New lending for real estate expected to increase in fiscal 2019, but cautious and balanced approach set to continue
CBRE today released the 2019 Lender Survey report which summarizes the results from a survey of lenders that provide financing for real estate firms and real estate funds. The survey asked lenders about their outlook on the real estate market and their lending policy.
Highlights:
1. Lending strategy
- New lending expected to increase in fiscal 2019
Lenders who stated that the amount of lending in fiscal 2019 would be "unchanged" or "increase" compared with fiscal 2018 totaled 90% of lenders in the case of senior loans, and 91% of lenders in the case of mezzanine loans. - "Stability of income stream" becoming more important in investment decisions
CBRE asked respondents to identify the most important factors when deciding whether to extend a non-recourse loan for real estate. The most common answer was LTV (the ratio of the loan to the value of the asset), cited by 36% of respondents. The ratio of respondents citing "stability of income stream" increased significantly compared to last year, up from 20% to 28%. While lenders remained positive towards new lending, a greater number of lenders appeared to be looking for properties that are insulated from the effects of the economic cycle, where recovery of the principal is more secure. - "Office" remains the most popular asset type for lending
Lenders identified "office" as the most attractive asset type for lending, up from 54% in 2018 to 64% this year. Supply-demand conditions in the nationwide office rental market remain tight - a situation that appears to be welcomed by lenders. - Tokyo and the Greater Tokyo area are the most attractive locations for lending; Fukuoka ranks high among regional cities
With regard to financing for office buildings, Fukuoka ranked fourth after Tokyo, Osaka, and Yokohama. As supply-demand conditions in the regional office market are likely to remain tight, expectations of further rental increases appear to be the reason for lenders' positive expectations.
2. Outlook
- Heightened concern about possible domestic and global economic downturn
When asked about the outlook for the property market over the next year, the ratio of lenders who think that real estate prices will "increase" was 28% (up from 23% last year), reflecting investors' (borrowers') continued strong investment appetite. When asked to identify the biggest threats to the real estate finance market this year, the proportion of those answering "domestic and global economic shock" increased significantly, from 38% last year to 64%. Lenders also appear to be wary of the impact of U.S.-China trade friction. - Cautious and balanced approach set to continue, focused on LTV and stability of income stream
CBRE's survey shows that lenders are showing a slightly more positive attitude compared to last year, with a greater number of respondents stating that they expect real estate prices to rise. While almost all respondents saw LTV ratios being unchanged from the previous year, their opinions on spreads were divided, with more lenders than last year expecting spreads to contract. (Figure 1) - Objectives and scope of survey
To gather and analyze data to identify lenders' approach to real estate financing. The survey covered parties providing non-recourse loans for real estate. - Survey method and period
Conducted using a questionnaire (file sent by email) and website from April to May 2019 - Respondents and response rate
Targeted companies: 40; Responding companies: 25; Response rate: 63% - Main cooperating companies (in random order):
AXA Real Estate Investment Managers Japan K.K.
Societe Generale, Tokyo Branch
MUFG Bank, Ltd.
Fuyo General Lease Co.,Ltd.
ORIX Life Insurance Corporation
The Tokyo Star Bank, Limited
Diamond Realty Management Inc.
Kiraboshi Bank, Ltd.
Shinsei Bank, Limited
Mizuho Securities Principal Investment Co., Ltd.
Resona Bank, Limited
MetLife Insurance K.K.
Mizuho Bank, Ltd.
Mitsubishi UFJ Lease & Finance Company, Limited
(And 11 other companies) - Publication of survey results
Only some of the survey questions are included in this report - Senior loan: A form of loan with higher repayment priority, for example with a first priority security interest in the property
- Mezzanine loan: A form of loan with repayment priority subordinate to that of a senior loan, for example with a second or lower priority security interest in the property
- LTV: The ratio of the loan to the value of the asset (amount of loan divided by the asset value)
- Spread: A rate added by the lender to the reference interest rate (loan interest rate = reference interest rate + spread)
Figure1: Investment market and finance market outlook
Source: CBRE, June 2019
Asuka Honda, Director of CBRE Research, commented: "Amid a continued low interest rate environment, real estate investments that offer the promise of a higher income remain important targets for lenders. CBRE’s survey suggests that while lenders’ attitude to lending remains positive, they remain cautious, balanced, and vigilant of potential risks."
For further details, refer to the 2019 Lender Survey report released today.
https://www.cbre.co.jp/en/research-reports/investment-reports
Overview of CBRE Lender Survey 2019
Glossary of Terms
▼Previous report in 2018
Japan Major Report - Lender Survey 2018 (October 4, 2018)
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