How To Maintain Responsible Lending During A Global Pandemic

Accessing finance has become just one of the challenges facing businesses since the global pandemic arrived. In the real estate sector, the type of assets investors want to acquire or develop has changed as much as how they want to finance their transactions.

It’s not as simple as saying banks’ doors are open or closed, Aldermore bank Commercial Director for Commercial Real Estate John Carter said, or that one asset class is worth a risk where another isn’t. Rather, it is a case of all lenders and borrowers in the commercial property market evolving and working together to find practical financing solutions while the current pandemic's uncertainties prevail.

“I hope that one day we can look back and see this as a great example of how people help each other; how lenders work with borrowers in their time of need; and how that flexibility shown is repaid on both sides,” Carter said. “For me this is what responsible lending is all about; true collaboration.”

Stronger Areas For Lending

Certain real estate sectors are facing more disruption at present than others. Now the initial impact of the global pandemic has sunk in, those in the market have had time to draw breath.

“In the early days of the initial lockdown it was hard to physically transact due to difficulty obtaining valuations,” Carter said. “I think the industry is generally learning to navigate such challenges but leisure and hospitality, nonessential retail, student accommodation and office markets continue to see varying degrees of disruption.” 

As the impact of the global pandemic continues, certain sectors are being favoured by investors. Aldermore reported that it is seeing a strong pipeline demand for its commercial residential investment mortgage, or CRIM, which it launched in February. The target market includes those with complex corporate structures, who are looking to purchase or remortgage larger residential portfolios including multi-unit blocks.

“It is pleasing to see that around half of our top pipeline opportunities are currently for CRIM, including the largest deal we’ve received to date,” Carter said. “The feedback we’re getting anecdotally is that some borrowers are choosing now as the right time to reassess their portfolios – with some taking stock and refinancing and others choosing to spread their exposure across more than one lender.” 

A second trend witnessed by Aldermore is increased demand for development-to-term solutions. The bank is increasingly funding developers looking to construct blocks of residential properties or pre-let commercial property, such as supermarkets and other pandemic-resilient sectors.

“Given the quality of the income stream in this sector some operators are then looking to hold the assets, rather than immediately sell,” Carter said. “This plays nicely into the breadth of our commercial real estate offering as we’re able to provide the development finance loan at the outset, followed by the term debt once the scheme is completed.”

Overall, Aldermore is keen to continue backing existing borrowers who have been impacted by the global pandemic, while “continuing to support new borrowers for viable transactions”, Carter said. The bank views its human approach to lending carried out by regional commercial terms as even more important than ever; in such a fast-changing environment, pinning down the details and having strong local knowledge is essential.  

Small And Resilient

Aldermore reported that many of its customers had shown real resilience during the global pandemic despite incredibly tough conditions in most sectors. By working in partnership with lenders, it’s possible to see the light at the end of the tunnel.

“Research that we have undertaken reveals that small businesses have weathered the storm in multiple ways,” Carter said. “It’s not only been a case of cutting costs, although over two-thirds of businesses have done so. Nearly seven in 10 small businesses have also looked at ways to increase income – whether that’s by moving more of their business online, pivoting to a new market or product, or communicating more with customers and clients.”

Encouragingly, Aldermore’s research also showed that business sentiment and confidence are improving. In April, 25% of SMEs had seen a decrease in income of 70% or more but this had dropped to 18% by July. The proportion of respondents who said they could survive in the current situation indefinitely increased from 19% to 26%.

For sentiment to continue to improve, however, support from banks will be crucial. This is one reason Aldermore has not simply shut doors to new opportunities or borrowers. The firm is working closely on schemes that it determines are viable.

Looking ahead, there are many factors aside from the global pandemic that could affect borrowing in the short term. Carter highlighted the increasing importance being placed on environmental factors and how operators and lenders need to be in tune with trends to ensure the commercial property is sustainable and has long-term viability. There are also direct monetary factors, he believed.

“From a more practical perspective the movement away from Libor by the end of the year is something that the lending community needs to navigate through whilst ensuring that borrowers are treated fairly,” Carter said. “The impact of Brexit and the potential for negative interest rates are things we need to monitor closely too.”

Whatever lies ahead, Carter was hopeful that the general public’s perception of banks and finance providers will be improved by the way lenders and borrowers have handled the impact of the pandemic. 

This feature was produced by the Bisnow Branded Content Studio in collaboration with Aldermore. Bisnow news staff was not involved in the production of this content.