The sales, mostly the result of disposals of large portfolios rather than individual assets, underscore the growing urgency among banks to rid balance sheets of property debt. Impending regulatory changes are set to increase the cost of holding loans secured against commercial property and many banks are slowing, or even halting, new lending to the sector.
“Banks now recognise that, in many cases, loan sales are the most effective way of diminishing their balance sheet leverage and exposure to real estate”, said Natale Giostra, head of CBRE’s UK and European debt advisory team.
However, UK banks are likely to be some of the most active in shedding their exposure to property. The Financial Services Authority, the City of London regulator, has ordered banks to improve the way their internal models measure risk or switch to more standardised calculations that could increase the cost of loans significantly.
There is an estimated £280 billion - £293 billion of debt secured against commercial property in the UK, a very large slice of which, if not already in breach of financial covenants, is at loan-to-value ratios that would be near impossible to refinance in today’s market.
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