Dr. Nicole Lux, Senior Research Fellow at Cass Business School and author of the UK Commercial Real Estate Lending Survey now with a double-billing of Cass and de Montfort University gave an excellent presentation at a dedicated seminar hosted by Allen & Overy on Thu 26th April in London. Nicole Lux is also the teacher of the ‘Understanding RE Debt‘ course provided by Property Overview.
What are the key take-aways from the RE lending survey?
– The total UK real estate debt loan book was flat in 2017 at £199bn, with an additional £34.5m undrawn
– The category ‘other non-bank lending increased during 2017 due to more such providers appearing on the scene
– Loan origination in 2017 is on a par with 2016 at £44bn, and growth in non-bank RE lending also shows here whilst the share of other international banks fell
– The amount of mezzanine debt has been declining since its peak in 2015 (de-risking?), including as % of senior debt
– The sweetspot in term of lean size in 2017 was £20-£50m
– Looking at the size of lenders there were 28 debt providers lending less than £500m in total (i.e. 28 small debt providers). There were 22 between £1-2.5bn loan book and only 6 debt providers above £5bn (of which 2 had a loan book over over £10bn a piece)
– Total amount of debt outstanding has been flat since 2014 but finance margins are still at a historic low (up marginally on 2016)
– Loans outstanding outside the UK: Loans to property in Germany dominates but clear growth was seen in RE lending to the Netherlands and to a lesser extent in France
– Outstanding development loans: £4.3bn to fully pre-let commercial, strong growth in lending to residential for sale @ £15.5bn and another £2.2bn to speculative and part-let commercial property developments
– In development finance less money is going to retail property (are we surprised here?) and residential is the most popular by far
– Secondary property has the lowest LTV at which RE debt is being provided, and not surprisingly secondary retail has the lowest average LTV of all property segments at 56% LTV. However, residential which has the highest LTV still only reaches 59% on average during 2017. Prime office also has a relatively low LTV: as lenders are weary of that market segment being overpriced?
– Non-bank lenders provide more risky loans compared to other providers when measured by the level of Loan-To-Value (LTV)
– Of the different types of lenders the UK banks and building societies are most exposed in terms of maturity as they have the largest % of all types of lenders at 24% with loans maturing this year. This for example with the least vulnerable types of lenders: insurance companies with 5% maturing within the next 12 months. Insurance companies had 23% of their loans outstanding not maturing for another 10 years or more! It confirms the reputation of insurance companies as long-term loan providers
There are more salient points, but I think the above is more then enough! If not, try to get your hands on a copy of the RE debt survey!
For more details about the course ‘understanding RE debt’ with Nicole Lux: https://www.propertyoverview.co.uk/understanding-re-debt