A report from IPD and CBRE has recommended the lending industry adopts some of the best practices now routinely adopted by institutional investors, albeit adapted to their own needs.
CBRE and IPD have entitled their report: “Lending with Confidence: Best Practice in the Analysis and Reporting of Commercial Real Estate Risk”.
Recommendations included: regular asset valuations, to enable lenders to accurately assess the performance of their loans, and 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, commented: “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 CEO of Land Securities plc and President of the British Property Federation, endorsed the recommendations from the report, when saying: “The key message is that now is the time for the property lending world to adopt such practices in order to ensure they too derive similar.”
Glenn Corney, Vice President and Head of Lender Services, 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.”
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