INTERVIEW: 'There's a lot of stress coming for borrowers'

First Property Group, the London-listed property company headed by Ben Habib, has launched a senior lending platform in an effort to exploit gaps in the market after the financial crisis and recent banking turmoil.

Ben Habib, Chief Executive Officer of First Property, says the move came in response to ‘a clear gap in the credit market created by higher interest rates and a retreat of traditional lenders, including banks’. ‘Interest rates are up and loan-to-value ratios are down,’ Habib tells PropertyEU in an interview. ‘Banks are retrenching and it is quite difficult for borrowers to refinance their positions because lenders are requiring low gearing, debt amortization and a much higher interest rate.’

First Property is looking to offer senior facilities secured by existing commercial real estate assets including office, retail, leisure, hospitality, care homes and logistics. The loans would be offered with a maximum leverage of 65%, a minimum term of three years and a maximum of 15 years, a fixed interest rate and no debt amortization required. ‘We believe this is a very compelling loan product because it fully responds to what borrowers need these days,’ Habib notes. The capital for making the loans via the platform will be sourced from First Property's own cash resources and third party investors.

Although Habib does not have a lending volume target in mind, he has ambitious plans for the new business. ‘Our loan platform offers borrowers better terms than are typically available. For these reasons it is a good time to be entering the market. We have already been approached by three or four players to look at potential opportunities which is very promising. If we got our thinking right the lending volume generated will be huge.’  

Some £24 bn of UK commercial property loans are reported as due to expire in the next 12-18 months. Another £5 bn are potentially being sought off market, adds Habib. ‘I think there is going to be a lot of stress for borrowers and since we are property specialists, we can take a much more robust view on loans and not only look at the financial parameters like a bank does.’

The firm will initially focus on the UK market but does not rule out being active in Europe in the future as well. ‘We have been approached by people in Poland and Romania for instance. In these markets, the enforcement of mortgages is more complicated and the legal processing can be lengthy. If we do something there it will be on a safer basis.’

With interest rates increasing and banks retreating from the commercial property lending market, the returns available in making relatively safe loans are potentially more attractive than investing in the underlying property, making a strong case for property investors to enter the lending space in the near future. ‘I suspect we will see more property companies get into lending because they can now get the same return rate from financing as they did from investing in real estate 12 months ago,’ Habib says.

This window of opportunity is not expected to close any time soon, with Habib predicting another two years will pass before the market will see interest rates fall again. ‘I think the situation will continue for some time,’ he explains, ‘we are getting close to the top of the cycle, then the Bank of England will lift rates probably more than it should, at which point we will see more stress in the market and only at that moment will rates be slashed again.’