An initiative for the property lending community could see the introduction of a benchmarking model to help cut risk and reduce losses on real estate loans.
In a joint report the IPD and CBRE have recommended the lending industry adopts some of the best practices now routinely adopted by institutional investors, albeit adapted to their own needs.
The paper, Lending with confidence: best practice in the analysis and reporting of commercial real estate risk, recommends regular asset valuations to enable lenders to accurately assess the performance of their loans.
It also calls for the provision of confidential, comparative analyses of loan book risk, against industry and peer group benchmarks. These include loan-to-value ratios, the quality and duration of secured income, and the geography and type of property supporting loans.
Michael Brodtman, head of UK valuation and advisory at CBRE, said: “Lenders’ risks from falling property values can only be managed effectively through the implementation of a regular, frequent and robust valuation regime, across whole loan books.
“We want to create a more robust risk management and reporting framework for lenders to commercial real estate that will ultimately help reduce losses and maximize returns during the coming phases of the real estate cycle.”
Francis Salway, previously chief executive of Land Securities and president of the British Property Federation, has endorsed the recommendations from the report.
He said: “The key message is that now is the time for the property lending world to adopt such practices.”
Glenn Corney, vice president and head of lender services at IPD, added: “Reporting requirements are intense, both internally and to regulators and debt fund investors, and capital adequacy rules are strict and getting stricter. Real estate has changed, and detailed analysis is ever more important as leases get shorter and markets become more volatile. A single, consistent approach can deliver efficiency and reduce risk.”
IPD and CBRE have already held initial meetings with a number of key lending organisations. Their intention to establish a bespoke, best practice model for those lending on commercial real estate has been received with a great deal of enthusiasm. The model will comprise detailed internal analysis set against market data at both the loan and the real-estate asset level, which and can then be used as the basis of an industry-wide benchmark.
bridget.oconnell@estatesgazette.com
