UK - More than three-quarters of UK commercial real estate loans could be in breach of their loan to value (LTV) covenants and there could be up to £50bn (€57bn) of negative equity in the market, according to William Newsom, head of valuation at Savills.

Speaking at Savills' annual property financing presentation in London, Newsom aired his cynicism of recent research, citing respective estimates from De Montfort University and Barclays Capital suggesting 6.5% of loans and more than 5% of sterling-denominated commercial mortgage-backed securities (CMBS) are in breach as "rubbish".

"My guess is that at least 75% of all loans are in breach of at least the LTV covenant - if one existed in the first place," he said.

Newsom also stated that the average LTV of all investment loans granted during 2004-07 now stands at more than 100%, while the average for all loans granted during the previous five years exceeds 85%.

Total negative equity in UK commercial real estate, meanwhile, could be anything from £38bn to £50bn, he said, if you account for development lending, which is likely to be "further underwater" than investment loans.

Newsom was speaking to an audience of lenders who had attended to hear his thoughts on the theme ‘strategies for lenders: buy, sell or hold'.

However, he was fairly blunt on the question of how lenders will manage to get their money back from UK real estate loans. "For the most part, they won't," he said.

Most of the debt in the system will stay there for the short- to medium-term, Newsom predicted.

"Debt is locked into the sector and lenders need to work towards stabilisation to see a return on their money," he said.

"Deleveraging at this stage will result in significant losses and so we are seeing lenders sticking with existing customers and extending loans by one, two, three, five and in one case even eight years."

Newsom listed 22 organisations prepared to lend against UK real estate to new customers in 2009 - almost double the number listed by Savills in March.

He said the "names ebb and flow, week by week", but he had detected "an easing of the market, despite continuing negativity in certain quarters".

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