Commercial real estate borrowers in the UK can potentially expect a bonanza of betweeen £5-10 bn (€6-12 bn) as swap mis-selling and poor loan structuring are redressed over the next few years, according to DTZ.
Commercial real estate borrowers in the UK can potentially expect a bonanza of betweeen £5-10 bn (€6-12 bn) as swap mis-selling and poor loan structuring are redressed over the next few years, according to DTZ.
The property adviser made the suggestion in a report exploring the impact of possible swap mis-selling and poor structuring in the UK commercial real estate lending market.
The report notes that many property investors entered into swaps to manage the risk of their floating rate loans. As rates moved, these swaps’ mark-to-market costs have become an impediment to successful refinancing and restructuring. But a close review of these swaps is now expected to unlock this situation.
Evidence from London law firm Collyer Bristow suggests that swap desks did not always structure or sell these contracts appropriately. DTZ says these findings are consistent with a Financial Conduct Authority pilot study on small-and-medium enterprise swaps.
Data from Vedanta Hedging shows that nearly 70 borrowers have already successfully settled out-of-court for a total of £104 mln, reflecting a weighted average of 18% of the original swap notional.
Based on this evidence, DTZ expects many investors will be able to finally renegotiate their legacy loans following these swap reviews. In aggregate, UK borrowers are estimated to benefit from between £5 bn and £10 bn in loan refinancing and restructuring concessions and redress.
Hans Vrensen, global head of research at DTZ, commented: 'The main market implication we expect from these swap reviews is the unlocking of many legacy loan positions and a related further reduction of overall leverage. This is a very positive development for the overall market and its continued recovery.'
