MARKET TREND ANALYSIS - ISSUE 5 MARCH 2021 - BCMGlobal

 
MARKET TREND ANALYSIS - ISSUE 5 MARCH 2021 - BCMGlobal
MARKET TREND
                                   ANALYSIS

                                                                   ISSUE 5
                                                                   MARCH 2021

Part of Link Group, listed on the Australian Securities Exchange
MARKET TREND ANALYSIS - ISSUE 5 MARCH 2021 - BCMGlobal
CONTENTS
Introduction and Market Overview         3
Key Findings                             4
Market Sentiment                         5
Leverage & Pricing – Investment Loans     7
Leverage & Pricing – Development Loans   10
Availability – Sector & Geography        12
Loan Maturity & Ticket Size              14
About Us & Methodology	                  16

                                               Our Team

                                               Tim Schuy
                                               Head of Real Estate Finance
                                               +44 (0)207 397 4595
                                               +44 (0)793 551 3855
                                               tim.schuy@bcmglobal.com

                                               David Tearne  
                                               Senior Analyst
                                               +44 (0) 207 204 7901
                                               +44 (0) 7849 624 209
                                               david.tearne@bcmglobal.com

                                               Natalie King
                                               Executive Assistant
                                               +44 (0)207 204 7940
                                               +44 (0)754 758 5265
                                               natalie.king@bcmglobal.com

2
MARKET TREND ANALYSIS - ISSUE 5 MARCH 2021 - BCMGlobal
INTRODUCTION

Welcome to the fifth issue of the Market Trend
Analysis from BCMGlobal.  
This year, we analyse the visible market trends through our datasets across the last five
years and assess market prospects for 2021. As with our previous reports, we focus on
lender sentiment, appetite, capabilities, and projections for the year ahead.

The last year has brought extraordinary change to the real estate market. The difficulty
of valuing assets in industries that have been unable to function normally and whose
future shape is still unclear, the Covid-recession itself, and high levels of caution have
had numerous consequences, including eliminating funding options altogether for the
worst-hit sectors.

The mix of lenders has changed dramatically too. The UK’s big clearing banks have
stepped back from new business, to limit the impact of what is now considered riskier
lending on their capital ratios. That has left the field clear for alternative lenders to meet
the demand for refinancing and new project funding, resulting in overall stability in
pricing and limiting the reduction in sector-specific availability.

For a price, these lenders are able to offer funding in a wider range of risk brackets, in
some cases having appetite for positions right up to preferred equity, something way
beyond the scope of a traditional bank. Throughout the pandemic, completion times
have extended considerably, due to more thorough due diligence combined with the
significant volume increases alternative lenders have seen.

Our 2021 survey is part of an initiative to increase knowledge and transparency in the
UK lending market. We have polled lenders directly, meaning our findings give a true
reflection of their expectations, capacity and appetite for the year ahead. Levels of
uncertainty are higher than usual as we all wait to see how quickly and sustainably the
economy can reopen and what that means for the real estate market.

Many thanks to all our respondents.

                        Tim Schuy
                        Head of Real Estate Finance
                        Link Group

Market Trend Analysis                                                                            3
MARKET TREND ANALYSIS - ISSUE 5 MARCH 2021 - BCMGlobal
KEY FINDINGS

    VALUE STABILITY                    POST-PANDEMIC
    Lenders overwhelmingly expect      RECOVERY
    residential and commercial         Market focusing on the ongoing
    property prices to be flat in      recovery after the pandemic
    2021, in both residential and      but rising unemployment in
    commercial sectors.                the UK and economic fragility
                                       are concerns; Brexit concerns
                                       taking a back seat.

    TICKET SIZE                        LENDERS CAUTIOUS
    DIVERGENCE                         ON COVID-HIT
    Higher average maximum             SECTORS
    ticket size for investment loans
                                       Investment loan availability has fallen
    than last year, but lower for
                                       most for sectors hit by the pandemic,
    development loans.
                                       but supply of development loans is
                                       more robust.

    COVENANT                           PRICING COMPETITION
    SCRUTINY                           AT HIGHER LEVERAGE
    Lender caution is demanding        POINTS
    much higher interest cover.        Lenders have reduced preferred equity
                                       leverage they will offer, but pricing is
                                       much keener, narrowing the gap with
                                       mezzanine finance.

