"The growth in private equity investment funding in the UK will accelerate as the banks look to reduce their commercial property debt" says Mike Parker, partner at Bircham Dyson Bell LLP.
A recent study by US advisory firm Navigant suggested a debt crisis is set to hit the commercial property industry in the UK and Europe as loans made to commercial property borrowers by banks and other financial institutions will require refinancing within the next two years. It is believed that this could spark a crisis in the industry, as lenders take a tougher line on extensions and renewals.
"Historically, when there's a gap, someone steps forward to fill it and private equity investor funds on higher rates of interest will look to step in as the banks increasingly seek to reduce their property debts," explains Mike Parker.
"There is still a credit drought from the banks - most still believe that they are 'overweight' in terms of property lending and so further lending into property, would exacerbate the perceived problem.
"Private equity investor funds will grow over time as commercial property loans require refinancing and the banks remain reluctant to loan - especially in commercial development. Only solvent customers or a prime investment property and low loan to values will see the banks still lending the money.
"It all makes for a very difficult landscape for property developers, and very low levels of transaction activity unless there is overseas private investment; London is still seen as good value, or from private banks that can lend at relatively low loan to values from their ring fence balance sheets."
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