When the banking crisis hit the UK in 2008 many banks were hit hard because of the commercial real estate loans they had taken on. In the years since many banks have been reluctant to re-enter the market leaving private equity groups and insurers to pick up the slack.
Hollywood recently made a feature film about the housing crisis that hit the United States in the mid-2000s. What many people may not know is that banks were making costly mistakes in other parts of the world as well. When the crisis hit banks in the UK in 2008 many that were heavily invested in commercial real estate loans were hit the hardest.
When the smoke cleared, the government ended up cracking down on banks in the years following the collapse by mandating tougher regulations and requiring lenders to have more capital on hand.
As a result, many banks are not as involved in commercial real estate loans as they once were leaving a door open for another entity or entities to fill the void.
Private Equity Groups And Insurers Filling The Void with Commercial Real Estate Loans
In the UK last year, there were over $76 billion in new loans issued (£54bn). This amount was 19 percent higher than the amount issued in 2014 and 80 percent higher than 2013. Of the loans issued in 2015, only about 34 percent of them came from banks and building societies.
This was the highest amount of new commercial real estate loans issued in a given year since the bank collapse in 2008, and the lowest percentage issued by banks since De Montfort University began studying the market.
Someone had to step in to pick up the slack while banks dealt with all the new regulations. Private equity firms and insurance companies were more than happy to fill the void. Insurance lenders made the biggest gain in the last year by increasing their share of the market to 10 percent.
According to Peter Cosmetatos, chief executive of the Commercial Real Estate Finance Council for Europe the dramatic increase in new loans was due in large part to lenders being very eager to approve commercial real estate loans in 2014 and the first six months of 2015.
However, since then the market has begun to stabilize, lenders have begun to take risk into consideration more than they were. Officials do not feel that the high amount of debt could be setting the economy up for another fall because this time it is more equity driven than it was back in the mid-2000s.
Not All Banks Are Out Of The Commercial Real Estate Market
While it may not be easy, there are some banks that are still willing to get involved with commercial real estate loans. Last year the Lloyds Banking group approved its largest commercial real estate loan since the banking crisis, a $262 million loan (£185m) to finance a designer outlet mall near London’s O2 Arena.
Dennis Dahlberg Broker/RI/CEO/MLO
Level 4 Funding LLC Private Hard Money Lender
Arizona Tel: (623) 582-4444
Texas Tel: (512) 516-1177
Dennis@level4funding.com NMLS 1057378 | AZMB 0923961 | MLO 1057378
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About the Author: Dennis has been working in the real estate industry in some capacity for the last 40 years. He purchased his first property when he was just 18 years old. He quickly learned about the amazing investment opportunities provided by trust deed investing and hard money loans. His desire to help others make money in real estate investing led him to specialize in alternative funding for real estate investors who may have trouble getting a traditional bank loan. Dennis is passionate about alternative funding sources and sharing his knowledge with others to help make their dreams come true. Dennis has been married to his wonderful wife for 42 years. They have 2 beautiful daughters 5 amazing grandchildren. Dennis has been an Arizona resident for the past 40 years.