Research findings of the survey into THE UK COMMERCIAL PROPERTY LENDING MARKET De Montfort University Nicole Lux

Transcription

1 Research findings of the survey into THE UK COMMERCIAL PROPERTY LENDING MARKET 2016 De Montfort University Nicole Lux

2 Trends in value of outstanding debt Loan originations Structure of outstanding loan books Loan terms Conclusions and Issues

3 TOTAL MARKET DEBT YE Total 233.9bn 235.3bn Less undrawn: 211.7bn (2015) To 208.7bn (2016) Decline 1.5% Undrawn loan amounts CMBS Annual accounts Other Non-bank Lender Insurance Companies All Banks

4 DMU TOTAL DEBT YE , , , , , ,000 80,000 60,000 40,000 20,000 - Total outstanding loans 2016 Senior Junior & Mezzanine Undrawn amounts Total book size 2016 All Lenders 164, ,450 3,400 26, ,466 Other Non-bank Lenders 13,122 10,541 2,581 1,455 14,578 Insurance Companies 24,169 23, ,978 All Banks 127, , , ,911

5 ORIGINATION VOLUME BY LENDER UK Banks & Building Societies German Banks Other Int Banks N. American Banks Insurance Companies Other Non-bank Lenders

6 TOTAL ORIGINATION BY LENDER Total 44.5bn 53.7bn 100% 90% 80% 70% 60% 50% 40% 10% 9% 10% 16% 8% 13% 14% 13% 14% 13% Other Non-bank Lenders Insurance Companies North American Banks Other International Banks 30% German Banks 20% 10% 47% 34% UK Banks & Building Societies 0% Total Origination 2016 Origination 2015

7 TYPE OF ORIGINATION BY PROJECT 100% 13% 11% 90% 13% 4% 4% 80% 5% 70% 60% 50% 40% 83% 84% 77% 30% 20% 10% 0% YE 2014 YE 2015 YE 2016 Investment Commercial Development Residential Development Other

8 TYPE OF ORIGINATION BY PROJECT 100% 90% 80% 70% 60% 50% 40% 30% 20% 10% 0% 7% 20% 5% 69% UK Banks & BS 0% 3% 2% 0% 4% 4% 1% 9% 10% 5% 0% 1% 5% 24% 88% German Banks 83% Other International Banks 91% 95% North American Banks Insurance Companies 9% 66% Other Nonbank Lenders Investment Commercial Development Residential Development Other

9 TOTAL SYNDICATION & PARTICIPATIONS 20,000 18,000 16,000 14,000 12,000 10,000 8,000 6,000 4,000 2, UK Banks and Building Societies German Banks Other Int Banks North American Banks Insurance Companies Non Bank Lenders

10 WILLINGNESS TO LEND AT DIFFERENT TICKET SIZES (INVESTMENT) < 5m >5-10m >10-20m yes >20-50m maybe no >50-100m above % 20% 40% 60% 80% 100%

11 WILLINGNESS TO LEND AT DIFFERENT TICKET SIZES (DEVELOPMENT) < 5m >5-10m >10-20m yes >20-50m maybe no >50-100m above % 20% 40% 60% 80% 100%

12 OTHER NON BANK LENDERS: TICKET SIZES (INVESTMENT) < 5m >5-10m >10-20m yes >20-50m maybe no >50-100m above % 20% 40% 60% 80% 100%

13 OTHER NON BANK LENDERS: TICKET SIZES (DEVELOPMENT) < 5m >5-10m >10-20m yes >20-50m maybe no >50-100m above % 20% 40% 60% 80% 100%

14 AVERAGE LOAN SIZE ORIGINATED m Max Average Min UK Banks and BS German Banks Other International Banks North American Banks Insurance Companies Other non-bank Lenders All Lenders

15 Trends in value of outstanding debt Loan originations Structure of outstanding loan books Loan terms Conclusions and Issues

16 BANKS BOOKS CONTRACT Y-O-Y IN % 35% 30% 25% 20% 15% 10% 5% 0% -5% -10% -15% 33.7% 31.2% 16.6% 27.6% 18.5% 16.2% 13.9% 13.2% 10.5% % % -2.1% -8.8% -6.0% % -7.7% -8.5% 0 Aggregated loan book size bn (RHS) % change in book sizes (LHS)

17 UK BANKS & BS STABILISE MARKET SHARE 100% 90% 80% 70% 60% 50% 40% 30% 20% 10% 0% 2% 0% 2% 0% 2% 0% 2% 0% 1% 0% 1% 0% 1% 0% 16% 18% 21% 22% 23% 20% 20% 10% 11% 9% 10% 10% 11% 12% 72% 69% 68% 66% 66% 68% 66% 1% 4% 6% 7% 8% 8% 8% 1% 10% 2% 13% 15% 15% 15% 20% 5% 19% 6% 7% 5% 16% 13% 16% 13% 15% 10% 10% 11% 11% 11% 57% 55% 50% 45% 46% 47% MY 2016 UK Lenders and Building Societies Other International Lenders Insurance Companies German Lenders North American Lenders Other Non-bank Lenders YE 2016

