UK banks and other lenders set for bigger property push

LENDING INTENTIONS SURVEY

Lenders expect to raise property lending 24% in 2013, but most fell short of expectations in 2012

Banks and other lenders have earmarked up to £36.3bn in senior debt for UK real estate this year, according to the annual Investment Property Forum/Association of Property Lenders Lending Intentions Survey. This is 24% more than was advanced last year.

The survey canvassed 36 lenders and found that just under half of them intended to boost their activity significantly.

The lion’s share of this debt (55%) will come from UK banks and building societies (see fig 1). Of the new lenders coming on the scene, insurers could provide £4.1bn, or 14%, and others, including debt funds, a relatively modest £1.8bn, equating to 5%.

02.13 Fig 1 p14However, there is still a contingent of foreign banks active in the UK. German lenders, despite being reduced in firepower by the withdrawal of Eurohypo and others, still expect to lend around £4.5bn, accounting for 14% of the total, and other foreign banks only slightly less, at £4.1bn.

These non-UK, non-German banks include newer market entrants such as Standard Chartered, Bank of America Merrill Lynch and US bank Wells Fargo.

The latter is planning a major European expansion, with senior executives Robert Maddox and Cullen Powell moving to the bank’s London office to lead the drive.

Wells Fargo steps up UK lending

“With the addition of these two seasoned senior leaders in London, we are well positioned for growth and anticipate an increase in UK lending volumes this year,” says Chip Fedalen, head of Wells Fargo’s commercial real estate institutional and metro markets group.

“With a void in capital providers in UK commercial real estate, we see a tremendous opportunity to support our clients doing business in the UK and to expand delivery of these services to US and UK-based real estate companies.”

Of the £36bn of debt potentially available in 2013, one third is destined for refinancings (or early restructuring) of lenders’ legacy loans, and two thirds for new lending.

02.13 Fig 2 p14Insurers plus German and other non-UK banks will be mostly funding new loans – more than 80% of their allotted £13.9bn is targeted at this area. UK banks foresee their debt being split 50:50 between refinancing/restructuring and new lending.

However, lending intentions do not always translate into actual loans; in 2012 only £28bn of the £33bn of debt forecast to be provided made it into the market, on a like for like basis (see fig 2).

This appears to be partly due to a lack of deals, because much of the debt was chasing the same assets: prime property in top locations.

New lenders in particular fell far below their expectations. Insurers completed 45% less than expected and other non-bank lenders 93% less; the latter loaned a mere£42m.

‘Shadow bankers’ increase their share

However, most of these lenders were only just setting up in business and as they gain traction, the market share taken by these ‘shadow bankers’ will increase.

“With the addition of two seasoned senior leaders in London, we are well positioned for growth and anticipate an increase in UK lending volumes this year” Chip Fedalen, Wells Fargo

UK and German banks also provided 27% and 35% less capital than predicted in 2012, respectively; the only lenders to do more business than forecast were the other foreign banks, which provided 17% more debt than they initially expected to.

The survey found that there is a potential £4bn of debt for development this year – double last year’s figure. But the numbers are not strictly comparable, as not all the same lenders participated in both years.

Four of the 12 lenders that said they would provide this kind of finance also said they would consider backing speculative development.

The survey also found that the average loan-to-value ratio for senior debt is now 66%, while margins range from 200-400bps, with the average being 297bps.

 

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