage is here to stay and growing, Baker said. “It's a great source of capital for these nimble debt funds, and an opportunity for banks to participate in the market with less risk,” he noted. “Whether you're a bank that wants eagle eyes on your lending, or an alternative lender looking to better understand the space, SitusAMC can help.” 

For more information on how SitusAMC can assist your operation with back leverage, contact Lisa Williams, Executive Managing Director, Head of Europe, at lisawilliams@situsamc.com or Tom Moreton, Vice President, Business Development,  tommoreton@situsamc.com, or visit our website. Download our white paper, “Unlocking Potential in Europe: 5 Advantages of Outsourcing,” here.