    EXPANDING
    HORIZONS
    Lenders keener than last year
    to expand across all European
    jurisdictions – most notably
    Western Europe & the Nordics.

4
MARKET TREND ANALYSIS - ISSUE 5 MARCH 2021 - BCMGlobal
MARKET
SENTIMENT
Lenders are relatively positive on property prices for the year
ahead, both for the residential and commercial sectors.

The vast majority (80% and 74% respectively) think                   were trading on negative yields. Certainly some
property values will hold firm, but among those                      respondents were open to the likelihood that gilt
expecting them to change, approximately twice                        yields would rise but this is perhaps happening
as many think they will fall than think they will rise.              more quickly than they expected. Overall, three
The picture is, however, more optimistic than last                   quarters expected no change in gilt yields,
year, even though the 2020 survey was conducted                      however 96% think the base rate is going to be
before the pandemic hit. Last year, political                        the same or lower by the end of the year.
upheaval and Brexit loomed large but these
                                                                     The full impact of the pandemic caught most
issues have subsided and now lenders are instead
                                                                     people off guard. 82% of lenders last year
relieved to see light at the end of the Covid tunnel.
                                                                     expected to increase originations – certainly
With the economy turning up, lenders are in hiring                   not how things turned out. This year 64%
mode. More than half will add staff this year with                   expect an increase, and with the worst of the
less than 4% expecting to make cuts– perhaps                         pandemic seemingly behind us, only 6% think
making up for any hiring freezes over 2020.                          originations will fall compared to 2020.

Even so there is caution. More than half (55%) of                    With the majority of lenders expecting a reduction
lenders expect loan-to-value ratios (LTVs) to be                     in new loan pricing (and only 4% expecting an
unchanged, but three times as many (34% v 11%)                       increase), it appears that lenders in general are
expect an overall reduction. When we conducted                       eager to get money out the door in 2021.
the survey, gilts of all maturities up to five years

Respondent Expectations

          Size of team     4%                           44%                                                 52%

New Loan Originations      6%                     30%                                              64%

          UK Base rate           18%                                               78%                                          4%

     UK Treasury Gilts     6%                                        76%                                                18%

    LTV on New Loans                        34%                                              55%                              11%

 Pricing on New Loans
        (Margin & Fees)                                 53%                                                43%                      4%

       UK Residential
      Property Values           14%                                              80%                                            6%

      UK Commercial
      Property Values            17%                                             74%                                           9%

                          0%          10%         20%         30%     40%       50%      60%         70%          80%   90%          100%

                                                               DECREASE     REMAIN SIMILAR     INCREASE

Market Trend Analysis                                                                                                                       5
MARKET TREND ANALYSIS - ISSUE 5 MARCH 2021 - BCMGlobal
What is the biggest risk to the commercial real estate
market in the coming year?

                                                                GLOBAL PANDEMIC/COVID                 69%

                                                                RECESSION (UK)                        12%

                                                                CLIENT RETENTION                      6%

                                                                DECREASING TENANT DEMAND              5%

                                                                UNEMPLOYMENT                          5%

                                                                BREXIT                                2%

                                                                RESIDENTIAL CRASH                     2%

In January 2020, 77% of lenders thought                None of our respondents felt that a global
Brexit would once again present the biggest            recession presented the biggest risk this
challenge for the year. This might have been           year (compared to 11% last year) with the
so, were it not for Covid-19. Last year, only          focus shifting inward to the potential of a
one insightful lender correctly predicted a            UK recession (our second highest response)
global pandemic as the highest risk factor.            being a bigger worry to the stability of the
                                                       UK CRE market in the year to come.
Of course, now Covid is top of lenders’ minds. 69%
consider it the key risk factor to the UK commercial   Changes to working and shopping patterns
real estate market for 2021; this year saw only one    may be behind concerns over falling
respondent place Brexit at the top of the risk list.   tenant demand and client retention.

