IPD comments on UK property lending
The IPD has responded to the De Montfort survey on lending to the UK commercial property market, which says that the total stock of debt secured on income-producing UK real estate fell 8% to around £217bn in 2012. This figure is expected to fall as a result of lower new originations and banks selling off loans in response to new capital requirements, among other factors.
The pace of sales from distressed loan books is gaining pace, while the gap in lending left by the banks has not been filled by alternative lenders as expected due to the competition in core market areas, the IPD says. While it is not yet certain how significant the role of alternative providers will be, it is clear that legacy debt issues will be a feature of the UK market for some time to come. To meet their targets, lenders will need to look at good-quality assets outside London – which should boost liquidity in regional markets – and will need to take either whole loans or mezzanine finance, it adds.
“With yields outside Central London office and retail properties at historically high levels and real rental levels well below their long-run norms, there should be ample attractive opportunities for those wanting exposure to debt where this is supported by good investment products with strong cashflow and tenants,” the IPD says. “Market information and analysis of asset quality and income security will be key to rebuilding confidence with capital providers,” it adds.
The IPD says its data clearly suggest that loans secured on good quality stock will return to normal lending parameters more quickly, with an increasingly scarce supply of Grade A stock. “Understanding the asset management fundamentals of the underlying real estate assets and improved monitoring techniques regarding cashflow and market conditions will become increasingly important to those financing commercial real estate,” it says.
