How to navigate the new commercial property finance landscape

Written by Nilesh Raj Patel and published in the Finance, Banking and Insurance Magazine 2013 (Asian Voice) on 11th May 2013. Click here to see the article in the magazine.

In the world of commercial property finance, there are two types of investor – those wanting finance, and those with finance. UK bank deleveraging and the ensuing low prices has drawn in a new breed of lenders, meaning that both of these investor types now face a set of circumstances unseen before. Regardless of what side you may be on, our management arm, Pride Management can assist.

For those wanting finance

The sub-£2m commercial property market is now extremely fragmented. Although many banks have withdrawn, some are still lending. Interest rates charged vary substantially and no finance package is the same with many banks demanding compromises such as lower LTVs, shorter loan terms, higher amortisation profiles, personal guarantees, onerous financial disclosure, capital & interest deposits and higher fees.
We believe the larger banks are generally not worth dealing with, so never before has the need for a good, connected broker been so important, and in our network we have one of the best.

For riskier properties or buyers with lesser financial strength, new lenders have entered the market over the past 2 years who are geared up to assist. However, they prefer to receive deals through specialist brokers who understand their requirements. In this segment, we are also seeing plenty of deals suitable for cash buyers, as even without finance high returns are achievable.

For well-backed investors seeking blue-chip properties, we have arranged loans up to 75% of the purchase price with interest rates from just 3.3% over the Bank Base rate, often leading to double-digit returns! By blue-chip, we mean well-located property let to strong covenants for over 10 years – such prime property is rare today at the right price, therefore a good commercial property agent is paramount. By well-backed investors, we mean those with good background trading businesses or high salaries (e.g. pharmacists, nursing home operators, lawyers, bankers & other professionals) who meet lenders’ underwriting criteria.

For those already with finance

Deleveraging has manifested itself in banks establishing ‘non-core’ divisions - on expiry these loans won’t be renewed and borrowers will have to remortgage elsewhere. It’s vital to evaluate alternative options well before expiry, but if your loan has already expired there are ways to buy time.

Should you be deemed in breach of LTV or other covenants, lenders may serve penalties, demand repayment or enforce rent assignments, often declaring an ‘event of default’.  An extreme case we recently handled was against West Bromwich Commercial, who sought full repayment, penalty interest and assigned themselves the rent on a client’s well-covered, multimillion pound portfolio let to blue-chip tenants. With the help of Vyman Solicitors, we brought the case to High Court AND WON – all monies were refunded plus costs! Visit the News page on our website for the full details. Banks often rely on ‘market disruption clauses’ in their facility letters which are susceptible to challenge. We’ve met many borrowers in similar situations and are considering launching a class action lawsuit, so contact myself or Anup Vyas of Vyman to join us.

Whilst some investors may currently be sitting pretty and enjoying record low interest rates, many unfortunately were (mis)sold Interest Rate Swaps locking them into much higher rates. This latest scandal is brewing and all the major banks are involved. We have moved quickly and already launched cases for several affected clients in partnership with a reputed swaps misselling expert and urge affected parties to contact us for more info.

In conclusion, the current equilibrium seems set to continue in the immediate future, with bank deleveraging forcing plenty of keenly priced stock on to the market whilst low interest borrowers and cash buyers pick up these bargains. To navigate this new landscape it’s worth taking the advice of an experienced commercial property consultant and The Prideview Group look forward to helping you prosper during this next phase in the UK’s protracted recovery.

To discuss in more detail the issues above, call 020 8863 8680 and to learn more about The Prideview Group’s services visit www.pridemanagement.co.uk.

 

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