The lowering of banks' loan-to-value (LTV) ratios means borrowers need significantly more capital in order to secure a loan than was previously the case, and one way of filling this gap is with mezzanine debt. The combination of these elements put real estate fund managers in a good position when negotiating debt terms with borrowers, resulting in favourable returns for investors.

Paul Richards, European head of Mercer's Real Estate Boutique, said: "Following the drop in values in real estate markets and new regulatory restrictions on banks, borrowers are finding it increasingly difficult to refinance their debt following traditional routes. This has created great investment opportunities for non-traditional lenders, such as institutional investors."

Estimates from Mercer put the funding gap for Europe at over $195bn in 2010-2011, with half coming from the UK and a third from Spain. In the US, the gap is estimated at $300bn to $400bn for the next three years, provided LTVs stay at the current level. In Australia, the gap is estimated at $8.8bn.

Richards said: "We believe this investment opportunity will exist until the funding gap in real estate has disappeared. This is unlikely to happen until loans made at the top of the market in 2007 have been repaid, refinanced, restructured or foreclosed.

"As with any investment opportunity there are inherent risks. Investors must be careful to consider how such an opportunity fits within their own investment strategy and portfolio.

"There should also be considerable emphasis on the review and selection of the best managers. It is rare to find a manager who combines debt-structuring skills with core property underwriting skills, and Mercer researches and assesses a universe of such managers."