With the UK having endured its worst recession
in 300 years, unemployment now features
as a key concern for commercial real estate
(CRE) lenders for the first time since we began
our Market Trend Analysis five years ago. The
government has offered further furlough
support since we ran the survey, but an eventual
increase in unemployment when the furlough
scheme is withdrawn seems inevitable.

6
LEVERAGE & PRICING
INVESTMENT LOANS
Most categories of lenders are reducing the maximum                                                                      North American banks have seen the biggest decrease
LTVs they offer this year as the graph shows. The average                                                                in maximum LTV of seven percentage points, though
decline over the various lender categories is just over                                                                  since the data was collected, the great success of
two percentage points. European banks, Middle Eastern                                                                    the UK vaccine rollout has significantly increased
banks and pension funds are bucking the trend however,                                                                   confidence. Anecdotally we are hearing that US lenders
and appear to be continuing the upward trajectory of                                                                     have a much greater appetite now for UK business
maximum LTV seen over previous years despite the                                                                         and we expect LTVs to rise as the year progresses.
wider issues encountered over the last 12 months.

Although they have seen a drop of 5 percentage
points, hedge funds retain the top spot with
an average maximum LTV of 78%.

Average Maximum LTV
                          90%

                          80%

                           70%
Average Leverage (%)

                          60%

                          50%

                          40%

                          30%

                          20%

                           10%

                             0%
                                  ALTERNATIVE
                                      LENDER

                                                HEDGE
                                                 FUND

                                                            DEBT
                                                            FUND

                                                                          NORTH
                                                                        AMERICAN
                                                                            BANK

                                                                                       PEER TO PEER
                                                                                            LENDER

                                                                                                                 INSURANCE
                                                                                                                  COMPANY

                                                                                                                                           ASIAN BANK

                                                                                                                                                                  UK BANK

                                                                                                                                                                                 PFANDBRIEF
                                                                                                                                                                                      BANK

                                                                                                                                                                                                    EUROPEAN
                                                                                                                                                                                                        BANK

                                                                                                                                                                                                                   PENSION
                                                                                                                                                                                                                     FUND

                                                                                                                                                                                                                                 MIDDLE
                                                                                                                                                                                                                                EASTERN
                                                                                                                                                                                                                                   BANK
                                                                                                      2019          2020     2021

Since lenders overall are reducing LTVs, naturally that is                                                               highest or equal-highest leverage in all loan categories for
impacting on specific product lines too. Our respondents                                                                 the second year running.
have modestly reduced maximum LTV this year across all
                                                                                                                         The average maximum LTV of preferred equity stood out
loan types, with an average decrease of just under two
                                                                                                                         most, declining from 90% to 83%.
percentage points across the board for the highest LTV
offering in each loan category. Hedge funds offered the

Average Maximum LTV by Lender Type
                          100%

                           80%
   Average Leverage (%)

                           60%

                           40%

                           20%

                             0%
                                  ALTERNATIVE
                                      LENDER

                                                HEDGE
                                                 FUND

                                                           DEBT
                                                           FUND

                                                                         NORTH
                                                                       AMERICAN
                                                                           BANK

                                                                                   PEER TO PEER
                                                                                        LENDER

                                                                                                             INSURANCE
                                                                                                              COMPANY

                                                                                                                              ASIAN BANK

                                                                                                                                                        UK BANK

                                                                                                                                                                            PFANDBRIEF
                                                                                                                                                                                 BANK

                                                                                                                                                                                              EUROPEAN
                                                                                                                                                                                                  BANK

                                                                                                                                                                                                               PENSION
                                                                                                                                                                                                                 FUND

                                                                                                                                                                                                                              MIDDLE
                                                                                                                                                                                                                             EASTERN
                                                                                                                                                                                                                                BANK

                                                        SENIOR LOANS      WHOLE LOANS                 MEZZANINE LOANS                      PREFERRED EQUITY                   BRIDGE LOANS

Market Trend Analysis                                                                                                                                                                                                                  7
When viewed in context of the leverage                                                      Margin by Loan Type Year on Year
  data, there has been a slight reduction in risk
  preference. But the only significant change has                                             1600

  been at the high side of leverage. This is most                                             1400
  likely related to the wider issues caused by the
                                                                                              1200
  pandemic – for example valuation uncertainty.
  Similarly, loan pricing has also remained relatively                                        1000

  static, with a drop in pricing in the preferred                                             800

  equity space from an average of 13% to 10%                                                  600

  to make up for the lower leverage on offer.                                                 400

