REAL ESTATE LENDING
Bank ramps up property lending target for 2013, as lenders’ appetites grow, reports Jane Roberts
UK banks’ increased appetite for lending on property has been one of the biggest changes in property finance in the past six months.”There is pressure on the banks for a variety of reasons,” explains one experienced property finance source. “Firstly, new players have put pressure on the banks, which is a good thing. Secondly, the regulator is putting pressure on them to liquidate their non-core books, saying ‘we’ve been helping you for six years and don’t want you playing the arbitrage between taking cheap funding and making more expensive loans, without also clearing your legacy books’.”
The only way for the banks to take more impairments and be profitable is to earn more fees and put out more money. Royal Bank of Scotland and Lloyds have set their 2013 real estate lending target at £6bn each – at least 50% more than last year for RBS, and for Lloyds, considerably more than in 2012. The £12bn would represent almost half of all new lending written last year, but can they manage to do it?
Feeney ready to take relationships to a deeper level
“We cover more significant real estate clients than any other lender,” says Lloyds’ new head of global corporate real estate, John Feeney. “But we don’t want to just be a traditional balance sheet lender; my job is to pull together deep borrowing relationships and forge a distribution approach.”
Just as Feeney joins Lloyds with a remit to use his debt capital markets background to help clients understand what will attract investors and how to execute their funding strategies effectively, liquidity is returning to the market. Lloyds priced and sold a £380m, quasi CMBS/corporate bond for Unite Student Accommodation Fund this month, in a deal that was three times oversubscribed, for example.
There are other deals in the pipeline that “will show we can sell more nuanced bonds”, Feeney adds. “We’re looking at a bunch of opportunities. This year will see progress towards more loan syndication and I wouldn’t be surprised if we close a CMBS. The market is hungry for paper and good quality credit and we feel well placed to supply it.”
“At this stage it is aspirational,” agrees Martin Green, managing director and head of Lloyds’ mid-markets corporate real estate team. “The bank wants this to be sustainable and won’t take a short-term view of whom it wants to bank. But the pipeline is very strong and roughly evenly spread across our three property lending businesses.”
Those businesses are: global corporate real estate; SMEs (small/medium-sized enterprises) corporate real estate lending; and his own mid-markets corporate team, which focuses on lending senior debt up to £100m per loan to all but the largest property firms, funds and REITs, across the country.
Reporting to Green are Brian Darling, head of business development and social housing; Gabrielle Berring, head of lending in London and the South East; Midlands head Ian Martin; and John McWilliam, based in Scotland.
“We have a mandate to back new relationships and think 50% will be lending to new clients and the other 50% existing core relationships,” says Darling.
Berring, who works in the most competitive region, admitted at last month’s Loan Market Association conference that it is not easy to find things to lend against. In the capital, equity buyers are pipping Lloyds customers to the post and pricing is hugely competitive, although Lloyds can use cheap money from the government’s Funding for Lending scheme across its real estate operations.
Tapping into work-out expertise
Deals also have to tick all the boxes for credit committees that prefer long cashflows to asset management deals – the area where borrower demand looks set to grow. One way to potentially increase this business, Green says, is “to tap into asset management skills in Richard Dakin’s Business Support Unit (BSU).
Like the other big UK clearing banks, Lloyds is keen to build relationships with more than just a secured debt angle. “Value Retail is a classic example,” Green says. In April, Lloyds led a £320m refinancing of Value Retail’s flagship Bicester Village outlet, freeing cash to pay down an expensive loan and refinancing the asset. Taking £110m in a club with Helaba, RBS and Santander, Lloyds also became banker to the company.
Green says: “We have for some time been the key banker for Value Retail’s Kildare Village [near Dublin], which had moved out of the BSU. But we had to wait patiently for Bicester to come round.”
There are openings to replace retreating banks, such as DG Hyp and WestImmo in the Bicester club, and Clydesdale in recent loans such as £38m to South West developer Eagle One and £83m for Midlands-based IM Properties.
The mid-markets corporate real estate team has closed 24 new deals so far in 2013.
The focus is on three- to five-year terms; slotting means a longer loan rarely works. “We’d have to seek clearance higher up the bank,” Green says. “But flexibility is an enormous element of what borrowers need and that suits clearing banks, which are probably happy for other business to be picked up by insurers and pension funds.”