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

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 L ONDON

Contents • Outstanding debt & origination • The structure of loan books • Loan underwriting and terms • Conclusions Cass Business School CITY , UNIVERSITY OF L ONDON

Total outstanding & undrawn debt end-2017 £m 200,000 180,000 160,000 140,000 120,000 100,000 80,000 60,000 40,000 20,000 0 Total Total Loan Senior Junior Undrawn Outstanding 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 Cass Business School CITY , UNIVERSITY OF L ONDON

Loan origination by type of lender £bn 2005-2017 90 84 82 UK Banks & BS 80 68 70 German Banks 60 54 50 Other Int Banks 50 45 44 44 40 N. American Banks 30 28 30 25 21 Insurers 20 15 10 Other Non-bank 0 2005 2007 2009 2011 2013 2015 2017 Cass Business School CITY , UNIVERSITY OF L ONDON

Type of lender - % of originations 100% 10% 14% 90% 10% 10% 80% Other Non-bank 8% 7% 70% Insurers 13% 8% 60% N American Banks 13% 13% 50% Other Int Banks 40% 30% German Banks 48% 47% 20% UK Banks & BS 10% 0% 2017 2016 Cass Business School CITY , UNIVERSITY OF L ONDON

Mezzanine debt exposure 6% 5,000 Mezzanine as % 4,500 Senior debt 5% Total 4,000 Mezzanine outstanding £m 3,500 (r/h scale) 4% 3,000 3% 2,500 2,000 2% 1,500 1,000 1% 500 0% - 1999 2001 2003 2005 2007 2009 2011 2013 2015 2017 Cass Business School CITY , UNIVERSITY OF L ONDON

Loans originated by size of loan 60 50 2009 2015 2017 40 % of Loans 30 20 10 0 <5m 5- <20 20 - <50 50 - <100 100 - <500 >500 Size of Loan £m Cass Business School CITY , UNIVERSITY OF L ONDON

Total outstanding debt & lending margin 1,600 300 Total outstanding debt £ billion (l/h scale) 1,400 Finance margin bps 250 (r/h scale) 1,200 200 1,000 800 150 600 100 400 50 200 0 0 1987 1990 1993 1996 1999 2002 2005 2008 2011 2014 2017 Cass Business School CITY , UNIVERSITY OF L ONDON

Total outstanding loans by lender type £m 300,000 UK Banks & BS 250,000 German Banks 200,000 Other Int Banks 150,000 N American Banks 100,000 Insurers 50,000 Other Non-Bank - 2005 2007 2009 2011 2013 2015 2017 Cass Business School CITY , UNIVERSITY OF L ONDON

Total outstanding loans outside UK € billion - Europe 60 50 Germany 40 France 30 Netherlands 20 Spain 10 Other 0 2007 2009 2011 2013 2015 2017 Cass Business School CITY , UNIVERSITY OF L ONDON

Outstanding development loans £ bn 50 Commercial spec & part-let 45 40 Residential for sale 10.2 7.29 35 5.4 Commercial - fully pre-let 3.3 30 5.9 25 2.8 22.5 23.9 22 2.2 5 20 21 1.8 3.4 3.1 15.1 15 1.9 1.3 15.8 11.3 15.5 12.4 10 12.8 10.6 9.7 10.2 5 10.4 10.2 9.59 8.5 8.3 6.8 6.7 5.3 4.6 4.4 4.3 3.8 4 0 2005 2007 2009 2011 2013 2015 2017 Cass Business School CITY , UNIVERSITY OF L ONDON

Allocation of development finance 2015-2017 100% 6% 8% 17% 90% 20% 80% Other 70% Hotel 54% 60% 68% Industrial 63% 50% 51% 40% Residential 30% Office 20% 37% 17% Retail 20% 10% 18% 7% 0% 2015 2016 2017 Other Non-bank Lender Cass Business School CITY , UNIVERSITY OF L ONDON

Percentages of outstanding loan value by current LTV, 2017 100% 12% 90% 16% 16% 19% 12% 10% 80% >120% 70% 38% 100% - <120% 33% 37% 39% 60% 44% 85% - <100% 50% 50% 70% - < 85% 40% 60% - <70% 32% 30% 48% 50% - <60% 45% 42% 20% 38% 29% <50% 10% 17% 0% UK Banks & German Other North Insurance Other Non- BS Banks International American Companies bank Banks Banks Lenders Cass Business School CITY , UNIVERSITY OF L ONDON

Interest rates by lender type - % of loan book value 100% 5% 7% 11% 14% 18% 90% 24% 14% 27% 80% 19% 70% 11% 50% 63% 60% 50% 86% 40% 81% 75% 63% 62% 30% 20% 39% 29% 10% 0% UK Banks & German Other North Insurance Other Non- All Lenders BS Banks International American Companies bank Lenders Banks Banks Loan with hedging value with fixed interest floating Cass Business School CITY , UNIVERSITY OF L ONDON

Maturity % outstanding loan value by lender type 100% 8% 13% 17% 90% 20% 23% 26% 80% 14% 8% 70% next 10yr 24% 60% 89% 77% 50% next 5-10yr 48% 73% 58% 40% 62% next 4 yr 30% 49% 20% This yr 24% 10% 15% 14% 9% 9% 8% 5% 0% UK Banks & German Other North Insurance Other non- All Lenders BS Banks International American Companies bank Banks Banks Lenders Cass Business School CITY , UNIVERSITY OF L ONDON