  This has also resulted in a narrowing of the                                                200

  gap between mezzanine and preferred equity                                                    0

  pricing and leverage, which might give cause for                                                               SENIOR                   WHOLE                MEZZANINE           BRIDGE           PREFERRED
                                                                                                                 LOANS                    LOANS                 LOANS              LOANS              EQUITY
  borrowers generally operating in the mezzanine
  space to consider moving up the leverage curve.                                                                                          2017         2018      2019          2020         2021

  Average Margin by Lender type

                       1400

                       1200
Average Margin (bps)

                       1000

                       800

                       600

                       400

                       200

                         0
                              ALTERNATIVE
                                  LENDER

                                            HEDGE
                                             FUND

                                                      DEBT
                                                      FUND

                                                                     NORTH
                                                                   AMERICAN
                                                                       BANK

                                                                               PEER TO PEER
                                                                                    LENDER

                                                                                                     INSURANCE
                                                                                                      COMPANY

                                                                                                                          ASIAN BANK

                                                                                                                                                  UK BANK

                                                                                                                                                                   PFANDBRIEF
                                                                                                                                                                        BANK

                                                                                                                                                                                       EUROPEAN
                                                                                                                                                                                           BANK

                                                                                                                                                                                                     PENSION
                                                                                                                                                                                                       FUND

                                                                                                                                                                                                                 MIDDLE
                                                                                                                                                                                                                EASTERN
                                                                                                                                                                                                                   BANK

                                                    SENIOR LOANS      WHOLE LOANS             MEZZANINE LOANS                          PREFERRED EQUITY            BRIDGE LOANS

  For the second year running, pension funds are able to offer                                                   represent a great low-cost option for UK senior investment
  the lowest average margins for investment loans at 192bps.                                                     loans and we had a number of Pfandbrief respondents
  Pfandbrief banks were tied with them as the cheapest                                                           pricing senior loans in the 175-200 bps range.
  lenders last year, but they appear at first glance to be less
                                                                                                                 North American banks and insurance companies have the
  competitive for the UK market this year.
                                                                                                                 next-lowest average margins for investment loans at 225 bps
  This could potentially be explained by the fact that we                                                        and 229 bps respectively.
  surveyed an increased number of Pfandbrief banks this
  year, some of which have a slightly higher margin banking
  product than a traditional Pfandbrief bank. This has brought
  the average margin up slightly, however Pfandbrief banks still

  8
When we average data within each lender category, we can assess their “relative value” based on
   maximum leverage offered against margin pricing. The lender categories above the line are relatively
   “good value”, offering higher maximum leverage for lower average margins when compared to
   those below the trend line. The below relative value graph uses data for Senior Loans only.

   Relative Value by Lender Types – Investment Loans

                          80%

                          75%
Average maximum LTV (%)

                          70%

                          65%

                          60%

                          55%

                          50%
                                0                    100                  200                 300                                       400                     500                  600                   700
                                                                                             Average margin (bps)

                                ALTERNATIVE LENDER         HEDGE FUND      DEBT FUND      NORTH AMERICAN BANK                            PEER TO PEER LENDER           INSURANCE COMPANY      ASIAN BANK

                                                           UK BANK      PFANDBRIEF BANK     EUROPEAN BANK                             PENSION FUND       MIDDLE EASTERN BANK

                           The interest cover ratio (ICR) required by                          Income Convenants Year on Year
                           lenders for investment loans continues its
                                                                                                                         1.8
                           upward trend since 2019. In 2021, lenders are
                           demanding an extra 22 percentage points                                                       1.7

                           of cover compared to 2020. Debt service                                                       1.6

                           coverage ratios (DSCR) are also rising.
                                                                                                                         1.5
                                                                                              I n co me m u l t i pl e

                           It’s clear that lenders are more cautious in the                                              1.4
                           wake of the pandemic and have taken steps to
                                                                                                                         1.3
                           ensure borrowers can meet interest payments.
                                                                                                                         1.2

