Cass Business SchoolCITY, UNIVERSITY OF LONDON
Commercial Real Estate Lending Survey
Results for end-year 2017
Nicole Lux
Senior Research Fellow
Cass Business School
City, University of London
106 Bunhill Row
London EC1 8TZ
Cass Business SchoolCITY, UNIVERSITY OF LONDON
Contents
• Outstanding debt & origination
• The structure of loan books
• Loan underwriting and terms
• Conclusions
Cass Business SchoolCITY, UNIVERSITY OF LONDON
Total outstanding & undrawn debt end-2017 £m
TotalOutstanding
Senior Junior UndrawnTotal Loan
Book
All Lenders 164,513 161,278 3,235 34,507 199,020
Other Non-Bank 16,103 13,631 2,472 8,141 24,244
Insurers 23,922 23,223 699 706 24,628
Banks 124,488 124,424 65 25,660 150,148
0
20,000
40,000
60,000
80,000
100,000
120,000
140,000
160,000
180,000
200,000
Cass Business SchoolCITY, UNIVERSITY OF LONDON
Loan origination by type of lender £bn 2005-2017
44
68
8284
50
15
21
2825
30
45
54
44
0
10
20
30
40
50
60
70
80
90
2005 2007 2009 2011 2013 2015 2017
UK Banks & BS
German Banks
Other Int Banks
N. American Banks
Insurers
Other Non-bank
Cass Business SchoolCITY, UNIVERSITY OF LONDON
Type of lender - % of originations
48% 47%
13%13%
8% 13%
7%8%
10%10%
14%10%
0%
10%
20%
30%
40%
50%
60%
70%
80%
90%
100%
Other Non-bank
Insurers
N American Banks
Other Int Banks
German Banks
UK Banks & BS
2017 2016
Cass Business SchoolCITY, UNIVERSITY OF LONDON
Mezzanine debt exposure
-
500
1,000
1,500
2,000
2,500
3,000
3,500
4,000
4,500
5,000
0%
1%
2%
3%
4%
5%
6%
1999 2001 2003 2005 2007 2009 2011 2013 2015 2017
Mezzanine as %
Senior debtTotal
Mezzanine
outstanding £m(r/h scale)
Cass Business SchoolCITY, UNIVERSITY OF LONDON
Loans originated by size of loan
0
10
20
30
40
50
60
<5m 5- <20 20 - <50 50 - <100 100 - <500 >500
% o
f L
oan
s
Size of Loan £m
2009 2015 2017
Cass Business SchoolCITY, UNIVERSITY OF LONDON
Total outstanding debt & lending margin
0
50
100
150
200
250
300
0
200
400
600
800
1,000
1,200
1,400
1,600
1987 1990 1993 1996 1999 2002 2005 2008 2011 2014 2017
Finance margin bps(r/h scale)
Total outstanding
debt £ billion(l/h scale)
Cass Business SchoolCITY, UNIVERSITY OF LONDON
Total outstanding loans by lender type £m
-
50,000
100,000
150,000
200,000
250,000
300,000
2005 2007 2009 2011 2013 2015 2017
UK Banks & BS
German Banks
Other Int Banks
N American Banks
Insurers
Other Non-Bank
Cass Business SchoolCITY, UNIVERSITY OF LONDON
Total outstanding loans outside UK € billion - Europe
0
10
20
30
40
50
60
2007 2009 2011 2013 2015 2017
Germany
France
Netherlands
Spain
Other
Cass Business SchoolCITY, UNIVERSITY OF LONDON
Outstanding development loans £ bn
6.88.5
10.4 9.59 10.28.3
6.75.3 4.4 3.8 4.6 4 4.3
11.3
15.1
22.5 23.9 22
21
15.8
12.4
10.610.2 9.7
12.8
15.5
5
5.9
10.27.29
5.4
3.3
2.8
1.8
3.1
1.31.9
3.4
2.2
0
5
10
15
20
25
30
35
40
45
50
2005 2007 2009 2011 2013 2015 2017
Commercial spec & part-let
Residential for sale
Commercial - fully pre-let
Cass Business SchoolCITY, UNIVERSITY OF LONDON
Allocation of development finance 2015-2017
7%
17%20%
18%
37%
51%
68%
63%
54%
20%
8%17%
6%
0%
10%
20%
30%
40%
50%
60%
70%
80%
90%
100%
2015 2016 2017 Other Non-bankLender
Other
Hotel
Industrial
Residential
Office
Retail
Cass Business SchoolCITY, UNIVERSITY OF LONDON
Percentages of outstanding loan value by current LTV, 2017
