Commercial Real Estate Lending Survey Results for end-year 2017 - - PowerPoint PPT Presentation

Cass Business School

CITY, UNIVERSITY OF LONDON

Commercial Real Estate Lending Survey

Results for end-year 2017

Nicole Lux Senior Research Fellow

Cass Business School City, University of London 106 Bunhill Row London EC1 8TZ nicole.lux@city.ac.uk

Cass Business School

CITY, UNIVERSITY OF LONDON

Contents

• Outstanding debt & origination
• The structure of loan books
• Loan underwriting and terms
• Conclusions

Cass Business School

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Total outstanding & undrawn debt end-2017 £m

Total Outstanding Senior Junior Undrawn Total Loan Book All Lenders 164,513 161,278 3,235 34,507 199,020 Other Non-Bank 16,103 13,631 2,472 8,141 24,244 Insurers 23,922 23,223 699 706 24,628 Banks 124,488 124,424 65 25,660 150,148

20,000 40,000 60,000 80,000 100,000 120,000 140,000 160,000 180,000 200,000

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Loan origination by type of lender £bn 2005-2017

44 68 82 84 50 15 21 28 25 30 45 54 44

10 20 30 40 50 60 70 80 90

2005 2007 2009 2011 2013 2015 2017

UK Banks & BS German Banks Other Int Banks

• N. American Banks

Insurers Other Non-bank

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Type of lender - % of originations

48% 47% 13% 13% 8% 13% 7% 8% 10% 10% 14% 10%

0% 10% 20% 30% 40% 50% 60% 70% 80% 90% 100%

Other Non-bank Insurers N American Banks Other Int Banks German Banks UK Banks & BS

2017 2016

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Mezzanine debt exposure

• 500

1,000 1,500 2,000 2,500 3,000 3,500 4,000 4,500 5,000 0% 1% 2% 3% 4% 5% 6% 1999 2001 2003 2005 2007 2009 2011 2013 2015 2017

Mezzanine as % Senior debt Total Mezzanine

• utstanding £m

(r/h scale)

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Loans originated by size of loan

10 20 30 40 50 60 <5m 5- <20 20 - <50 50 - <100 100 - <500 >500

% of Loans Size of Loan £m

2009 2015 2017

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Total outstanding debt & lending margin

50 100 150 200 250 300 200 400 600 800 1,000 1,200 1,400 1,600 1987 1990 1993 1996 1999 2002 2005 2008 2011 2014 2017 Finance margin bps

(r/h scale)

Total outstanding debt £ billion

(l/h scale)

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Total outstanding loans by lender type £m

• 50,000

100,000 150,000 200,000 250,000 300,000

2005 2007 2009 2011 2013 2015 2017 UK Banks & BS German Banks Other Int Banks N American Banks Insurers Other Non-Bank

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Total outstanding loans outside UK € billion - Europe

10 20 30 40 50 60 2007 2009 2011 2013 2015 2017 Germany France Netherlands Spain Other

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Outstanding development loans £ bn

6.8 8.5 10.4 9.59 10.2 8.3 6.7 5.3 4.4 3.8 4.6 4 4.3 11.3 15.1 22.5 23.9 22 21 15.8 12.4 10.6 10.2 9.7 12.8 15.5 5 5.9 10.2 7.29 5.4 3.3 2.8 1.8 3.1 1.3 1.9 3.4 2.2

5 10 15 20 25 30 35 40 45 50

2005 2007 2009 2011 2013 2015 2017

Commercial spec & part-let Residential for sale Commercial - fully pre-let

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Allocation of development finance 2015-2017

7% 17% 20% 18% 37% 51% 68% 63% 54% 20% 8% 17% 6%

0% 10% 20% 30% 40% 50% 60% 70% 80% 90% 100% 2015 2016 2017 Other Non-bank Lender Other Hotel Industrial Residential Office Retail

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Percentages of outstanding loan value by current LTV, 2017

38% 29% 45% 48% 42% 17% 44% 50% 37% 38% 39% 32% 12% 19% 10% 12% 16% 33% 16% 0% 10% 20% 30% 40% 50% 60% 70% 80% 90% 100% UK Banks & BS German Banks Other International Banks North American Banks Insurance Companies Other Non- bank Lenders >120% 100% - <120% 85% - <100% 70% - < 85% 60% - <70% 50% - <60% <50%

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Interest rates by lender type - % of loan book value

75% 81% 62% 86% 29% 39% 63% 14% 11% 63% 50% 19% 24% 5% 27% 14% 7% 11% 18%

0% 10% 20% 30% 40% 50% 60% 70% 80% 90% 100%

UK Banks & BS German Banks Other International Banks North American Banks Insurance Companies Other Non- bank Lenders All Lenders

Loan with hedging value with fixed interest floating

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Maturity % outstanding loan value by lender type

24% 9% 14% 9% 5% 8% 15% 48% 73% 77% 89% 49% 62% 58% 8% 17% 8% 24% 26% 14% 20% 23% 13%

0% 10% 20% 30% 40% 50% 60% 70% 80% 90% 100%

UK Banks & BS German Banks Other International Banks North American Banks Insurance Companies Other non- bank Lenders All Lenders

next 10yr next 5-10yr next 4 yr This yr

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Maturity profile of new originations

5 10 15 20 25 0% 2% 4% 6% 8% 10% 12% 14% 16% 18% 20% 1yr 2yr 3yr 4yr 5yr >5yr >10yr

Total Volume £ bn % of Loan Value

Term of Loan 2016 2017 Total volume (£bn, RHS)

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Number of lenders by size of loan book, 2017

28 14 22 10 2 4 5 10 15 20 25 30 <500 500m - 999m 1bn - <2.5bn 2.5bn - <5bn 5bn - <10bn >10bn