18 LOAN-TO-VALUE EXPOSURE BY LENDER 100% 90% 80% 70% 60% 50% 40% 30% 20% 10% 0% 3% 2% 2% 5% 2% 2% 1% 2% 1% 2% 12% 3% 6% 5% 7% 5% 7% 10% 7% 11% 50% 52% 53% 45% 40% 32% 37% 37% 36% 23% MY 2016 YE 2016 Only 3% of loans are above 100% LTV at YE 2016 (4% at YE 2015) >120% 100% - <120% 85% - <100% 70% - < 85% 50% - <70% <50%

19 LOAN-TO-VALUE EXPOSURE BY LENDER 100% 90% 80% 70% 60% 50% 40% 30% 20% 10% 0% 2% 0% 2% 4% 0% 2% 0% 0% 4% 6% 8% 21% 58% 49% 54% 74% 42% 63% 39% 39% 40% 40% 24% 14% >120% LTV 100% - <120% LTV 85% - <100% LTV 70% - < 85% LTV 50% - <70% LTV <50% LTV

20 MATURITY PROFILE OF LOAN BOOKS 20% 18% 16% 14% 12% 10% 8% 6% 4% 2% 0% yr 2yr 3yr 4yr 5yr >5yr >10yr Total volume ( bn, RHS)

21 TOTAL LOAN BOOK VALUE - DEVELOPMENT Total development finance increased to 20.2bn in 2016 from 16.2bn in 2015 on loan books Total of loan book allocated to commercial speculative and part pre-let development Total of loan book allocated to residential development for sale Total of loan book allocated to fully pre-let commercial

22 REGIONAL EXPOSURE OVER TIME 100% 90% 80% 70% 60% 50% 40% 30% 20% 10% 0% 9% 12% 15% 14% 21% 17% 18% 13% 17% 13% 15% 10% 7% 8% 8% 7% 15% 16% 14% 17% 15% 13% 17% 16% 4% 6% 5% 5% 6% 5% 6% 12% 6% 11% 14% 16% 17% 17% 15% 14% 12% 14% 11% 14% 17% 15% 16% 14% 23% 20% 19% 25% 18% 18% 17% 18% 15% 15% 14% 15% 44% 48% 39% 30% 28% 25% 27% 27% 26% 30% 30% 34% Central London share rising Other Scotland North Midlands&Wales South East Central London

23 LENDER BY REGIONAL EXPOSURE 100% 90% 80% 70% 60% 50% 40% 30% 20% 10% 0% 12% 5% 17% 13% 13% 39% 2% 5% 3% 4% 5% 9% 9% 9% 12% 13% 67% 62% 13% 6% 13% 2% 6% 7% 2% 9% 11% 8% 11% 11% 14% 29% 16% 45% 50% 45% Other Scotland North Midlands/Wales Rest of SE Central London

24 PROPERTY TYPE EXPOSURE OVER TIME 100% 90% 80% 70% 60% 50% 40% 30% 20% 10% 0% 7% 11% 6% 9% 5% 13% 14% 13% 13% 10% 6% 6% 7% 3% 6% 6% 8% 8% 9% 9% 10% 5% 11% 10% 10% 5% 5% 4% 10% 10% 11% 11% 18% 15% 17% 17% 10% 10% 9% 5% 4% 6% 8% 9% 9% 16% 13% 21% 20% 17% 19% 17% 16% 16% 17% 13% 0% 8% 9% 16% 24% 27% 28% 25% 23% 23% 24% 26% 23% 23% 26% 29% 29% 28% 26% 23% 23% 21% 22% 21% 22% 22% 20% 21% Other Social Housing Leisure Industrial Residential Offices Retail

25 Trends in value of outstanding debt Loan originations Structure of outstanding loan books Loan terms Conclusions and Issues

26 UK LOAN MARGINS MOVED UP DURING Average margin for Prime Office Loan at 65% LTV UK Banks & BS German Banks US Banks Other International Banks Insurance Companies University

27 LOAN MARGINS FOR PRIME OFFICE Year Senior Debt Junior Debt Mezzanine Max LTV% Margin bps Max LTV% Margin bps Max LTV% Margin bps , , MY YE

28 LOAN MARGINS BY PROPERTY TYPE Senior margins (bps) Margin (average) 65% LTV Arrangement fee (average) Average LTV Prime office % Prime retail % Prime Industrial % Secondary office % Secondary retail % Secondary industrial % Residential investment % Hotel % Student Housing %

29 HISTORIC MARGINS BY PROPERTY TYPE Prime Office Prime Retail Prime Industrial Secondary Office Secondary Retail Secondary Industrial Residential Investment 0

30 LOAN MARGIN FOR DEVELOPMENT Fully Pre-let Office Development 50% Pre-let : 50% Speculative Office Development Speculative Office Development Resi development

