U.K. commercial real estate investors may be unable to refinance about half of their 198 billion pounds ($303 billion) of bank loans as property values fall

May 17, 2013 Leave a comment

U.K. Property Loans Seen Facing 92 Billion-Pound Refinancing Gap

U.K. commercial real estate investors may be unable to refinance about half of their 198 billion pounds ($303 billion) of bank loans as property values fall, a survey by De Montfort University shows.

About 92 billion pounds of remaining bank loans are “likely to be unrefinancable on terms available in today’s lending market,” according to the survey of 78 lenders, which was published today. The amount of the loans is too high compared with the real estate backing them, the report by the Leicester, England-based university said.

Banks and other lenders cut U.K. commercial real-estate lending by 7.7 percent last year as they repaired balance sheets damaged by losses and tried to meet regulatory requirements, De Montfort estimates. Almost a quarter of all property loans are now in “severe distress” because the outstanding debt is higher than the value of the real estate after the worst-located and lowest-quality buildings in the U.K. depreciated further last year.The U.K.’s weakening economy at that time “was having a detrimental impact on borrowers’ cash flows and the capital value of commercial property,” Bill Maxted, who wrote the report with Trudi Porter, said in a statement. “The situation with many existing problem loans was deteriorating.”

About 45.5 billion pounds of the loans are due for repayment this year and more than 70 percent of all outstanding commercial real estate debt is due for repayment over the next five years, the survey showed. For the second year in a row, no lender was willing to provide building finance for projects without an occupant agreeing to lease the space in advance, according to Maxted and Porter.

The De Montfort survey is the largest of its kind covering the U.K.

To contact the reporter on this story: Neil Callanan in London at ncallanan@bloomberg.net

Filed under Macro Trends

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