38%29%
45%48%
42%
17%
44%
50%
37%38%
39%
32%
12% 19%10%
12%16%
33%
16%
0%
10%
20%
30%
40%
50%
60%
70%
80%
90%
100%
UK Banks &BS
GermanBanks
OtherInternational
Banks
NorthAmerican
Banks
InsuranceCompanies
Other Non-bank
Lenders
>120%
100% - <120%
85% - <100%
70% - < 85%
60% - <70%
50% - <60%
<50%
Cass Business SchoolCITY, UNIVERSITY OF LONDON
Interest rates by lender type - % of loan book value
75%81%
62%
86%
29%39%
63%
14%
11%
63%50%
19%
24%
5%
27%
14%7% 11%
18%
0%
10%
20%
30%
40%
50%
60%
70%
80%
90%
100%
UK Banks &BS
GermanBanks
OtherInternational
Banks
NorthAmerican
Banks
InsuranceCompanies
Other Non-bank Lenders
All Lenders
Loan with hedging value with fixed interest floating
Cass Business SchoolCITY, UNIVERSITY OF LONDON
Maturity % outstanding loan value by lender type
24%
9%14%
9%5%
8%15%
48% 73%
77% 89%
49%
62%
58%
8%
17%8%
24%
26%14%
20% 23%
13%
0%
10%
20%
30%
40%
50%
60%
70%
80%
90%
100%
UK Banks &BS
GermanBanks
OtherInternational
Banks
NorthAmerican
Banks
InsuranceCompanies
Other non-bank
Lenders
All Lenders
next 10yr
next 5-10yr
next 4 yr
This yr
Cass Business SchoolCITY, UNIVERSITY OF LONDON
Maturity profile of new originations
0
5
10
15
20
25
0%
2%
4%
6%
8%
10%
12%
14%
16%
18%
20%
1yr 2yr 3yr 4yr 5yr >5yr >10yr
To
tal
Vo
lum
e £
bn
% o
f L
oan
Valu
e
Term of Loan
2016
2017
Total volume (£bn, RHS)
Cass Business SchoolCITY, UNIVERSITY OF LONDON
Number of lenders by size of loan book, 2017
28
14
22
10
2
4
0
5
10
15
20
25
30
<500 500m - 999m 1bn - <2.5bn 2.5bn - <5bn 5bn - <10bn >10bn
Num
be
r o
f Len
de
rs
Total Size of Loan Book
Cass Business SchoolCITY, UNIVERSITY OF LONDON
Outstanding loans by location & type, 2017
19%
29%
9%
16%
9%
2%
16%
0% 10% 20% 30% 40%
Retail
Offices
Logistics
Residential
Hotel/Leisure
Student Housing
Other
Property type distribution of loan books
42%
10%
3%
10%
9%
5%
21%
0% 10% 20% 30% 40% 50%
Central London
South East
West England
Midlands&Wales
North England
Scotland
Other
Geographic distribution of loan books
Cass Business SchoolCITY, UNIVERSITY OF LONDON
Reported LTV & margins on originations 2017
0
50
100
150
200
250
300
350
0%
10%
20%
30%
40%
50%
60%
70%
80%
90%
100%
Dec 2005 Dec 2007 Dec 2009 Dec 2011 Dec 2013 Dec 2015 Dec 2017
Len
din
g M
ark
ing
bp
s
Lo
an
to
Valu
e R
ati
o
Average lending
margin – prime
office
Maximum
reported LTV
Minimum
reported LTV
Cass Business SchoolCITY, UNIVERSITY OF LONDON
Lending terms by property type
57
58
57
57
56
57
59
58
58
55 55 56 56 57 57 58 58 59 59 60
Prime office
Prime retail
Prime industrial
Sec office
Sec retail
Sec industrial
Residential
Hotel
Student Housing
Average LTV
Cass Business SchoolCITY, UNIVERSITY OF LONDON
Margins and fees by property type, 2017
203
214
228
293
285
296
241
259
249
89
92
94
106
106
109
95
102
99
0 50 100 150 200 250 300 350
Prime office
Prime retail
Prime industrial
Sec office
Sec retail
Sec industrial
Residential
Hotel
Student Housing
Average arrangement fee Y-o-y change margin Average margin
Cass Business SchoolCITY, UNIVERSITY OF LONDON
Prime office margin ranges by LTV
163 181 188224
325
622
950
0
200
400
600
800
1000
1200
50% LTV 55% LTV 60% LTV 65% LTV 70% LTV 75% LTV 80% LTV
Ave
rag
e &
ra
ng
e o
f le
nd
ing
marg
in
Loan to value ratio
Max
Min
Cass Business SchoolCITY, UNIVERSITY OF LONDON
