More bank and non-bank capital is becoming available for lending secured by lower quality assets, according to new research by DTZ.
It says lenders in the UK are increasingly expected to view older or lower grade property assets more favourably which will make it easier to refinance legacy loans as well as trigger new injections of capital into the market.
This lower absolute gap on secondary properties should allow more bank and non-bank lenders to move into lending secured by lower quality properties, as the downside risk for this smaller stock of buildings is not significantly different.
The research shows that the debt funding gap – the amount of capital available for refinancing compared to maturities – is £1bn over the remainder of 2013 and 2014 for “Grade C” property, £9.8bn for “Grade B” and £3.6bn for “Grade A”. This is in part due to the average price of Grade A property compared to Grade C property.
However, even on a relative basis, taking a property worth £100m in 2006, the refinancing gap for a Grade C asset would be £36m compared to £38m for a Grade A property.
Hans Vrensen, global head of research at DTZ, said:
“This UK analysis confirms our earlier held views that lower quality assets are not necessarily in a worse position than higher quality assets, due their legacy debt positions.
“In addition, we suspect that the same fundamentals will hold true across other European markets. We expect that this will further assist market participants to put risk in its proper perspective and become more active in refinancing legacy loans secured by lower quality assets. As long as pricing remains sufficiently attractive, we anticipate that a number of lenders will be moving into the Grade C and B segments.”