                                                                                                                               2017            2018         2019              2020         2021

                                                                                                                                              AVERAGE ICR (%)         AVERAGE DSCR (%)

   Market Trend Analysis                                                                                                                                                                                     9
LEVERAGE & PRICING
DEVELOPMENT LOANS
There was no significant changes to the overall                                                                          Alternative lenders once again offered the largest LTC (79%),
average maximum leverage on offer for                                                                                    though even they have reduced this by three percentage
developments - 73% loan-to-cost (LTC) and 63%                                                                            points since 2020. Alternative lenders are also generous on
loan-to-gross-development-value (LTGDV).                                                                                 LTGDV, offering 69%, second only to hedge funds (71%).

Average Maximum Leverage by Lender Type
                       100%

                       80%
Average Leverage (%)

                       60%

                       40%

                       20%

                        0%
                              ALTERNATIVE
                                  LENDER

                                            PEER TO PEER
                                                 LENDER

                                                                DEBT
                                                                FUND

                                                                              ASIAN BANK

                                                                                                HEDGE
                                                                                                 FUND

                                                                                                               UK BANK

                                                                                                                                 MIDDLE
                                                                                                                                EASTERN
                                                                                                                                   BANK

                                                                                                                                              INSURANCE
                                                                                                                                               COMPANY

                                                                                                                                                           EUROPEAN
                                                                                                                                                               BANK

                                                                                                                                                                             NORTH
                                                                                                                                                                           AMERICAN
                                                                                                                                                                               BANK

                                                                                                                                                                                      PFANDBRIEF
                                                                                                                                                                                           BANK

                                                                                                                                                                                                   PENSION
                                                                                                                                                                                                     FUND
                                                           LTC (%) 2021   LTC (%) 2020          LTC (%) 2019         LTGDV (%) 2021      LTGDV (%) 2020   LTGDV (%) 2019

                                                                                                                                      The lowest cost development finance is provided
                                                                                             Cheapest overall                         by different lenders depending upon the type of
                        Project type                                                                                                  project being financed. We have examined the
                                                                                                finance cost*
                                                                                                                                      best financing options for a standard development
                        Commercial Development
                                                                                               European Bank                          project considering variables such as required
                        100% Pre-let
                                                                                                                                      margin, arrangement, exit and non-utilisation fees.
                        Commercial Development
                                                                                               Pfandbrief Bank
                        Part Pre-let                                                                                                  Middle Eastern banks have retained the top spot
                        Commercial Development                                                                                        for a second year for cheapest overall finance cost
                                                                                           Middle Eastern Bank                        for both speculative commercial development and
                        Speculative
                                                                                                                                      land loans with and without planning.
                        Residential Development
                                                                                               European Bank
                        for Sale                                                                                                      European banks have also returned to the market,
                        Residential Development                                                                                       offering the cheapest finance in three categories.
                                                                                               European Bank
                        for Hold & Rent                                                                                               They did not feature in 2020 which we believe
                                                                                                                                      was related to the uncertainty caused by the fear
                        Land Loans with Planning                                           Middle Eastern Bank
                                                                                                                                      of a cliff-edge Brexit at the end of 2019. Now they
                                                                                                                                      are responding positively to the rapid vaccine
                        Land Loan without Planning                                         Middle Eastern Bank
                                                                                                                                      programme in the UK and the economic recovery
                                                                                                                                      it should bring.
                       * Based on a 2 year development at average margin, fees and LTC for each
                       lender category for the relevant project type and run on a standard S-Curve                                    After featuring for the past four years, UK banks
                       schedule with full repayment at PC                                                                             do not appear at all as cheapest capital for any
                                                                                                                                      development sector in 2021. This is likely to be
                                                                                                                                      related to more cautious risk management of their
                                                                                                                                      loan portfolios and the slower reaction times of
                                                                                                                                      more traditional lenders.

