Non-bank lenders have New Year resolution to build market share

Since the latest (mid year) De Montfort report came out earlier this month, one talking point has been how relatively small an impact alternative – or what the report calls ‘other non-bank’ – lenders have had on the property lending market so far. The survey says only £2.7bn of £193bn of outstanding debt is from non-banks and the top 12 lenders in 12 months were all banks and building societies, as at June 2013.

Yet this sets the newcomers against banks’ legacy books, which while still very large, are likely to continue to slowly decline. That £2.7bn is also certainly an underesti-mate – understandably, as getting data from new players doesn’t happen overnight. Notably, in terms of making new loans and taking market share, this group was particularly optimistic, with all respondents planning to increase their loan books.

Peter Cosmetatos, Commercial Real Estate Finance Council Europe’s CEO, was nearer the mark than his old BPF colleague Ion Fletcher, when he told Estates Gazette that the market is in flux as lenders jostle for position. In fact, many lenders report a far  busier second half than first, following a surge in confidence and wider pool of investment deals. The alternative lenders already up and running have had their fair share this month.

There is no doubt that non-traditional lenders will be a very significant force in the next 12-24 months and beyond. A significant 2013 trend was that following two or three years of research into the asset class, institutions with senior debt mandates started to settle on the managers they wanted. Those listed on p11 have £3.5bn of allocated capital, most of it yet to be invested, and these are initial allocations.

US insurers – 30% of north America’s debt financing market, as is frequently pointed out – have huge sums to invest in senior mortgages and are diversifying into Europe. The likes of MetLife and Pricoa only want to expand further – unless returns on senior lending are again driven down to unsustainable levels.

So borrowers’ menu of options is still growing. Wainbridge’s mandate for development finance for prime resi in Grosvenor Crescent is admittedly not a typical deal, but illustrates the point. It had finance offers from clearing banks (the cheapest, but not the most flexible), investment banks, debt funds and money from wealthy private investors who understand luxury residential, advised by a specialist – the option it went with.

This kind of choice is what’s also created a business opening for its adviser, US broker Eastdil Borrowers may have some reservations, particularly about new senior lenders who lack track records. The likes of Hermes and Standard Life say that what they get asked most often is: “Are you going to be around for the refinancing?” One positive answer is the effort and scale of capital they are putting into this strategy. Plus the reputational risk of messing up is high. And how many banks have been able to say with certainty that they would be here to refinance when the time came?