On Monday evening, De Montfort University will publish its annual, and influential, Commercial Property Lending Report. But thanks to the FT’s property correspondent, Dan Thomas, FT Alphaville has had a sneak preview of the survey, which retails at a cool £500 a copy.
Here are a few facts, figures, tables and charts that stood out.
Aggregated value of outstanding debt – around £225bn according to the report.
Repayment – £42bn due this year, £31.6bn next and over the next three years a grand total of £105.2bn.
During the next five years between 2009 and 2013 inclusive, 69% of all outstanding debt is due for repayment. At 69%, this proportion of debt due to mature within the following five years is higher than that recorded by previous year-end surveys.
Maturity profile years 2008 to 2011 of loans in loan book.
Loans in breach of banking covenants:
The results show that the value of loans in breach of financial covenant represents approximately 6.5% of the total aggregated loan book of organisations contributing data to this part of the research. This is a six-fold increase on that reported at year-end 2007. If the same proportion of 6.5% is applied to the total value of outstanding debt of £225bn reported to this research for year-end 2008, then the value of loans in breach of financial covenant would be close to £15bn.
And finally, defaulted loans:
The value of defaulted loans of £3,134m represents approximately 2.6% of the value of outstanding debt held by the organisations that reported fully to this aspect of the survey. If this proportion is applied to the total value of outstanding debt recorded by the research (£225bn) this would suggest that approximately £6bn of loans may have defaulted during 2008.
Interestingly many lenders were also self critical of their lending strategy. Borrowers making poor choices in property investments, paying too much but still being funded with stretched senior debt were regarded as a ‘massive’, but often repeated, mistake. Lenders also commented that trying to keep the loan ongoing was less expensive to the bank than dumping assets into a declining market. One lender commented that if the only loss is writing off provisions, then this will be a good result. Another said that their organisation had made provisions on every loan in the loan book. The whole book had problems because of declining values and a bespoke solution was required for each loan.
All of which should give shareholders in Lloyds Banking Group, the proud owner of the toxic HBOS commercial property book, plenty of food for thought.
Fears grow over commercial property defaults – FT Alphaville