10
‘Relative Value’ by Lender Type – Development Loans

                          85%

                          80%

                          75%
Average maximum LTC (%)

                          70%

                          65%

                          60%

                          55%

                          50%

                                0                    100                 300                     500                      700                  900                  1100                1300

                                                                                                       Average margin (bps)

                                ALTERNATIVE LENDER         HEDGE FUND        DEBT FUND     NORTH AMERICAN BANK                  PEER TO PEER LENDER      INSURANCE COMPANY       ASIAN BANK

                                                           UK BANK      PFANDBRIEF BANK          EUROPEAN BANK            PENSION FUND        MIDDLE EASTERN BANK

For our ‘relative value’ chart for development loans,                                                             A strong option for lower leverage development
as always, we use what we consider to be the most                                                                 financing is presented by Middle Eastern
important indicators of leverage and pricing; average                                                             banks, offering 69% LTC at 425bps.
maximum LTC and average margin. The best ‘relative
                                                                                                                  Insurance companies who have historically represented
value’ in development loans is offered by peer-to-peer
                                                                                                                  poor value for money have greatly improved their
lenders, which offer 78% LTC at pricing of 696 bps. This
                                                                                                                  offering this year. They now feature firmly above
is an improvement on their offering last year which put
                                                                                                                  the good value trend line with an increased LTC
them below the good-value trendline with average
                                                                                                                  of 74% and a reduced margin of 752 bps.
leverage of 75% and pricing of 835 bps. This may suggest
the sector is maturing and is becoming more price-
competitive with its longer-established competitors, and
becoming an option for lower-risk development projects.

                          Availability: Development Loan Types

                          Generally speaking this year there is less availability of lending, with a higher number of lenders recording no appetite
                          at all for some development types. Obtaining land loans both with and without planning may be more difficult this
                          year than in previous years, with a large number of lender types having little interest in these projects in 2021.

                                                               Residential       Residential                                                 Commercial         Commercial      Commercial
                                                                                                       Land Finance      Land Finance
                                                              Development      Development for                                              Development,       Development,    Development,
                                                                                                       with Planning    without Planning
                                                                for Sale         Hold & Rent                                                 fully pre-let      part pre-let    speculative

                           Alternative Lender                    38%               38%                     8%                   0%              31%               23%              8%
                           Peer to Peer Lender                   60%               40%                    40%                   40%             20%                0%              0%
                           Debt Fund                             58%                67%                   58%                   33%             50%               50%             50%
                           Asian Bank                            25%               25%                    25%                   0%              50%               25%             25%
                           Hedge Fund                            67%                67%                    0%                   0%              67%               67%             67%
                           UK Bank                               50%               50%                    10%                   10%             40%                10%            10%
                           Middle Eastern Bank                   100%              100%                   50%                   50%            100%               50%             50%
                           Insurance Company                     43%               43%                     14%                  0%              29%               29%             29%
                           European Bank                         33%                67%                    0%                   0%              33%               33%             33%
                           North American Bank                    0%               50%                     0%                   0%             100%               100%           100%
                           Pfandbrief bank                        0%               100%                    0%                   0%             100%               100%            50%
                           Pension fund                           0%                0%                    33%                   0%              0%                 0%              0%

                          The chart above shows the proportion of lenders in each category                                                                   – No lending appetite
                          which fund various development loan types.

Market Trend Analysis                                                                                                                                                                          11
AVAILABILITY
- SECTOR &
GEOGRAPHY
There has been a noticeable drop in availability of loans

                                                                                                                                                                  BUY
generally across all but one sector, but those sectors most
severely impacted by the Covid pandemic have seen appetite
to lend dry up the most. Availability of loans has fallen most                                                                                                    Residential
significantly in the retail, hotel and leisure sectors.                                                                                                           (Build to Rent)
We note that 2021 seems likely to see much larger declines in
investment loans in these sectors than in development loans. The
lead times on development projects naturally mean the asset
under construction will not earn rental income until it is completed.
The fact that activity is holding up better in this segment suggests
lenders are more confident about a robust market recovery in 1-2
years time than they are about the current market - especially in
                                                                                                                                                                  HOLD
                                                                                                                                                                  Prime Office
with regards to valuation and income stability in the short term.
                                                                                                                                                                  Industrial/Logistics
In the case of retail, the pandemic has only exacerbated                                                                                                          Tourist Hotels
the decline we have seen over the last 4-5 years.