Number of Lenders Total Size of Loan Book

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Outstanding loans by location & type, 2017

19% 29% 9% 16% 9% 2% 16%

0% 10% 20% 30% 40% Retail Offices Logistics Residential Hotel/Leisure Student Housing Other

Property type distribution of loan books

42% 10% 3% 10% 9% 5% 21% 0% 10% 20% 30% 40% 50% Central London South East West England Midlands&Wales North England Scotland Other

Geographic distribution of loan books

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Reported LTV & margins on originations 2017

50 100 150 200 250 300 350 0% 10% 20% 30% 40% 50% 60% 70% 80% 90% 100%

Dec 2005 Dec 2007 Dec 2009 Dec 2011 Dec 2013 Dec 2015 Dec 2017 Lending Marking bps Loan to Value Ratio

Average lending margin – prime

• ffice

Maximum reported LTV

Minimum reported LTV

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Lending terms by property type

57 58 57 57 56 57 59 58 58

55 55 56 56 57 57 58 58 59 59 60

Prime office Prime retail Prime industrial Sec office Sec retail Sec industrial Residential Hotel Student Housing Average LTV

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Margins and fees by property type, 2017

203 214 228 293 285 296 241 259 249 89 92 94 106 106 109 95 102 99

50 100 150 200 250 300 350 Prime office Prime retail Prime industrial Sec office Sec retail Sec industrial Residential Hotel Student Housing Average arrangement fee Y-o-y change margin Average margin

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Prime office margin ranges by LTV

163 181 188 224 325 622 950

200 400 600 800 1000 1200 50% LTV 55% LTV 60% LTV 65% LTV 70% LTV 75% LTV 80% LTV

Average & range of lending margin Loan to value ratio Max Min

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Development lending margins bps 2015-17

LTC 68% Margin 447 Fee: 133 LTC 68% Margin 525 Fee 143 LTC 64% Margin 601 Fee 154 LTC 71% Margin 467 Fee 125

• 100

100 200 300 400 500 600 700

Fully Pre-let Office Development 50% Pre-let : 50% Speculative Office Development Speculative Office Development Resi development

2015 2016 2017 16/17 y-oy change

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Margin and LTV

2.7% 2.7% 4.0% 3.2% 3.4% 3.6% 3.7% 5.8% 7.6% 9.1% 6.9% 10.5% 9.6% 9.0% 54% 55% 55% 56% 56% 57% 57% 58% 58% 0% 2% 4% 6% 8% 10% 12%

Finance cost and debt yields

Prime yield Margin & swap Debt Yield LTV

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Loan terms across Europe

Frankfurt Prime yield 3.3% Lending margin 2.0% LTV 63% Margin & swap 2.3% ICR 2.2 Debt Yield 5.2% Paris Prime yield 3.0% Lending margin 2.9% LTV 63% Margin & swap 3.3% ICR 1.4 Debt Yield 4.8% Madrid Prime yield 4.0% Lending margin 2.8% LTV 59% Margin & swap 3.2% ICR 2.1 Debt Yield 6.8% Milan Prime yield 3.8% Lending margin 2.3% LTV 60% Margin & swap 2.7% ICR 2.3 Debt Yield 6.3% Warsaw Prime yield 5.0% Lending margin 2.8% LTV 57% Margin & swap 3.2% ICR 2.8 Debt Yield 8.8% UK Prime yield 4.2% Lending margin 1.6% LTV 56% Margin & swap 2.7% ICR 2.8 Debt Yield 7.6%

Debt Yield Frankfurt 5.2% Munich 5.3% Germany 6.1% Paris 4.8% Madrid 6.8% Milan 6.3% Amsterdam 6.0% Warsaw 8.8% London 7.6%

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Ticket size by type of loan

40 47 54 44 31 17 5 8 7 8 10 4 31 21 15 24 35 55 0% 50% 100% above £100m >£50m - £100m >£20m - £50m >£10m - £20m >£5m - £10m £5m Number of lenders

Investment lending

23 25 25 23 19 17 4 4 7 7 7 3 49 47 44 46 50 56 0% 50% 100% Number of lenders

Development lending

yes maybe no

Cass Business School

CITY, UNIVERSITY OF LONDON

Conclusion

 New loan origination picked-up in second half of 2017 (£26.8bn)  Development loans up 11% y-o-y, undrawn commitments up 30% y-o-y  Non-bank lenders provided nearly 25% of 2017 originations  Lending margins stable for Investment up for development  Debt yields low for office, retail property in UK and across Europe

Cass Business School

CITY, UNIVERSITY OF LONDON

Thanks to survey participants & financial supporters

• End-2017 data was received from 80 lending organisations:

− 41 Banks and Building Societies − 11 Insurance Companies − 28 Other Non-bank Lenders.

• Cass Business School gratefully acknowledges the generous financial

support provided by Allen & Overy, Association of Property Lenders, GVA, British Property Federation, Canada Life Ltd, Asset Services, Commercial Real Estate Finance Council Europe, Fitch Ratings, Helaba, Jones Lang LaSalle Corporate Finance Limited, Maslow Capital LLP, Crestbridge UK Limited, Savills and The Royal Bank of Scotland

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The Panel

Chair: Sandy Gumm – Chief Operating Officer, Prestbury Investments LLP and Non-Executive Director, Secure Income REIT plc

• Madeleine McDougall - Head, Commercial Real Estate, Lloyds Bank
• Lorna Brown – Head, Real Estate Debt, Legal & General IM
• Michael Zerda – Head, European Real Estate Debt Strategies, Blackstone
• Jonathan Goldstein - Part-owner and CEO, Cain International
• Axel Brinkmann – MD, Royal Bank of Canada, Real Estate Capital Partners