Pulling out of deals deemed biggest post-Brexit issue for commercial market

In August, real estate adviser Savills reported that commercial property activity fell by 18% during July, while last week the Bank of England warned that the commercial real estate market could experience a sharp adjustment following a decline in the number of overseas investors.

Jonathan Sealey, CEO of principal lender Hope Capital, warned that this post-referendum turmoil caused the commercial property market to suffer even further as a result of some lenders losing their funding lines.

Indeed, a recent poll by Bridging & Commercial found that 47% of respondents believe that lenders pulling out of deals was the biggest post-Brexit issue for the commercial property market.  

“We saw a number of big overseas property investors instantly try to pull billions out of commercial property, which I felt was seriously jumping the gun,” Jonathan insisted.

“This also affected a number of bridging lenders who had funding lines pulled.

“This has reduced their ability to lend in the commercial property market, which is what some brokers will be seeing.”

However, Jonathan suggested that having funding lines withdrawn should not be an excuse to cancel a deal in progress.

“We also believe that if you make a commitment to lend and all the information remains the same as first presented, that you need to honour that commitment.

“The last thing that a borrower or a broker needs is a lender reneging on a deal at the last moment.”

Despite this, Bob Sturges, head of PR and communications at Fortwell Capital, argued that the weakening of commercial property investment did not come as a surprise.

“Strong signs were emerging well -before the referendum of hardening sentiment in both the commercial and residential real estate sectors.

“High pricing, a degree of over-supply, and regulatory and fiscal interventions were combining to deter buyers and investors.”

Bob explained that Brexit had only served to heighten this sentiment due to uncertainty over the outcome of the government’s negotiations with the EU.

Nevertheless, Gary Mealing, head of property lending at FundingKnight, insisted that most alternative lenders would actually remain relatively unscathed by the decline in commercial property investment.

“Because of fears over the wider economy, many mainstream lenders are taking risk-reduction measures, including cutting back on commercial property.

“But the commercial real estate lending market is more diverse than it has been for many years.

“More finance is available to businesses from alternative sources, so the pull-back from banks will have less impact.”

Similarly, Bob believed that this lack of confidence could prove to be an advantage for lenders with secure funding.

“The big banks will not stop lending but, as in the immediate post-2008 period, they will ration their funding.

“But to succeed, smaller lenders need to be clear as to their lending appetites and capabilities.

“Critically, their decision-making should be decisive and unambiguous: brokers and developers don't mind a swift 'no', but detest last-minute changes of heart."