Industrial and logistics remain very popular with lenders. Loan
availability here continues its upward trend, the only sector to see

                                                                                                                                                                  SELL
an uptick in 2021 compared to 2020. With the shift to online retail
showing no signs of slowing down, we can only expect the logistics
sector to expand further, and for traditional retail to decline.                                                                                                  Retail
The office sector has seen a modest decline in popularity. The
decline has been less severe than the possible persistence
of home-working post-pandemic might suggest. Although
we think lenders are open to this sector, we hear anecdotally
that they are cherry-picking the best office deals.

Sector preference Year on Year
Investment                                                                                                                                           Development
                                90                                                                                                                  80

                                80
                                                                                                                                                    70
Proportion of respondents (%)

                                70
                                                                                                                                                    60
                                60
                                                                                                                                                    50
                                50
                                                                                                                                                    40
                                40
                                                                                                                                                    30
                                30

                                20                                                                                                                  20

                                10                                                                                                                  10

                                0                                                                                                                   0
                                     OFFICE

                                              INDUSTRIAL
                                               /LOGISTICS

                                                                   RESIDENTIAL

                                                                                    STUDENT
                                                                                    HOUSING

                                                                                                     HOTEL

                                                                                                                    RETAIL

                                                                                                                             HEALTHCARE

                                                                                                                                          LEISURE

                                                                                                                                                         OFFICE

                                                                                                                                                                  INDUSTRIAL/
                                                                                                                                                                    LOGISTICS

                                                                                                                                                                                BUILD TO SELL

                                                                                                                                                                                                BUILD TO HOLD

                                                                                                                                                                                                                 STUDENT
                                                                                                                                                                                                                 HOUSING

                                                                                                                                                                                                                             HOTEL

                                                                                                                                                                                                                                        RETAIL

                                                                                                                                                                                                                                                 HEALTHCARE

                                                                                                                                                                                                                                                              LEISURE
                                                                                                                                                                                 RESIDENTIAL,

                                                                                                                                                                                                  RESIDENTIAL,

                                                            2021                 2020         2019           2018                                                                   2021               2020           2019           2018

12
The most popular regions among lenders for the
    third year in a row are London, the South East and
    the South West which has been modestly rising
                                                                                                Scotland 78%
    over the last few years. The Midlands has seen a
    marginal decline in popularity which now sits in
                                                                Northern
    fourth place behind the South West.                         Ireland
                                                                48%

                                                                                                      North 88%

                                                                                                        Midlands 90%

                                                                Wales 76%
                                                                                                           South East 92%

                                                                                                           London 98%
                                                                South West
                                                                92%

                                      Central London 98%
                                      South East      92%
                                      South West 92%
                                      Midlands        90%
Lenders are more interested in Europe in 2021 than
                                      North           88%
they were in 2020. There has been an average increase
                                      Wales           76%
of seven percentage points- across the regions, with all
                                      Scotland        78%
jurisdictions attracting more interest. This may reflect
                                      Northern Ireland 48%
an increase in flexibility in lenders’ investor bases,
perhaps being open to new areas geographically in
order to have greater access to the best transactions
on the market, especially post Brexit.                                            Nordics 34%

Ireland is registering the biggest surge in appetite
with a 14% increase taking it ahead of Western Europe                                                                         Baltics 8%
as the most popular non-UK European location. The
strength of ties between the UK and Ireland makes it a
natural first port of call for UK-based lenders looking to   Ireland 50%

diversify away from the domestic market.
                                                                                                                        CEE 18%

                                                                West Europe 48%

                                                                                                                            South Europe 22%

Market Trend Analysis                                                                                                                 13
LOAN MATURITY
 & TICKET SIZE

 For investment loans, we continue to see greater preference for longer-term maturities than was seen between 2017 and
 2019. The largest drop in loan maturity availability for this year was in the medium-dated 6-7 category. Loan availability
 nevertheless remained greatest at the medium maturities, but it’s clear that this category has borne the brunt of the general
 decline in loan availability this year.