Development lending margins bps 2015-17
LTC 68%Margin 447Fee: 133
LTC 68%Margin 525
Fee 143
LTC 64%Margin 601
Fee 154 LTC 71%Margin 467
Fee 125
-100
0
100
200
300
400
500
600
700
Fully Pre-let OfficeDevelopment
50% Pre-let : 50%Speculative Office
Development
Speculative OfficeDevelopment
Resi development
2015 2016 2017 16/17 y-oy change
Cass Business SchoolCITY, UNIVERSITY OF LONDON
Margin and LTV
2.7% 2.7%
4.0%3.2% 3.4% 3.6% 3.7%
5.8%
7.6%
9.1%
6.9%
10.5%9.6%
9.0%
54%
55%
55%
56%
56%
57%
57%
58%
58%
0%
2%
4%
6%
8%
10%
12%
Finance cost and debt yields
Prime yield Margin & swap Debt Yield LTV
Cass Business SchoolCITY, UNIVERSITY OF LONDON
Loan terms across Europe
Frankfurt
Prime yield 3.3%
Lending margin 2.0%
LTV 63%
Margin & swap 2.3%
ICR 2.2
Debt Yield 5.2%
Paris
Prime yield 3.0%
Lending margin 2.9%
LTV 63%
Margin & swap 3.3%
ICR 1.4
Debt Yield 4.8%
Madrid
Prime yield 4.0%
Lending margin 2.8%
LTV 59%
Margin & swap 3.2%
ICR 2.1
Debt Yield 6.8%
Milan
Prime yield 3.8%
Lending margin 2.3%
LTV 60%
Margin & swap 2.7%
ICR 2.3
Debt Yield 6.3%
Warsaw
Prime yield 5.0%
Lending margin 2.8%
LTV 57%
Margin & swap 3.2%
ICR 2.8
Debt Yield 8.8%
UK
Prime yield 4.2%
Lending margin 1.6%
LTV 56%
Margin & swap 2.7%
ICR 2.8
Debt Yield 7.6%
Debt Yield
Frankfurt 5.2%
Munich 5.3%
Germany 6.1%
Paris 4.8%
Madrid 6.8%
Milan 6.3%
Amsterdam 6.0%
Warsaw 8.8%
London 7.6%
Cass Business SchoolCITY, UNIVERSITY OF LONDON
Ticket size by type of loan
40
47
54
44
31
17
5
8
7
8
10
4
31
21
15
24
35
55
0% 50% 100%
above £100m
>£50m - £100m
>£20m - £50m
>£10m - £20m
>£5m - £10m
£5m
Number of lenders
Investment lending
23
25
25
23
19
17
4
4
7
7
7
3
49
47
44
46
50
56
0% 50% 100%
Number of lenders
Development lending
yes
maybe
no
Cass Business SchoolCITY, UNIVERSITY OF LONDON
Conclusion
New loan origination picked-up in second half of 2017 (£26.8bn)
Development loans up 11% y-o-y, undrawn commitments up 30% y-o-y
Non-bank lenders provided nearly 25% of 2017 originations
Lending margins stable for Investment up for development
Debt yields low for office, retail property in UK and across Europe
Cass Business SchoolCITY, UNIVERSITY OF LONDON
Thanks to survey participants & financial supporters
• End-2017 data was received from 80 lending organisations:
− 41 Banks and Building Societies
− 11 Insurance Companies
− 28 Other Non-bank Lenders.
• Cass Business School gratefully acknowledges the generous financial
support provided by Allen & Overy, Association of Property Lenders, GVA,
British Property Federation, Canada Life Ltd, Asset Services, Commercial
Real Estate Finance Council Europe, Fitch Ratings, Helaba, Jones Lang
LaSalle Corporate Finance Limited, Maslow Capital LLP, Crestbridge UK
Limited, Savills and The Royal Bank of Scotland
Cass Business SchoolCITY, UNIVERSITY OF LONDON
The Panel
Chair: Sandy Gumm – Chief Operating Officer, Prestbury Investments LLP and
Non-Executive Director, Secure Income REIT plc
• Madeleine McDougall - Head, Commercial Real Estate, Lloyds Bank
• Lorna Brown – Head, Real Estate Debt, Legal & General IM
• Michael Zerda – Head, European Real Estate Debt Strategies, Blackstone
• Jonathan Goldstein - Part-owner and CEO, Cain International
• Axel Brinkmann – MD, Royal Bank of Canada, Real Estate Capital Partners
