Lower costs, greater competition drive LTV rise

Investor appetite for debt in Q1 has seen more than half of all requests for loans by value having LTVs greater than 65%, according to Laxfield Capital’s latest UK CRE debt barometer.

It marked a jump from 45% of loan requests for the whole six months to the end of March, implying investors had begun 2015 optimistically. The figure was only 35% during the previous six months.

However, the weighted average of LTV ratios remained steady at 56%, highlighting a two-tier market made up of institutional investors and REITs who are more conservative than returns-driven investors seeking higher-leverage debt finance.

Emma Huepfl, head of capital management at Laxfield said: “Institutional and private investors continue to have a highly restrictive approach to debt finance, contrasting with a growing group of investors seeking leverage to execute a short-term strategy focusing on higher returns.”

“This is not surprising given that funding costs have dropped significantly, with lower interest rates and margins boosting returns,” said Huepfl.

Transaction volumes were in line with the average of the last three years with loan requests totalling £11.3bn during Q4 2014 – Q1 2015.

About 45% of loans sought were to fund acquisitions, 46% debt refinancing and 9% equity refinancing – all similar to the previous period.

Laxfield said it had also seen a notable increase in requests for quotes on long term loans following a period of slow demand. About 20% of requests taken in the period had terms greater than seven years compared to less than 10% for the previous period.

Christian Janssen, head of commercial property debt at TH Real Estate, said: “There is increased demand for debt and for long-term debt, but I would say any calculation has to be taken with a grain of salt as we’re coming from historically low levels.”

“However, the effort and cost of refinancing in three, four or five years, the challenge of finding a new loan, and uncertainty around where interest rates are going to be long term, are making an impact.”