Lloyds Bank closed approximately £9bn worth of UK commercial real estate (CRE) loans in 2015, of which an estimated £2bn to £3bn was syndicated through the bank’s commercial real estate team.
The £9bn total is comprised of Lloyds’ separate CRE and SME commercial property businesses, with the CRE division significantly the larger contributor to the total new business balance sheet.
Lloyds did not confirm the exact volume of syndication last year. However, the bank confirmed that the levels sold down in the capital markets reflected a record high for the bank which is done to “maintain strong balance sheet discipline and a prudent approach to risk”.
Lloyds’ £9bn new lending book for 2015 was all senior lending, including less than £1bn in development finance, with an average LTV of 60% or below. On which basis, the value of secured commercial property assets is between £15bn and £16bn.
In addition to the £9bn total, the bank extended unsecured debt to property investors and some residential lending.
The estimated weighted average LTV of the CRE new lending last year – approximately £6bn – is thought to be around 225 basis points, with the average benefiting from a considerable volume of smaller ticket loans which typically command a margin in the mid 200bps-range.
Last year, Lloyds closed a number of high profile UK commercial property financings, including an approximate £282m participation in the £705m club financing of the HSBC Tower, which Qatar Investment Authority bought from the National Pension Service of Korea (NPS) for £1.175bn.
CoStar News at the time of the financing reported a margin of 135 basis points over three-month LIBOR. Since which time, the net effect of multiple macro headwinds has pushed out senior loan pricing in a trend which has continued into 2016 so far.
One year ago, Lloyds also provided a £100m senior loan as part of a wider £120m facility to Allied London to refinance No. 1 Spinningfields in Manchester.
More recently, last September, Lloyds underwrote its first mezzanine loan, as part of a £147m whole loan to finance BMP Real Estate Partners’ £175m acquisition of the Parkgate Shopping Park in Rotherham.
As revealed by CoStar News at the time, this deal reflected a new business model for the bank in which Lloyds originated and underwrote the whole loan, including the £35m mezzanine loan, and immediately sold on the mezzanine strip to an investor, Quadrant Real Estate Advisors.
Lloyds’ model in respect of mezzanine is to specifically line up a buyer of the paper in tandem with extending the loan, eliminating warehousing risk.
John Feeney, Managing Director and Global Head of Commercial Real Estate at Lloyds Bank, said: “2015 marked another successful year of support for real estate clients and evolution of our business model.
“We’re proud to have increased funding to the sector and completed a series of landmark transactions. Through our steadfast support for clients, we’ve played a part in the revitalisation of our property and communities, contributing to jobs and growth across every part of the UK.
“We also increased distribution volumes significantly and to record levels, providing a number of funding partners access to core UK commercial real estate credit. The strength of our sourcing and structuring capabilities, working in partnership with our debt capital markets teams, has allowed us to continue to expand our support for clients while maintaining strong balance sheet discipline.
“Together with our prudent approach to lending this has delivered a robust portfolio risk position.
“There are a diverse range of tools at our disposal to support our clients once again in 2016 and, while we remain mindful of changing market dynamics, we continue to see many attractive funding opportunities.
“We expect this to be a very active year for our business particularly outside London in key centres such as Manchester, Birmingham, Bristol and Edinburgh.”
Glen Wilson, Head of Real Estate, SME Banking, added: “Our teams delivered a significant uplift in support to the UK’s SME commercial property sector last year, helping to realise the growth ambitions of hundreds of the industry’s entrepreneurial operators.
“This year has already started strongly with a growing appetite for funding for quality opportunities from our clients continuing. We have nationwide reach and scale through our specialist teams and a strong balance sheet, which will allow us to continue to maintain our position as one of the sector’s leading providers of debt funding.”
In previous years, Lloyds provided a year-on-year comparison of commercial property funding levels. However this is complicated in 2015 by the movement during the year of large volume house builder clients into another area of the bank.
In 2014, the CRE team provided £7.4bn of funding in total, including the largest house building clients.
This year, Lloyds extended a £185m debt facility partly to finance the development of a new designer outlet retail scheme at The O2 in London for joint venture partners Crosstree Real Estate Partners and Anschutz Entertainment Group (AEG).
Lloyds Bank’s package is split between a development facility for the designer outlet and a refinancing of the existing retail and leisure component.
The bank intends to syndicate a proportion of the £185m whole loan through its debt capital markets distribution platform whilst also retaining a large interest. For the full story, please click here.