The lending landscape in the UK has become more challenging in the first quarter of the year as caution takes hold, but on the positive side the funding market has become more diversified, which means that investors have more doors to knock on, writes PropertyEU correspondent Nicol Dynes.
These were some of the conclusion a panel of experts reached at the spring conference organised by the Commercial Real Estate Finance Council (CREFC) Europe in London last week.
'We have gone from last year’s buoyant market to a very different landscape in the first four months of 2016,' said Sharon Quinlan, managing director of UK Real Estate at Barclays. ‘The level of activity has slowed down considerably and across the board, and we are really only focusing on completing deals originated towards the end of 2015.'
New loan origination by UK banks has reduced from 72% to 39% since the financial crisis, but the market 'has become more balanced and more sustainable with the entry of international banks from Germany to North America, insurance companies and other non-bank lenders,' said Alexandra Lanni, head of transactions at Laxfield Capital.
Quinlan agreed that increasing diversification in the lending market means that investors have alternatives: 'The market is evolving and this is a good thing, there are more finance providers coming from different spheres, so that insurance companies can provide longer term debt, debt funds can take higher risk opportunities to monetise them and so on.’
Quinlan also pointed out that large lenders have their hands tied, as they are penalised by the authorities for doing anything that can be classified as speculative. ‘These are the rules and we have to abide by them,' she said.
In the new climate investors need to explain in more detail and walk the lender through their proposals, said John Bigley, principal at DRC Capital: 'A strong business plan that looks deliverable is more essential than ever.' But in general there is a feeling among investors that 'with ten-year financing rates at all-time lows of 3% and under it cannot really get much better than this.'
A survey of Spring conference participants found that 67% agreed that repositioning or capex deals are slotted out of viable pricing because they are riskier, so it is right that a different shape of capital funds them, and it is still less than the cost of equity. Only 33% of delegates thought the lack of available well-priced senior debt is stifling the regeneration and new supply of assets.
