This document summarizes the November 2014 funding and finance market update from RICS Matrics. It outlines key macroeconomic factors like interest rates. Property investment volumes are steady while returns increased in 2014, led by offices and industrial. The property lending market is diversifying with new entrants as debt levels decrease from their peak. Lending terms remain conservative with loan-to-value ratios around 50-60% as equity investors seek stable returns or high-growth opportunities.

1. RICS Matrics Series
Funding and Finance:
Market Update
November 2014
Simon Wainwright BSc FRICS
J PEISER WAINWRIGHT
#CPDseries

2. Funding and Finance: Market Update
• Macro-economic factors
• Finance for property investment & development
• Types of lending
• Who is providing funding - participants
• Funding terms
• Current terms
• Role of professionals

3. Economic Background
• US Federal Reserve rate 0.25% - UK Base Rate 0.50%
• UK 5-year SWAP rate 1.79% (2.03% April)
• UK 10-year SWAP rate 2.32% (2.79% April)
• BoE Quantitative Easing £375 bn
• Outstanding property debt £244 bn
• European inter-bank lending weak
• Inflation RPIX 2.3% Sept 2014
• Inflation CPI 1.2% Sept 2014 (1.6% March)

4. One Country Two Economies

5. Wealth Preservation

6. Private Equity

7. Market Participants
• The rise and fall of the Debt Based buyer
• The return of the Institutional Investor
• New lenders / investors entering the market
• Foreign investors – Sovereign Wealth funds
• Private Equity and Opportunity funds
• Corporate buyers
• Private investors, trusts and charities

8. Property Background
• Investment Volumes £12,667m year to date April 2014.
(Compared to £12,852m in 2013)
• IPD Total Returns for all Property March 2014 13.97%
(February 2014 12.62%).
• IPD Total Returns by sectors March 2014
– Offices 18.86% (February 2014 17.08%)
– Industrial 18.23% (February 2014 16.39%)
– Retail 9.56% (February 2014 8.64%).
• Rental index (monthly rates) up 0.12%
– Offices up 0.38%
– Industrial up 0.03%
– Retail down -0.01%

9. Where can you find value?

10. Attracting Investment
• What is the risk profile of your investment?
• Does it have intrinsic value and growth potential
• Is it in the right location to attract investment?
• Is it the right lot size?
• Who are the obvious buyers?
• Can you secure debt against any contracted income streams?
• What is the AWULT?
• What is the tenant’s credit risk?

11. Glossary of terms
• LTV = Loan to Value ration
• CMBS = Commercial Mortgage backed securities
• NAMA = National Asset Management Agency
• Margins = lending margin over interest rates
• Arrangement fees = charged by banks on loan origination
• Income interest = ration of income to interest
Date Source
UK Commercial Property Lending Survey
De Montfort University - December 2013

12. Approximate amount of debt secured by UK
Commercial Property Source: De Montfort University
Source: De Montfort University

13. Approximate amount of debt secured by UK
Commercial Property Source: De Montfort University

14. Allocation of drawn funding £179.8bn
Source: De Montfort University

15. Proportion of debt held by 12 largest lenders
Source: De Montfort University

16. Current LTV ratios by proportion and value of
outstanding debt Source: De Montfort University

17. Value of loan originations (£bn)
Source: De Montfort University

18. New loan originations (£29.9bn)
Source: De Montfort University

19. Proportion of lending completed by 12 most active
lenders
Source: De Montfort University

20. No. lenders prepared to lend against varying loan
sizes
Source: De Montfort University

21. Average interest rate margins
Source: De Montfort University

22. Average interest rate margins by project type
Source: De Montfort University

23. Average LTV ratios by sector
Source: De Montfort University

24. Arrangement fees by sector
Source: De Montfort University

25. Interest income cover by sector
Source: De Montfort University

26. Lending intentions
Source: De Montfort University

27. Active Lenders
• AIG
• Aviva
• AXA
• Barclays Bank
• Bayern LB
• Citigroup
• Deka Bank
• Deutsche Bank
• Deutsche Hypo
• Deutsche Pfandbrief
• Deutsche Postbank
• Helaba
• HSBC
• ING REF
• Landesbank Berlin
• Lloyds Banking Group
• Met Life
• M&G Investments
• Royal Bank of Scotland
• Santander

28. Summary
• 2013 saw increasing capital values
• Overall level of property debt continuing to decrease
• Property lending market is diversifying
• There will be no return to 2007/2008 lending
• Improving lending intentions
• LTVs 50% - 60%
• Equity seeking wealth preservation or high returns

29. RICS Matrics Series
Funding & Finance
Market Update
November 2014
Simon Wainwright BSc FRICS
J PEISER WAINWRIGHT
#CPDseries