 Loan Maturity - Investment Loans
                            70%

                            60%

                            50%
Percentage of Respondents

                            40%

                            30%

                            20%

                            10%

                              0

                                  0-2 YEARS   3-5 YEARS              6-7 YEARS             8-10 YEARS               10+ YEARS

                                                      2021   2020   2019    2018   2017

 For the first time in five years we are seeing a slight                   Average Maximum Ticket Size
 divergence in the maximum ticket size for investment
 and development loans. Appetite for larger ticket
                                                                            250
 investment loans appears to have increased in
 2021, in contrast to a decline in appetite for large
                                                                           200
 development loans. The increase in ticket size for
 investment loans indicates a more optimistic view for
                                                                            150
 investment, especially those in sectors which have now
 demonstrated themselves to be resilient to the events                      100
 of the last 12 months.
                                                                            50
 The average maximum loan size for development
 loans has fallen a bit. This is not because big-ticket
                                                                             0
 lenders are cutting back, but rather because low and                               2017       2018        2019       2020      2021
 mid-market operators have in some cases cut back
 on the size of development loans they are offering, so                                       INVESTMENT          DEVELOPMENT

 their caution has pulled the average down.

 14
Ticket size (£m)                                                                                                     Ticket size (£m)

                                                                                                                                                            0
                                                                                                                                                                200
                                                                                                                                                                      400
                                                                                                                                                                                    600
                                                                                                                                                                                          800
                                                                                                                                                                                                1000

                                       0
                                           200
                                                 400
                                                                600
                                                                      800
                                                                            1000
                         ALTERNATIVE                                                                                                          ALTERNATIVE
                             LENDER                                                                                                               LENDER

Market Trend Analysis
                          ASIAN BANK                                                                                                           ASIAN BANK

                          DEBT FUND                                                                                                            DEBT FUND

                           EUROPEAN                                                                                                             EUROPEAN
                               BANK                                                                                                                 BANK

                         HEDGE FUND                                                                                                           HEDGE FUND

                          INSURANCE                                                                                                            INSURANCE
                           COMPANY                                                                                                              COMPANY
                                                                                                                                                                                                                                                                each lender category, for investment and development loans.

                             MIDDLE                                                                                                               MIDDLE
                            EASTERN                                                                                                              EASTERN
                               BANK                                                                                                                 BANK
                                                                                                                                                                                                       Maximum Investment Loan Ticket Size by Lender Category

                             NORTH                                                                                                                NORTH
                           AMERICAN                                                                                                             AMERICAN

                                                                                   Maximum Development Loan Ticket Size by Lender Category
                               BANK                                                                                                                 BANK

                        PEER TO PEER                                                                                                         PEER TO PEER
                             LENDER                                                                                                               LENDER

                        PENSION FUND                                                                                                         PENSION FUND

                          PFANDBRIEF                                                                                                           PFANDBRIEF
                               BANK                                                                                                                 BANK
                                                                                                                                                                                                                                                                The bars on the graphs below represent the largest, smallest and median maximum ticket size seen within

                            UK BANK                                                                                                              UK BANK

15
About Us                                             Methodology
The Real Estate Finance division of BCMGlobal        The research is based on the collection of primary
can source, secure and structure finance for         data over the first month of 2021. The anonymous
investors and developers. Connected with almost      open market survey was sent out publicly,
every major real estate lending institution active   resulting in a data set of 68 respondents from
in Europe, we aid our clients in establishing long   61 separate lenders active in the UK Real Estate
term relationships with the most suitable lenders    Lending market.
on optimal financing terms. Using an established,
targeted process we help to move transactions
along quickly and efficiently providing end-to-
end assistance. Link Group is a global expert in
providing efficient administration and innovative
financial solutions. We have over €80bn of
assets under management and over 112,000 loans
under management

Contact us
Tim Schuy                                  David Tearne                            Natalie King
Head of Real Estate Finance                Senior Analyst                          Executive Assistant
+44 (0)207 397 4595                        +44 (0) 207 204 7901                    +44 (0)207 204 7940
+44 (0)793 551 3855                        +44 (0) 7849 624 209                    +44 (0)754 758 5265
tim.schuy@bcmglobal.com                    david.tearne@bcmglobal.com              natalie.king@bcmglobal.com
                                                                                                                BCM0261_04/21
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