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RICS Matrics: Funding & Finance Market Update
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RICS Matrics Series
Funding and Finance:
Market Update
November 2014
Simon Wainwright BSc FRICSJ PEISER WAINWRIGHT
#CPDseries
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Funding and Finance: Market Update
• Macro-economic factors
• Finance for property investment & development
• Types of lending
• Who is providing funding - participants
• Funding terms
• Current terms
• Role of professionals
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Economic Background
• US Federal Reserve rate 0.25% - UK Base Rate 0.50%
• UK 5-year SWAP rate 1.79% (2.03% April)
• UK 10-year SWAP rate 2.32% (2.79% April)
• BoE Quantitative Easing £375 bn
• Outstanding property debt £244 bn
• European inter-bank lending weak
• Inflation RPIX 2.3% Sept 2014
• Inflation CPI 1.2% Sept 2014 (1.6% March)
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One Country Two Economies
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Wealth Preservation
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Private Equity
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Market Participants
• The rise and fall of the Debt Based buyer
• The return of the Institutional Investor
• New lenders / investors entering the market
• Foreign investors – Sovereign Wealth funds
• Private Equity and Opportunity funds
• Corporate buyers
• Private investors, trusts and charities
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Property Background
• Investment Volumes £12,667m year to date April 2014.
(Compared to £12,852m in 2013)
• IPD Total Returns for all Property March 2014 13.97%
(February 2014 12.62%).
• IPD Total Returns by sectors March 2014
– Offices 18.86% (February 2014 17.08%)
– Industrial 18.23% (February 2014 16.39%)
– Retail 9.56% (February 2014 8.64%).
• Rental index (monthly rates) up 0.12%
– Offices up 0.38%
– Industrial up 0.03%
– Retail down -0.01%
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Where can you find value?
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Attracting Investment
• What is the risk profile of your investment?
• Does it have intrinsic value and growth potential
• Is it in the right location to attract investment?
• Is it the right lot size?
• Who are the obvious buyers?
• Can you secure debt against any contracted income streams?
• What is the AWULT?
• What is the tenant’s credit risk?
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Glossary of terms
• LTV = Loan to Value ration
• CMBS = Commercial Mortgage backed securities
• NAMA = National Asset Management Agency
• Margins = lending margin over interest rates
• Arrangement fees = charged by banks on loan origination
• Income interest = ration of income to interest
Date Source
UK Commercial Property Lending Survey
De Montfort University - December 2013
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Approximate amount of debt secured by UK
Commercial Property Source: De Montfort University
Source: De Montfort University
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Approximate amount of debt secured by UK
Commercial Property Source: De Montfort University
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Allocation of drawn funding £179.8bn Source: De Montfort University
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Proportion of debt held by 12 largest lendersSource: De Montfort University
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Current LTV ratios by proportion and value of
outstanding debt Source: De Montfort University
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Value of loan originations (£bn)Source: De Montfort University
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New loan originations (£29.9bn)Source: De Montfort University
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Proportion of lending completed by 12 most active
lendersSource: De Montfort University
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No. lenders prepared to lend against varying loan
sizesSource: De Montfort University
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Average interest rate marginsSource: De Montfort University
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Average interest rate margins by project typeSource: De Montfort University
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Average LTV ratios by sectorSource: De Montfort University
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Arrangement fees by sectorSource: De Montfort University
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Interest income cover by sectorSource: De Montfort University
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Lending intentionsSource: De Montfort University
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Active Lenders
• AIG
• Aviva
• AXA
• Barclays Bank
• Bayern LB
• Citigroup
• Deka Bank
• Deutsche Bank
• Deutsche Hypo
• Deutsche Pfandbrief
• Deutsche Postbank
• Helaba
• HSBC
• ING REF
• Landesbank Berlin
• Lloyds Banking Group
• Met Life
• M&G Investments
• Royal Bank of Scotland
• Santander
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Summary
• 2013 saw increasing capital values
• Overall level of property debt continuing to decrease
• Property lending market is diversifying
• There will be no return to 2007/2008 lending
• Improving lending intentions
• LTVs 50% - 60%
• Equity seeking wealth preservation or high returns
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RICS Matrics Series
Funding & Finance
Market Update
November 2014
Simon Wainwright BSc FRICSJ PEISER WAINWRIGHT
#CPDseries