Commercial Real Estate LendingIndustrial real estate loans
is the most complete survey of the UK commercial real estate lending markets. Yesterday evening Dr Nicole Lux, the Authors of the Cass UK Commercial Real Estate Lending Review, started at Allen & Overy LLP. After Dr. Lux, a committee of sector specialists debated what the results mean for their sectors and the broader markets.
According to the most extensive survey of the UK commercial real estate lending markets, a significant amount of new lending was arranged in the second half of 2017. In 2017, new business was at the same level as in 2016. Furthermore, the survey showed a higher than normal 34.5 billion amount of unused financing, which was contracted in 2017 and is largely related to financing for developments.
Therefore, the formal amount of promised debts underestimates the original amount of £44.5 billion. In the second half of 2017, new lending increased (£26.8bn). Increased financing for financing developments (13 percent year-on-year) and unused credit facilities (29.7 percent year-on-year). In 2017, almost a fourth of new business (24 per cent) was provided by alternate creditors (insurance corporations and other non-bank lenders).
Reorganization of commercial real estate credits
At the beginning of 2011, many of them are seeing indications of the beginning of a progressive rebound in commercial real estate market activity. But below-average commercial real estate lending remains a challenge for borrower and lender both. Given that debtors are trying to keep project assets above water and creditors want to maintain their claims reserve, the commercial real estate loan reorganisation will be an important instrument for debtors and creditors in 2011 as well.
Credit re-structuring options may be reduced, however, as lenders' losses increase and lenders' balances improve, making creditors more willing to track bad credit security. Credit reorganisation can provide several options for borrower, to include the possibility for borrower to benefit from historic low interest rate levels, reduce montly debts servicing repayments and prolong the period for repaying.
This and other advantages may allow debtors to pursue further project execution until commercial real estate improves or sales or refinancing options are explored. The advantages of credit reorganisation must make it clear to debtors that they are facing possible traps. This includes, in particular, the option for the debtor to realise normal proceeds from the debt forgiveness in the event of a reduction or waiver, so that the debtor is obliged to make tax payments on these proceeds.
Borrower must consider this possible debt when assessing the viability of a credit restructure. Borrower must also be clear that as part of the reorganisation the lender may request extra guarantees, warranties or other securities or that the borrower must invest extra liquid funds in the investment.
Credit restructurings can also profit from real estate creditors who want to minimise or retard loss on below-average credit and prevent the acquisition of extra asset values. However, as described above, the reorganisation may allow creditors to obtain extra security or a financial injection for the investment. It may also enable creditors to enhance monitoring of the functioning of the project.
Furthermore, borrowings can be re-structured so that creditors are eligible to collect extra funds from the surplus projectcash flows if the creditor has consented to a decrease in the nominal amount of the borrowing and the projected performance is better than anticipated. Just as with borrower banks, creditors need to be mindful of the possible snares of credit restructurings.
Where there are subordinated creditors for a specific scheme, the creditor must take appropriate measures to make sure that the reorganisation of the credit does not lead to the creditor loosing its primary interest in the securities for the credit. Intermediary agreements between different creditors may be required to clarify prioritised questions.
Creditors must also be conscious of the immediate need for liquidity of the projects when assessing whether a credit should be restructured, to include whether funding is needed for forgone upkeep, outstanding invoices or outstanding land tax. Dependent on the liquidity situation of a debtor, it may be necessary for the creditor to be able to use the projected liquidity for real estate costs instead of servicing debts or even to provide extra resources to cover accrued real estate costs.
We at Thompson Coburn have acted for creditors and borrower in a number of matters related to the commercial real estate lending restructurings and have considerable expertise in the documentation of these deals. Please consult one of the lawyers below if we can help your company achieve its objectives in relation to the commercial real estate credit restructurings.