31 REAL ESTATE LENDING & RELATIVE VALUE Jan-12 Mar-12 May-12 Jul-12 Sep-12 Nov-12 Jan-13 Mar-13 May-13 Jul-13 Sep-13 Nov-13 Jan-14 Mar-14 May-14 Jul-14 Sep-14 Nov-14 Jan-15 Mar-15 May-15 Jul-15 Sep-15 Nov-15 Jan-16 Mar-16 May-16 Jul-16 Sep-16 Nov-16 Jan-17 West End (property yield) Banks' mortgage interest received (floating) Greater London (property yield) Borrower's total lending cost (fixed)

32 BORROWER COST OF DEBT Asset Value V Assumption Net Income Return IR Assumption 3.5% 3.5% 3.5% 3.5% 3.5% Interest Rate rd Margin + swap 3.0% 4.0% 5.0% 6.0% 7.0% DSCR Covenant LTV Debt ICR/DSCR

33 Trends in value of outstanding debt Loan originations Structure of outstanding loan books Loan terms Conclusions and Issues

34 KEY CONCLUSIONS Origination volume was down 17% from previous peak in 2015, but UK Banks & BS Increased volume of origination, regaining market share, but more refinancing than acquisition Extended property cycle due to low interest rests and support of the general economy and keep loan margins low, despite Increase in 2016, but narrowing of prime versus secondary Current LTV lending is conservative, 55% - 60% LTV, but property yields are ultra low: What is going to happen when the 60% LTV loan becomes 80% LTV when yields rise? What about mezzanine positions? Increasing specialisation of lenders, such as Insurance Companies and Other NBL ICRs under pressure despite low interest rates due to low yielding properties should debt yield be a more important measure to size debt?

35 MANY THANKS TO ALL OUR PARTICIPANTS Aalto Invest LLP Cornerstone Real Estate Advisers Europe LLP Metropolitan Life Insurance Company Aareal Bank AG Coutts and Company Morgan Stanley Aeriance Investments S.A.R.L Credit Agricole Corporate & Investment Bank Münchener Hypo Bank EG AgFe DB Realisations Building Society N M Rothschild and sons AIG Asset Management (Europe) Limited DekaBank Nationwide Building Society Allied Irish Bank (GB) Deutsche Bank AG Newcastle Building Society Aldermore Deutsche Hypothekenbank AG Och Ziff Capital Management Aviva Investors Real Estate Finance DG Hyp Oversea-Chinese Banking Corporation Limited Axa Real Estate DRC Capital LLP Pacific Life Bank of America Merrill Lynch Dunbar Bank plc Partners Group (UK) Ltd Bank of Ireland Group Europa Capital Mezzanine Ltd Partnership Life Assurance Company Barclays GAM International Management Limited pbb Deutsche Pfandbriefbank Bayern LB London Branch GreenOak Real Estate Pluto Finance Berlin Hyp AG Helaba Landesbank Hessen-Thüringen Pramerica Real Estate Investors (Europe) Blackstone Real Estate Debt Strategies HSBC Bank plc Pricoa Mortgage Capital (incl Friends Provident) BNP Paribas ICG-Longbow Principality Building Society Bristol & West Property Finance ING Real Estate Santander Corporate & Commercial Banking Cain Hoy Enterprises (UK) Limited Investec Bank (UK) Ltd Standard Life Insurance Cambridge and Counties Bank J P Morgan Securities Starwood Capital Europe Advisers LLP Canada Life Ltd Laxfield Capital Société Generale Chenavari Investment Managers Landesbank Baden-Wüerttemberg Sumitomo Mitsui Trust Bank Limited Cheyne Capital Management (UK) LLP LaSalle Investment Management TH Real Estate Citi Group Leeds Building Society The Royal Bank of Scotland Close Brothers Property Finance Legal & General UBS Asset Management Contour Capital Lloyds Banking Group Urban Exposure Limited M & G Investment Management Ltd Wells Fargo Bank International West Bromwich Commercial Ltd

36 MANY THANKS TO OUR SUPPORTERS At year-end 2016, data was received from a total of 77 lending teams operating out of 76 lending organisations. The lending teams comprised of 43 Banks and Building Societies, 12 Insurance Companies and 22 Other Non-bank Lenders. News about the survey, new analysis available and presentation dates can be found under The authors gratefully acknowledge the generous financial support provided by Allen & Overy, Association of Property Lenders, the Bank of England, Bilfinger GVA, British Property Federation, Canada Life Ltd, Capita Asset Services, Commercial Real Estate Finance Council Europe, Fitch Ratings, GIC Real Estate, Helaba, Jones Lang LaSalle Corporate Finance Limited, Kingfisher Property Finance Limited, Savills and The Royal Bank of Scotland

37 THE PANEL Chair: Marc Mogull Managing Partner, Benson Elliot Capital Management and Senior Fellow, Land Economy, Cambridge University and Chairman, Bank of England Commercial Property Forum Amy Aznar Head of Debt and Special Situations, LaSalle Investment Management Paul Coates Managing Director, UK Real Estate Finance, The Royal Bank of Scotland Emma Huepfl Co-Principal, Laxfield Capital Michael Kenney Managing Director, Head of UK Clients, pbb Deutsche Pfandbriefbank Cameron Spry Senior Partner and Head of Investments, Tristan Capital Partners