Banks begin to loosen purse strings for commercial property lending

Oct 29 2009 by Graeme Brown, Birmingham Post

A commercial property expert has said there are signs bank lending is returning for the sector – but warns recovery is being stifled by a shortage of stock.

Peter Clarke, valuations partner at King Sturge, said there was evidence of a return to normality in the market in the West Midlands after the credit crunch.

“We are seeing more new lending coming through from the banks than we were three, four months ago and probably we would see more if it wasn’t for a lack of sales in the commercial property market,” Mr Clarke said.

“This is partly caused by the banks themselves. Having been burnt, seizing assets on breeches of loan to value covenants, and finding they are left with a property worth less than the debt, plus mounting holding costs, they are choosing not to pull the rug on lenders so readily. Instead, they are deciding they are much better off riding with the borrower. Therefore, the supply of product being released to the market has slowed down.

“There has also been a sea change. We are now considered to be passed the bottom of the commercial property market for prime property with some prime yield compression being experienced and prices going up at auctions, so buyers are now back with the money.

“This was recently demonstrated with Max Property investing £245 million into a distressed commercial property portfolio. On the whole though vendors don’t want to sell.Institutions and property owners are holding onto solid assets and those with the money only want to buy product with secure bullet proof income on long occupational leases. So there is a weight of money chasing very few opportunities.”

Mr Clarke considers part of the answer to be the Commercial Mortgage Backed Securitisation (CMBS) market which will start to mature at the end of this year.

As the name suggests, CMBS’s are when a group of investors lend money to a borrower overseen by one overall lender. Mr Clarke, who believes the market will see a break in the clouds for 2010, said: “Pre credit crunch CMBS’s were seen as the panacea of the commercial mortgage market.”