Maturity profile of new originations 20% 25 2016 2017 18% Total volume (£bn, RHS) 16% 20 14% Total Volume £ bn % of Loan Value 12% 15 10% 8% 10 6% 4% 5 2% 0% 0 1yr 2yr 3yr 4yr 5yr >5yr >10yr Term of Loan Cass Business School CITY , UNIVERSITY OF L ONDON

Number of lenders by size of loan book, 2017 30 28 25 22 20 Number of Lenders 14 15 10 10 4 5 2 0 <500 500m - 999m 1bn - <2.5bn 2.5bn - <5bn 5bn - <10bn >10bn Total Size of Loan Book Cass Business School CITY , UNIVERSITY OF L ONDON

Outstanding loans by location & type, 2017 Geographic distribution of loan books Property type distribution of loan books Other Other 21% 16% Scotland Student Housing 5% 2% North England 9% Hotel/Leisure 9% Midlands&Wales 10% Residential 16% West England 3% Logistics 9% South East Offices 10% 29% Central London Retail 42% 19% 0% 10% 20% 30% 40% 50% 0% 10% 20% 30% 40% Cass Business School CITY , UNIVERSITY OF L ONDON

Reported LTV & margins on originations 2017 100% 350 Maximum 90% reported LTV 300 80% 250 70% Lending Marking bps Loan to Value Ratio 60% 200 50% 150 40% Average lending Minimum margin – prime reported LTV 30% 100 office 20% 50 10% 0% 0 Dec 2005 Dec 2007 Dec 2009 Dec 2011 Dec 2013 Dec 2015 Dec 2017 Cass Business School CITY , UNIVERSITY OF L ONDON

Lending terms by property type Average LTV Student Housing 58 Hotel 58 Residential 59 Sec industrial 57 Sec retail 56 Sec office 57 Prime industrial 57 Prime retail 58 Prime office 57 55 55 56 56 57 57 58 58 59 59 60 Cass Business School CITY , UNIVERSITY OF L ONDON

Margins and fees by property type, 2017 99 Student Housing 249 102 Hotel 259 95 Residential 241 109 Sec industrial 296 106 Sec retail 285 106 Sec office 293 94 Prime industrial 228 92 Prime retail 214 89 Prime office 203 0 50 100 150 200 250 300 350 Average arrangement fee Y-o-y change margin Average margin Cass Business School CITY , UNIVERSITY OF L ONDON

Prime office margin ranges by LTV 1200 1000 Average & range of lending margin 950 800 622 600 Max 400 325 224 200 188 181 163 Min 0 50% LTV 55% LTV 60% LTV 65% LTV 70% LTV 75% LTV 80% LTV Loan to value ratio Cass Business School CITY , UNIVERSITY OF L ONDON

Development lending margins bps 2015-17 700 LTC 64% Margin 601 Fee 154 LTC 68% LTC 71% 600 Margin 525 Margin 467 Fee 143 LTC 68% Fee 125 Margin 447 500 Fee: 133 400 300 200 100 0 -100 Fully Pre-let Office 50% Pre-let : 50% Speculative Office Resi development Development Speculative Office Development Development 2015 2016 2017 16/17 y-oy change Cass Business School CITY , UNIVERSITY OF L ONDON

Margin and LTV Finance cost and debt yields 12% 58% 10.5% 58% 9.6% 10% 9.1% 9.0% 57% 7.6% 8% 6.9% 57% 5.8% 6% 56% 4.0% 56% 3.7% 3.6% 3.4% 4% 3.2% 2.7% 2.7% 55% 2% 55% 0% 54% Prime yield Margin & swap Debt Yield LTV Cass Business School CITY , UNIVERSITY OF L ONDON

Loan terms across Europe Debt Yield Frankfurt 5.2% Munich 5.3% Germany 6.1% Paris 4.8% Madrid 6.8% Milan 6.3% Amsterdam 6.0% UK Warsaw Frankfurt Warsaw 8.8% Prime yield 4.2% Prime yield 5.0% Prime yield 3.3% London 7.6% Lending margin 1.6% Lending margin 2.8% Lending margin 2.0% LTV 56% LTV 57% LTV 63% Margin & swap 2.7% Margin & swap 3.2% Margin & swap 2.3% ICR 2.8 ICR 2.8 ICR 2.2 Debt Yield 7.6% Debt Yield 8.8% Debt Yield 5.2% Paris Prime yield 3.0% Lending margin 2.9% Milan LTV 63% Prime yield 3.8% Margin & swap 3.3% Lending margin 2.3% Madrid ICR 1.4 LTV 60% Prime yield 4.0% Debt Yield 4.8% Margin & swap 2.7% Lending margin 2.8% ICR 2.3 LTV 59% Debt Yield 6.3% Margin & swap 3.2% ICR 2.1 Debt Yield 6.8% Cass Business School CITY , UNIVERSITY OF L ONDON

Ticket size by type of loan Investment lending Development lending £5m 17 4 55 17 3 56 >£5m - £10m 31 10 35 19 7 50 yes >£10m - £20m 44 8 24 23 7 46 maybe >£20m - £50m 54 7 15 25 7 44 >£50m - £100m 47 8 21 25 4 47 no above £100m 40 5 31 23 4 49 0% 50% 100% 0% 50% 100% Number of lenders Number of lenders Cass Business School CITY , UNIVERSITY OF L ONDON