Cash-rich private investors have been told to watch the £2m-£5m market for opportunities as deals are predicted to fall through for debt buyers and lenders are expected to “put the squeeze” on loan to value ratios over the coming months.
Prideview Group investment director Mark Hoffman told an audience of more than 100 private investors: “We actually see this as a very exciting time for our clients. There will be a lot of opportunities for cash buyers.”
The group’s annual seminar at the Royal Society of Medicine in Marylebone was held on 29 September – a week after the latest interest rate rise to 2.25% and six days after the former chancellor Kwasi Kwarteng sent the markets into turmoil with the delivery of his disastrous “mini-Budget”.
Hoffman said the arbitrage between borrowing costs and yields in commercial property investment was already too narrow and would make buying properties with debt very difficult.
“The sub-£2m market won’t really be affected too much, as most investors are still able to buy with cash. The market that will be most affected will be the £2m to £5m sector. This typically is where most debt buyers are looking,” Hoffman said. “The reality is that to have positive cash flow, you’re going to have to have yields of 7%-plus. This is challenging, if not impossible, in the convenience store, drive-through sectors, because sellers haven’t yet lowered their expectations on values. Inevitably, this will happen.”
Hoffman, who has worked in the sector for 25 years and set up investment agency Hoffman Partners and property management business Welbeck Asset Management with his father Peter in 2005, told the audience to be “ready to strike”.
“There are going to be a lot of deals that fall through because of the recent interest rate increases, and there will be an opportunity for cash buyers to build their portfolios,” he said. “The necessity for a quick exchange and completion will be even more important as the banks start to put the squeeze on lending to value ratios.
“Up until now, and even throughout the pandemic, we didn’t really see any forced sales and therefore the yields remained strong. But now we need to be patient and be ready to strike when the opportunities present themselves.”
David Margolis, partner and auctioneer at Acuitus, who also spoke at the event, said “pricing is coming under pressure”. Borrowers were “not yet under pressure,” he added.
“We haven’t seen the raft of forced sales we all thought we might do, but that might be around the corner,” Margolis said.
He also urged those with upcoming loan renewals to act early due to lending uncertainty. Clearing banks were “very, very cautious” about retail, he said. Investors with more than 30% of their income in retail were finding that some clearing banks were simply not renewing, he added.
Prideview Group has just opened an office in Tel Aviv, Israel, to give its UK clients access to the Israeli investors and vice versa. The move was officially launched at the Israel-Britain Chamber of Commerce Real Estate Event at the Tel Aviv Stock Exchange on 13 September 2022. The office will be headed up by Max Libbert.
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