Loan syndication in the UK real estate market is intensifying as foreign banks enter the market, according to property adviser Savills.
Presenting its annual evaluation of the real estate financing sector in London, the firm said there had been 46 new entrants over the past 12 months, bringing total newcomers over the last three years to 150.
But although there had been a jump in overall lending to £45.2bn (€62.4bn) in 2014 from £29.9bn the year before, the size of overall debt was 46% lower than its peak in 2009 and 2010, Savills’ data showed.
William Newsom, senior director of valuations at Savills, said: “Syndication has been driven by investment houses who want to get into commercial property lending but don’t have the platform to do so.”
He said lead arrangers of loan deals were selling down to these parties, and commented that this was good for balance sheets and also good because it spreads risk.
“This process not only has allowed foreign lenders to enter a market which can provide better returns than their own, but also has empowered those existing lenders seeking bigger ticket opportunities,” Newsom said.
Even though yields were low, real estate lending was generating higher returns compared to other asset classes, Savills said.
Because the cost of money was currently so low, there was scope for yields on real estate lending to go lower, it said.
Loan-to-value (LTV) ratios on senior debt were still at low levels, the firm said, but added that, including mezzanine debt, some LTVs were rising to more than 80% from around 60%, bringing them to levels last seen in 2006.
However, Newsom suggested the risks of this were being kept in check. “The mezzanine debt market is on the increase but its both mature and well respected,” he said. It was being provided by specialists who understood the risk and rarely lent on smaller or prime deals, he said.
Recovery in the UK’s regional markets appeared to be showing though with more than 50% of total capital invested in the UK last year being outside London, the firm’s data showed.
On top of this, it said figures showed 2014 had seen the highest ever volume invested by non-domestic parties outside London, and added that this looked likely to continue in 2015.
