REC Finance Forum: Weight of capital “reduced significantly”

The volume of capital from lenders aiming to finance real estate has dropped “significantly” in the wake of the UK’s vote to leave the EU, delegates at Real Estate Capital’s Finance Forum: Europe 2016 heard yesterday (27 September).

Panellists and speakers at the London event, which concluded this lunchtime, discussed the property financing market across Europe. The topic of the impact of the UK’s referendum on the sector has been frequently raised during the discussions.

Speaking on a lenders’ perspective panel, John Feeney, global head of commercial real estate at Lloyds Bank Commercial Banking, said: “The weight of capital in the market has reduced significantly. It is most so in the development finance market, which was always thin and now few are ready to take that risk.”

Feeney described the seven to 10 year tenor part of the real estate debt market as “a bit parched” but added that there is money available for tenors above and below that.

Paul Wilson, managing director of real estate investments at the London arm of US-based insurer MetLife, explained that fewer parties are chasing deals, meaning margins have risen.

“The market for senior lending is a little more comfortable than six months ago when pricing was tighter,” said Wilson.

As a result of increased risk in the market, Wilson noted that loan-to-value ratios are down and margins are up “a bit”.

German bank Deutsche Hypo has not significantly altered its lending terms after the Brexit vote, with looming regulation more likely to prompt a change in pricing, argued Thomas Staats, head of origination, international property finance.

“Not too much has changed. We’ve seen ups and downs in the last 20 years so we have to cope now with this Brexit vote,” commented Staats.

“Basel IV will be the main driver for repricing CRE finance. It’s going to have a very, very big influence, especially on banks which focus on an internal ratings approach,” Staats added.

On a relative value basis, Staats said that the UK market remains competitive for the German lender, with margins significantly higher than in most other European jurisdictions in which it is active, perhaps with the exception of Spain.

Another panellist, Barry Fowler, managing director of Alternative Income Solutions at UK insurance firm Aviva Investors, argued that the provision of long-dated real estate debt from annuity providers remains as competitive as it was earlier this year.

“We felt that banks were ignoring the seven to 15-year tenor market,” Fowler said. “With the repricing in the market, we’ve seen the opportunity for larger transactions which banks would usually have focussed more effort on.”