MIPIM 2012: Savills sees UK lender pool expand

The London-based real estate services firm said major lenders in the UK commercial property market have become more active in the past five months.

The number of active large loan providers is on the rise in the United Kingdom, countering the general perception that banks have stopped lending throughout much of Europe, according to a new report from Savills, which was released today at the MIPIM property show in Cannes.

Since issuing its ranking of the top 16 active ‘big ticket’ lenders last October, Savills said AIG, AXA, BAWAG, Citigroup, Deutsche Postbank, HSBC, Lloyds Banking Group and M&G Investments have become more aggressive in financing deals, while loan providers Aareal Bank, Eurohypo and Société Générále have scaled back activity.

‘Big ticket’ lenders are considered providers that are both actively seeking lending opportunities and have completed at least £75 million in new lending over the last six months. According to Savills’ latest analysis, which raised the typical loan size criteria to more than £30 million (€36 million, $48 million) from £20 million in October, the number of such lenders now totals 21 in the UK.

Debt providers include UK banks such as Barclays, HSBC, Lloyds and Royal Bank of Scotland, which are particularly focused on lending to existing clients. Among the other lenders are eight German banks and five insurance companies, including AIG, Aviva, AXA, MetLife and M&G Investments.

“There is no shortage of organisations seeking to provide both senior debt and mezzanine,” said William Newsom, Savills UK head of valuation, in the report.  The main challenges to lending in the region, however, are debt providers being very selective about the deals they finance, as well as tighter loan terms.

In its report, Savills pointed to growing opportunities for both mezzanine providers and banks as a result of falling loan-to-value (LTV) ratios over the past eight months and interest rate margins that have increased from about 225 basis points to 325 basis points for prime property investments. LTVs against such investment are in the range of 55 percent to 60 percent, with some banks having difficulty lending above 50 percent.

“The number of lenders in the market is encouraging to see, but the further reduction in loan-to-value ratios means that borrowers increasingly may access the mezzanine market in order to bridge the funding gap,” said Newsom. The firm named 30 mezzanine providers that have a growing presence in both commercial and residential real estate and are seeking to bridge the gap between reduced LTVs from senior debt providers and the equity in the venture.