Laxfield Capital’s UK CRE Debt Barometer

17/11/2014

Laxfield Capital’s UK CRE Debt Barometer shows demand for debt increasing but average LTV ratios falling as borrowers show restraint.

The Barometer shows demand for debt finance increasing, with total loan requests over the last six months 27% higher by volume compared to the previous six-month period. The latest report also highlights a trend for larger deals, with 51 requests in excess of £100m in the past six months, compared to 42 for the preceding six-month period. Borrowers are, however, showing a cautious attitude towards leverage, with the average LTV ratio requested falling to 55% from 58% and reversing a trend seen over 2013 when LTV ratios increased every quarter.

Laxfield collates active requests for real estate finance and compares pools of data quarterly to track changing patterns of demand. This report draws on a pool of 496 loan requests totalling £46 billion, of which £13.5 billion has been added over Q2 and Q3 2014.

Key findings in the past two quarters

  • Volumes up 27% on previous six months. Q3 2014 particularly strong with £7.7bn of finance requests (33% higher than the quarterly average data recorded since the end of 2012)
  • Marked increase in average deal size with 51 deals in excess of £100m in the past six months, compared to 42 for the preceding six-month period
  • Average LTVs down to 55% (from 58% over Q4 2013 – Q1 2014) as borrowers show restraint against backdrop of high values
  • Acquisition-related finance strong and growing, now covering 51% of deals by volume in the past six months. Sponsors are more confident to seek debt at or shortly after acquisition rather than completing in equity and refinancing post-acquisition as had become the norm following the recession
  • £3.1bn of the requests over the last two quarters (23%) were deals financed in the difficult market after the financial crisis and now returning for finance in expectation of better lending terms
  • Activity spread across sectors with a strong increase in demand for finance on mixed portfolios, hotels, student housing and industrial
  • Most of the market still revolves around a five-year cycle, with no increase in long-term finance demand despite a strong appetite from institutional investors to lend fixed rate

Commenting on the findings, Emma Huepfl, Head of Capital Management at Laxfield Capital said:

“The latest findings of our barometer signal a turning point in the market, with volumes at the highest we have seen for seven years and deals weighted towards the large investor. Confidence in finance delivery is back, with debt terms increasingly sought during the acquisition process rather than post-completion. Sponsors, however, remain restrained in their risk appetite and average LTV ratios have declined, showing an enduring caution in attitude towards leverage in the wake of the recession.”

Laxfield Capital’s UK CRE Debt Barometer can be downloaded from the Laxfield Capital website at www.laxfieldcapital.com

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Enquiries to:

Emma Kane/ Henry Columbine/ Charlotte Palmer                t:  020 7382 4720

Redleaf Polhill Ltd                                                                   e:  laxfield@redleafpr.com

 

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