Thoughts from the Annual Hotel Conference in Manchester, by Andy Simmons, Head of Operating Assets at JCRA.
Overall, there was an encouragingly positive mood amongst lenders, with unanimous agreement that leverage was readily available in multiple forms, for most opportunities.
As per the trend across broader debt markets, the lending panel comprised mainly of ‘challenger’ banks – with Barclays the only major UK clearer represented. All agreed that current lending conditions afforded significant choice to borrowers. Indeed, some voiced concern that debt sizing metrics were over-relaxed and borrowers could be offered more debt than would be wise to take on; also reflected in the move back towards LTV based lending decisions, rather than cash flow multiples. There are certain assets where location and potential for alternative use can justify this approach but some concern was raised about it creeping back into lending decisions more broadly.
What does this shift mean for borrowers?
Debt is most certainly available; including development debt – with some lenders emphasising this was a deliberate strategic focus for them.
Banks are also getting quite deeply involved with their prospective borrowers. In-house quantity surveyor teams and valuers conduct site visits, or even invite prospective borrowers to the credit meetings so that they can present their case directly to the ultimate decision makers.
This harks back to genuine relationship lending and is critical to establish, should there be trouble ahead.
Optimal debt structure
The debt market is certainly buoyant, with competing lenders trying to differentiate their offering. We are encouraging our clients to take advantage of these conditions; perhaps an early refinance (so long as the prepayment penalty period is past). With underlying interest rates starting to rise again, an early refinance can also provide an opportunity for hedging to be implemented to manage the interest rate risk at the same time. The forward thinkers in the sector are financing now on lower rates, easier covenants and sometimes elongated terms. Future proofing their debt strategy while the market is at its most advantageous.
Interested in discussing your debt structure or interest rate risk with Andrew Simmons? Please call 0207 493 3310, or email Andrew.firstname.lastname@example.org.