RICS Matrics Funding Finance Market Update 2015

RICS Matrics Series

Funding and Finance: Market Update

September 2015

Simon Wainwright BSc FRICSJ PEISER WAINWRIGHT

#CPDseries

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

Economic Background

• US Federal Reserve rate 0.25%• UK Base Rate 0.50%• UK 5-year SWAP rate 1.45% (1.79% Nov)• UK 10-year SWAP rate 2.16% (2.32% Nov)• BoE Quantitative Easing £375 bn• Outstanding property debt £244 bn• European inter-bank lending weak• Inflation RPIX 0.0% Aug 2015• Inflation CPI 0.0% Aug 2015

One Country Two Economies

Wealth Preservation

Private Equity

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

Where can you find value?

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?

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 SourceUK Commercial Property Lending SurveyDe Montfort University

Approximate amount of debt secured by UK Commercial Property Source: De Montfort University

Source: De Montfort University

Approximate amount of debt secured by UK Commercial Property Source: De Montfort University

Allocation of drawn funding £179.8bn Source: De Montfort University

Proportion of debt held by 12 largest lendersSource: De Montfort University

Current LTV ratios by proportion and value of outstanding debt Source: De Montfort University

Value of loan originations (£bn)Source: De Montfort University

New loan originations (£29.9bn)Source: De Montfort University

Proportion of lending completed by 12 most active lendersSource: De Montfort University

No. lenders prepared to lend against varying loan sizesSource: De Montfort University

Average interest rate marginsSource: De Montfort University

Average interest rate margins by project typeSource: De Montfort University

Average LTV ratios by sectorSource: De Montfort University

Arrangement fees by sectorSource: De Montfort University

Interest income cover by sectorSource: De Montfort University

Lending intentionsSource: De Montfort University

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

Summary

• 2014 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

RICS Matrics Series

Funding & FinanceMarket Update

September 2015

Simon Wainwright BSc FRICSJ PEISER WAINWRIGHT

#CPDseries