With the much-anticipated economic downturn arguably a reality, Anthony Spicer looks at the options available to lenders in today's tough property market.
In his article, Richard Stanley of DTZ outlines the challenges plaguing the commercial property market and finds little hope for improvement in the short to medium term. A point worth emphasising is that lenders face substantial write-offs and it is unlikely that a strategy of an immediate sale at the best price will be attractive in many circumstances.
Common problems
Some of the widespread issues in the current property market include:
- incomplete residential developments with projected sale
values significantly lower than original expectations
- small, owner-managed property companies with negligible
cashflow and illiquid assets unable to meet construction
costs and interest payments
- land banks with planning consents but doubtful economic
development potential in the short to medium term
- related services, such as struggling estate agencies and
contractors.
Decision time for lenders
Lenders are facing insolvency issues not encountered in the property market for years. Add to this the growth in the buyto- let market, which was negligible at the time of the last recession but now accounts for some 20% of UK mortgages, and we have a whole new set of challenges.
Lenders must decide whether to restructure debt, agree sales in the short term or warehouse distressed assets – perhaps in conjunction with joint venture partners – until market conditions begin to improve.
Step up the insolvency Practitioner
Insolvency practitioners have an important role to play in terms of advising on and implementing strategies, which may include formal insolvency procedures.
The range of problems in today's market makes it difficult to generalise. However, it is clear that insolvency professionals working in conjunction with property agents, contractors and other property specialists will need to devise inventive solutions to help lenders deal with their current problems – and those that will no doubt arise in the coming months.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.
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