Lenders have the opportunity to find 'hidden gems' in the market for UK secondary property, according to Savills. Secondary and tertiary property account for about 75%, or more than £250 bn (EUR 282 mln) of the total of £350 bn of debt in the UK commercial property market, the international property adviser believes.
Lenders have the opportunity to find 'hidden gems' in the market for UK secondary property, according to Savills. Secondary and tertiary property account for about 75%, or more than £250 bn (EUR 282 mln) of the total of £350 bn of debt in the UK commercial property market, the international property adviser believes.
Savills revealed its findings during its annual financing property presentations in the City of London last week.
Addressing lenders on the issue of a 'two-tier and two-speed market', Savills said that there are some 'hidden gems' in the secondary market for those in a position to lend, making secondary the area of opportunity in 2011-12.
Savills also said that, whilst loan-to-value breaches and issues with existing loan books remain, having had two to three years to asses the situation, banks have taken stock and are able to take a more carefully considered view. The multi-tiers of the market have been accepted, enabling them to adopt a more rational approach to existing loan books, which are not holding back new lending ambitions.
Referring to De Montfort University research, Savills reports that lenders have begun to address the £46 bn of loans due to mature this year.
Savills suggested that loan-to-value ratios will continue to stick at 60-65% as lenders remain cautious and the impact of Basel III requires higher regulatory capital reserves. This will fuel the continued shift towards equity funding from UK institutions, sovereign funds and opportunity funds, according to the presentation.
William Newsom, Savills UK head of valuation, said: 'Debt availability continues to be an issue for this market and we have witnessed a reversion to the historical model of the 1950's, 60's and 70's where higher levels of equity are required. However, the market is awash with equity including a new wave of mezzanine providers that can take advantage of low loan to value ratios in order to bridge the gap between senior debt and equity.
'For lenders, the increased equity in the market will provide good opportunities for deleveraging by up to 30% of the total loan book. This will involve properties being packaged into saleable portfolios that combine a compatible mix of assets. We do not expect the release of this stock to destabilise the market.'
