What next for Specialist Property Finance. MI July 2021

As we all collect our thoughts and take stock post June 30^th, I am sure there will be many lines in the press dedicated to the residential market, but what about the commercial space? How is this going to react for the remainder of 2021? There have been some record numbers delivered over the last 18 months from our Lender Partners at FIBA.

This is not only enquiry levels, but completions in bridging, development and structured finance from a variety of different lenders. It seems as though those that were serving the market throughout this period have had the ability to build their loan books very well. There has been a number of new additions to the Lender community as well as some we have lost and others who have restructured, but the capacity is there and still growing to cope with future opportunities.

But what can we expect from the specialist property finance market for the remainder of the year? We have seen a real increase in FIBA membership and also strategic growth in the number of Lender Partners throughout 2020 and in the first half of 2021, so we know there is more interest in our sector than ever before. Therefore, we must make the most of the number of enquiries we expect to continue to receive on behalf of all our customers.

The lender community is well funded, there is confidence from the funding investor base, so we need to make sure that introductions and subsequent completions are maintained. This will of course be determined by the market, the need for housing must remain strong to fuel the need for development finance. The much talked about repurposing of retail units to other uses is another factor that could drive the need for short term or development finance. All of this will depend on the confidence of our SME developers, some who have only recently emerged from the financial crisis, where others, who felt they were treated so badly, never came back.

We are in a very different market this time around, but the nurturing and caring of these clients is just as important. In particular, the plethora of lenders is greater, the choices faced by those very same SME developers are now much wider, as they look to find the right funding partner for their projects. They can only be served correctly by the broker community as we are the ones who have the access and knowledge of the market to be able to provide the advice and guidance needed in choosing the right lender partner.

Whilst we have all the components in place, the question remains for H2 2021 and beyond; What will our market look like and is there enough business for the growing number of brokers, packagers and lenders already operating in the specialist property finance market?

If we look to the US for early signs, according to Moody’s, US commercial real estate values are projected to decline by 7.2 percent nationally from their pre-pandemic levels, bottoming out by the end of this year. The hardest-hit categories are expected to be the office and retail sectors, with values declining for a broad swath of reasons, but the pain is unevenly distributed. In some cases, rising residential real estate values will make up for the commercial property downturn, and some segments, such as warehouses, have been doing well, as online shopping lifts demand for distribution centres.

These indicators are familiar as both the UK and the US have faced the same challenges over the last 16 months and we know from past experience that our market changes generally lag behind by a quarter or two. The early predicted “V” shape recovery may not be present after all, but the indicators are that any decrease in values may not present too much of an issue over the short to medium term.

In addition, feedback being received from UK Property Investors is that from September onwards it will be a good time to enter the market and this will be reflected also in the commercial space. There are a number of positive factors to be considered and the opportunities that will come for developers and landlords from commercial premises will continue to drive enquiries into our broker community and subsequently our lenders.

In conclusion there is a thriving market for specialist property finance, it will require innovation and knowledge by brokers and lenders to shape the right deal for the right project within the right property for the customer. But this is how our industry has adapted and grown over the last 20 years and will continue to do so in the future.