Kingfisher Property - Financing solutions for property

SPLASH Newsletter - October 2015

View of London

 Borrowing Conditions Stabilised

Plunging margins since year end 2012 have levelled off whilst there has been little movement in LTV’s which are stable at around 65% LTV. A feature of the market is the decline in market share of the UK clearers from 70% of the loan book in 2006 to 50% at the end of 2014 (De Montfort survey). The slack has been taken up by both insurance companies, whose share stands at 13%, and other non-bank lenders (debt funds and new “challenger” banks), whose share is 6%. Whilst most insurance company lenders are showing little interest in loan sizes of less than £10M, the challenger banks are active at this end of the market.
 
A two tier market, determined by loan size, continues with implications for terms available for loans of sub £10M as compared with loan sizes above £20M. Margins for loans secured on secondary property sub £10M range between 2% - 2.6% pa. LTV’s are around 60% and if higher, loan terms come with increased amortisation requirements. Above £20M, loans are priced between 1.4% - 1.85% with a greater possibility of 65% LTV interest only.
 
German and other international lenders are almost exclusively active in the larger loan size market and the smaller loan sizes continue to be dominated by the UK clearers with challenger banks making a strong showing.
 
Overall the size of the commercial property debt loan book continues to reduce but is probably close to or at a sustainable level. Lenders are keen to increase commercial property loan exposure, particularly larger sized opportunities of which they are complaining there are too few. Legacy debt continues to be sold down apace. Incidentally, the pretend and extend tactics of the lenders following the Great Recession has paid off. Legacy loan sales which picked up after the end of 2013, have coincided with sharp yield compression in secondary commercial property. As at December 2014, lenders reporting to the DMU survey had provisions reserved for 40% of the nominal value of their loans which were either in breach or default. With one or two exceptions, legacy issues are no longer constraining lending.

 Secondary Office Portfolio

Interest only loans can be achieved, although they are relatively rare. We raised a £10M loan, interest only for 5 years, secured against a portfolio of secondary offices with average lease lengths of less than 5 years. The LTV was 60% and the margin was sub 3%.
 

 Speculative Office
 Development Finance

The development boom seen in London has spread to the regions. We have sourced terms from several lenders for speculative office development over £20M at 50% GDV at a margin of sub 3% with 1% arrangement fee.
 

 Challenger Banks

For portfolios which fail to measure up for clearing banks, challenger banks often hold the key. We have arranged finance for three such portfolios which were not acceptable to the client’s usual sources and we achieved LTV’s of up to 65%.

 

 LP structure still favoured

As both institutional and private investors continue to seek UK real estate exposure, often in partnership with local investment managers and developers, our regulatory services for property funds and joint ventures continue to grow and are now more than 15 years old. The FCA’s rules require the appointment of an authorised operator to oversee the administration of certain types of unregulated collective investment vehicle, for example English and Scottish limited partnerships, and to take responsibility for ensuring investors’ cash and assets are properly safeguarded. Typically this involves conducting anti-money laundering checks on investors, managing fund bank accounts, dealing with drawdowns and distributions of monies and maintaining the financial records necessary to satisfy the rules. Over the last 12 months, we have accepted new appointments to act as FCA authorised operator for more than 20 limited partnerships, taking our total combined funds under management to over £15 billion.
 
In addition, we now act as managing trustee of a total of 13 unauthorised unit trusts. Most of these are feeder funds established to allow pension funds to invest alongside other partners in limited partnerships where the underlying activity is trading (as opposed to investing). The feeder unit trust shields tax exempt funds from engaging in trading.
 
Since going live in July 2014, the EC’s Alternative Investment Fund Managers Directive (AIFMD) has also brought about significant change in the real estate funds industry. Fund managers must now be authorised by the FCA to manage real estate funds that are not exempt and, where certain thresholds are exceeded, and must also appoint an authorised depositary to safeguard the fund’s assets, monitor and reconcile cash flows and oversee the manager’s activities. To help clients meet these requirements, Kingfisher Property has successfully extended its scope of regulatory permissions in these areas and is now appointed manager (AIFM) of five real estate funds and depositary of another, with a number of additional depositary appointments in the pipeline.
 
Across all of our regulatory activities, our focus remains the UK real estate fund industry and on providing compliant services with the minimum level of intrusion, tailoring our activities to interact efficiently with the fund manager’s own systems and processes, not vice versa.
 

Kingfisher Property Partnerships Limited
Kingfisher Property Trustees Limited
Both Authorised and Regulated by the Financial Conduct Authority

 The team

The information contained in this communication is intended to provide Kingfisher Property’s clients and contacts with a brief update in relation to the topics covered. The information and opinions expressed in this communication do not purport to be definitive or comprehensive and are not intended to provide professional advice.

Copyright © 2015 Kingfisher Property. All rights reserved.

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