(Bloomberg) -- Bruised by Covid, war and interest rate hikes, real estate investors at the Mipim conference in Cannes this week had a new topic on their minds: the alarming plunge of Credit Suisse Group AG, which threatened to bring a US bank meltdown to their doorsteps.

More than 23,000 investors, brokers, bankers and assorted hangers-on flocked to the French Rivera for the annual real estate conference earlier this week, hopping between sponsored yachts and hotel suites and intending to pick over the few deals currently being shopped around. Instead, they spent the first few days nervously glancing at headlines on their phones, trading updates on the latest bank to wobble. Attendees at a reception hosted by Goldman Sachs Group Inc. on Wednesday could talk of little else. 

Read more: Investors Pile Into Property Debt as Banks Bail on Landlords

“I would say with Credit Suisse, most institutions in Europe have a relationship and therefore everyone who is down here is impacted,” said Torsten Hollstein, managing director at CR Investment Management, which recently pivoted to focus on non-performing real estate loans. 

“I have heard from a few bankers who are here — their headquarters have been on the phone, they are reviewing their liquidity positions and that’s all liquidity which will be missing in the real estate debt market,” he added.

The latest bout of volatility was unleashed by last week’s collapse of Silicon Valley Bank, which triggered a drop in stocks and encouraged depositors at several regional lenders to move their money to larger banks. Some of those banks have been significant lenders to real estate, raising concerns about the availability of debt. 

“No one in the real estate industry had heard of SVB before Friday,” said Isabelle Scemama, global head of AXA IM Alts, the largest real estate investment manager in Europe. “It is always the swans you don’t expect.”

Transaction volumes for European real estate have fallen off a cliff as investors have struggled to underwrite deals in the face of an uncertain outlook on rates. The final quarter of last year was the worst on record for European real estate returns, according to an index produced by MSCI Inc., and the volume of London office sales hit a 20-year low.  

“It is crystal clear that capital is escaping the real estate sector and going into alternative sectors like fixed income,” CommerzReal AG Chief Executive Officer Henning Koch said in an interview. “So that means the investment market is dead at the moment.”

The end of the low interest rate era has prompted banks to pull back from property lending, creating a funding gap for investors with maturing loans, about €200 billion of which will come due in Europe this year and next. While Silicon Valley Bank focused on the technology sector, its collapse has stoked fears that bank financing for real estate could further dry up if more lenders are caught up in the turmoil. 

“There is inter-linkage in the market and that’s the real concern: is there some feedback effect?” said Jani Nokkanen, Chief Investment Officer of Nordic Real Estate Partners. “Fundamentally, it is all about psychology.”

SVB’s collapse has also shifted traders’ bets on when the Federal Reserve might start cutting rates, and how far that will go. That speculation has helped lift real estate stocks, and particularly those of Nordic landlords whose share prices have become closely correlated with the expectations of future rate hikes.

“We are definitely in a topsy-turvy world, so good news is bad news and bad news is good news,” said Alexander Knapp, Hines Chief Investment Officer for Europe.

Shifting expectations about rate hikes roiled real estate this year, as early optimism that central banks had managed to tame inflation gave way to uncertainty prompted by better-than-expected data on jobs, economic growth and inflation. The risk that future rate hikes might drive property prices down even further has made it hard for investors to underwrite acquisitions.

“This is the hardest market to underwrite that I can remember in my entire career due to the terminal rate uncertainty,” Dana Gibson, head of real estate for Europe at Macquarie Asset Management, said. 

One of the few big deals announced at Mipim was Poseidon Hospitality’s purchase of the Pullman Cannes Mandelieu Royal Casino, a 213-room beach-side property owned by the Blackstone Inc-backed French casino operator Joa. Broker CBRE Group Inc. advised on the transaction. 

The conference, the biggest real estate event of its kind in Europe, drew investors from more than 90 countries and 2,400 businesses, according to organizers RX France. Despite the grim backdrop, about 23,000 attendees were expected to attend over the course of the week – a 15% increase over last year, and the most since 2019. 

Mipim director Nicolas Kozubek framed the high turnout as a reflection of how urgent it was for cities and municipalities to secure capital investment in light of the “end of low interest rates and continuing macroeconomic and geopolitical uncertainty.” 

Some attendees had a different interpretation. Everyone sent huge teams because nobody has any deals to work on, one private equity executive joked.

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