RICS Matrics Series

Funding and Finance:

Market Update

November 2014

Simon Wainwright BSc FRICSJ PEISER WAINWRIGHT

#CPDseries

Funding and Finance: Market Update

• Macro-economic factors

• Finance for property investment & development

• Types of lending

• Who is providing funding - participants

• Funding terms

• Current terms

• Role of professionals

Economic Background

• US Federal Reserve rate 0.25% - UK Base Rate 0.50%

• UK 5-year SWAP rate 1.79% (2.03% April)

• UK 10-year SWAP rate 2.32% (2.79% April)

• BoE Quantitative Easing £375 bn

• Outstanding property debt £244 bn

• European inter-bank lending weak

• Inflation RPIX 2.3% Sept 2014

• Inflation CPI 1.2% Sept 2014 (1.6% March)

One Country Two Economies

Wealth Preservation

Private Equity

Market Participants

• The rise and fall of the Debt Based buyer

• The return of the Institutional Investor

• New lenders / investors entering the market

• Foreign investors – Sovereign Wealth funds

• Private Equity and Opportunity funds

• Corporate buyers

• Private investors, trusts and charities

Property Background

• Investment Volumes £12,667m year to date April 2014.

(Compared to £12,852m in 2013)

• IPD Total Returns for all Property March 2014 13.97%

(February 2014 12.62%).

• IPD Total Returns by sectors March 2014

– Offices 18.86% (February 2014 17.08%)

– Industrial 18.23% (February 2014 16.39%)

– Retail 9.56% (February 2014 8.64%).

• Rental index (monthly rates) up 0.12%

– Offices up 0.38%

– Industrial up 0.03%

– Retail down -0.01%

Where can you find value?

Attracting Investment

• What is the risk profile of your investment?

• Does it have intrinsic value and growth potential

• Is it in the right location to attract investment?

• Is it the right lot size?

• Who are the obvious buyers?

• Can you secure debt against any contracted income streams?

• What is the AWULT?

• What is the tenant’s credit risk?

Glossary of terms

• LTV = Loan to Value ration

• CMBS = Commercial Mortgage backed securities

• NAMA = National Asset Management Agency

• Margins = lending margin over interest rates

• Arrangement fees = charged by banks on loan origination

• Income interest = ration of income to interest

Date Source

UK Commercial Property Lending Survey

De Montfort University - December 2013

Approximate amount of debt secured by UK

Commercial Property Source: De Montfort University

Source: De Montfort University

Approximate amount of debt secured by UK

Commercial Property Source: De Montfort University

Allocation of drawn funding £179.8bn Source: De Montfort University

Proportion of debt held by 12 largest lendersSource: De Montfort University

Current LTV ratios by proportion and value of

outstanding debt Source: De Montfort University

Value of loan originations (£bn)Source: De Montfort University

New loan originations (£29.9bn)Source: De Montfort University

Proportion of lending completed by 12 most active

lendersSource: De Montfort University

No. lenders prepared to lend against varying loan

sizesSource: De Montfort University

Average interest rate marginsSource: De Montfort University

Average interest rate margins by project typeSource: De Montfort University

Average LTV ratios by sectorSource: De Montfort University

Arrangement fees by sectorSource: De Montfort University

Interest income cover by sectorSource: De Montfort University

Lending intentionsSource: De Montfort University

Active Lenders

• AIG

• Aviva

• AXA

• Barclays Bank

• Bayern LB

• Citigroup

• Deka Bank

• Deutsche Bank

• Deutsche Hypo

• Deutsche Pfandbrief

• Deutsche Postbank

• Helaba

• HSBC

• ING REF

• Landesbank Berlin

• Lloyds Banking Group

• Met Life

• M&G Investments

• Royal Bank of Scotland

• Santander

Summary

• 2013 saw increasing capital values

• Overall level of property debt continuing to decrease

• Property lending market is diversifying

• There will be no return to 2007/2008 lending

• Improving lending intentions

• LTVs 50% - 60%

• Equity seeking wealth preservation or high returns

RICS Matrics Series

Funding & Finance

Market Update

November 2014

Simon Wainwright BSc FRICSJ PEISER WAINWRIGHT

#CPDseries