Non-bank lenders rapidly expand into commercial property

22/05/2014
Insurance companies, debt funds, asset managers and other alternative lenders are rapidly expanding into the commercial property sector, according to new research. They are taking over from the mainstream banks that are still scaling back their real estate lending after getting their fingers burnt in the financial crisis.
Nearly a quarter of new UK commercial property loan originations came from non-bank lenders in 2013, researchers at De Montfort University found. Of this, about half came from insurance companies, which first moved into the property lending market after the financial crash in 2008.
In the past 18 months they have been joined by a rapidly growing array of other non-bank lenders, including hedge funds and private equity investors, the researchers found. Some 11 per cent of new loan originations came from these lenders in 2013, more than double the market share they took in 2012.
Alternative lenders have rapidly expanded their activity across the European debt markets, with research this year finding that the number of deals they financed rose from 18 in the first quarter of 2013 to 56 by the final quarter of the year.

Their activity is particularly focused on leveraged buyouts, but they are becoming more common in property debt funding as well.
British banks made just 43 per cent of the commercial property sector’s £30bn new loan originations in 2013, down from 72 per cent of the market in 2008, the De Montfort researchers found. New lending from banks in other countries has remained relatively steady during the past five years, at about a quarter of the market.
As banks continue to scale back their involvement, total loans made against commercial property fell by 9.1 per cent year-on-year to £180bn, according to the researchers.
Bill Maxted, one of the academics who carried out the research, said that investors were searching for yield as a result of the low interest rate environment, while an increasing amount of capital from emerging markets was looking for assets to invest in. Margins in Britain are more attractive than those of the US.
The British property lending market has changed “dramatically” during the past year as a result, Mr Maxted said.
“There are more lenders in the market and there is a real competition, with interest rate margins falling and loan-to-value ratios rising,” he said. “There are some quite aggressive terms being offered by debt funds in particular, and a relaxation of the lending terms that are being offered generally as a consequence of this sharp turnround.”
The inflow of capital from new sources has helped to kick-start the commercial property market, with asset values beginning to rise after half a decade of slump and then stagnation. This is helping bank lenders to unwind their legacy lending, which until now has been under water, Mr Maxted said.
Some £31bn worth of loans are still underwater, with LTV ratios of more than 100 per cent – down from £45bn the previous year.
Chris Holmes, head of UK debt at advisers JLL Corporate Finance, said that lenders’ balance sheets had now been “materially cleansed” of the debt hangover from the financial crisis.
As a result of rising values, half of all loans are now to property classed as prime – the highest quality – up from 42 per cent in 2012. Nearly two-thirds of loans had a loan-to-value ratio of 70 per cent or below, up from 53 per cent the previous year.
Liz Peace, chief executive of the British Property Federation, said: “There has been a general feeling of improving credit availability in the past 12 months. The banks seem to have significantly patched up their balance sheets and problem loans are being resolved, freeing up capital for new lending.
“Non-bank lenders are becoming a significant part of the market, suggesting we are moving towards a more balanced provision of real estate debt in the UK.”

Fonte: ft.com

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