Insurance companies offer the most competitive real estate debt terms on the market, new research from CBRE has revealed. With maximum loan-to-values (LTVs) of 69% and typical margins of 2.4%, insurers are offering deals some 20-30 basis points below the market average of 66.2% and 2.6% respectively.
By number, insurers now account for 14% of all real estate lenders open to new business in the UK. They have been incentivized to launch senior debt lending platforms because of Solvency II regulation, strong achievable margins and increasing asset diversification.
Although the number of deals executed by insurers will remain low in the short-term as lending platforms and strategies evolve, CBRE predicts that they could account for as much as 20% of the UK commercial real estate lending market in the future.
Natale Giostra, Head of UK& EMEA Debt Advisory, CBRE, said: "Insurance companies continued to expand their lending capacities throughout 2011, albeit the impact of their growing presence is mainly felt at the very prime end of the real estate market.
"So far, most of their loans are larger in size than the market average, issued against best quality real estate, in terms of both location and covenant strength. One new insurance company entered the UK debt market this year and under, the Solvency II directive, we expect more to follow and to see the strengthening of commercial real estate lending platforms in 2012."
Overall the number of commercial property lenders actively or selectively lending in the UK increased slightly to 70 in 2011, but those in the actively lending category fell by 11 to 45. Two new European lenders entered the market in 2011 making this the largest category of active lenders with 17.1% of the market, closely followed by the German pfandbrief banks and UK non-clearing banks holding 15.7% each.
Maximum LTVs fell to an average of 66.2%, compared with 68.5% at the end of 2010, reflecting market uncertainty and the impending Basel III regulations. In addition to lower LTVs, the overall margin offered against UK real estate has continued to rise and currently stands at an average of 2.6%, up from 2.5% at the end of 2010.
Natale Giostra added: "We expect there to be a reduction in senior lending market liquidity in the near to medium term, with a continued shift from actively to selectively lending in 2012. Lenders remain very risk averse with a strong preference for good assets and simple, conservative finance structures backed by strong sponsors.
"While appetite to finance prime office and retail assets remains strong with average maximum LTVs offered of up to 66.9% and 66.4% respectively, activity outside these segments of the market is limited."
The report examines the 113 lenders with a UK commercial real estate loan book and looks at factors, including appetite to lend, average margins and LTVs on offer by asset class, as well as attitudes to lending in major regional cities.