The UK’s Nationwide Building Society has announced that it will end all commercial real estate lending to new and existing customers ahead of a complete closure of its CRE business.
Following a strategic review, the UK’s largest building society said that it had concluded that CRE is not key to its “vision for the future”, adding that resources would be better deployed elsewhere.
“Nationwide already adopts a low risk business model, but by withdrawing from this sector the Society will further reduce its risk profile which, over time, is likely to free up capital which can be re-invested back into initiatives which would benefit the wider membership,” the mutual said in a statement.
Swindon-based Nationwide largely deleveraged its non-core legacy real estate loans through a series of portfolio sales and has been writing new real estate debt on a limited basis. The building society will allow existing CRE loans to run off over the coming years, after which it said it will support customers as they seek to refinance their debt elsewhere.
The firm will, however, continue to provide funding to housing associations and existing private finance initiative (PFI) customers.
Around 275 employees currently work in Nationwide’s Commercial Division, although only those that work in CRE lending are impacted, a company spokesperson told Real Estate Capital. The team will remain focused on serving existing customers for the remainder of their loan terms and Nationwide will seek to eventually redeploy staff to alternative roles where possible, the spokesperson added.
“We believe this is the right time to make this change in the best interests of the society and its membership as a whole as we continue to place sharper focus on our core purpose of building society, nationwide. Over recent years Nationwide has worked hard to successfully reduce its financial exposure to the commercial real estate market and this is the next natural step in this process,” commented Nationwide’s group retail director Chris Rhodes.
In December 2014, Nationwide sold a £1 billion real estate loan book to Cerberus Capital Management for around £680 million. The portfolio, known in the market as Project Carlisle, comprised 115 loans secured by 176 properties including F&C REIT’s Star City leisure complex in Birmingham and the 51 Eastcheap office building in London, managed by Stanhope.
Prior to that, in April 2014, Nationwide sold an €850 million book of loans secured by German property to Oaktree Capital Management. The so-called Project Adelaide was sold for around €650 million.
In its 2016 annual report, published in May, Nationwide said that total CRE assets stood at just over £3 billion (gross), down from more than £4 billion a year earlier. Impaired balances stood at £171 million, down from £608 million.
The firm said that it had undertaken “minimal amounts” of new lending during the year, with activity instead concentrated on ongoing management of the existing portfolio and working out weak CRE exposures.
Non-performing loans had reduced to £226 million at the time of the last annual report, down from £685 million in 2015.
Nationwide was one of the UK’s seven key banks and building societies which last month submitted the results of their latest round of stress tests to the Bank of England. As part of the test, lenders ran an extreme scenario that sees UK real estate values fall by 42 percent in aggregate and almost 50 percent for prime assets. According to CBRE, the worst-case real estate scenario would translate to half of outstanding loans at LTVs down to as low as 60 percent tipping into default.