UK retail NPL portfolios expected to be put up for sale

CBRE’s head of loan advisory expects an increasing number of non-performing retail loans to hit the market in the next two years.

Sales of distressed UK retail loans – and particularly those on shopping centres – are expected to begin this year, according to Anurag Sharma, head of loan advisory at CBRE. Sharma told Real Estate Capital that some such portfolio deals are already being prepared in the market.

“Retail is going through structural changes in the market, which is affecting the values of certain retail assets in the UK, particularly those in the secondary town locations,” he said. “This will ultimately impact loans secured against these assets, as loan-to-value covenants will be in breach.”

Sharma said an increasing number of lenders – and especially those with exposure to the secondary market – were carrying out valuations of the collateral behind their retail loans.

“There are some German banks in the UK market who have lent against retail on extremely low LTVs but they are finding themselves in a situation where the LTVs have become quite high,” he said. “In this scenario, banks might want to exit from the situation.”

So far, most lenders in the UK are opting for the work-out of distressed retail properties and are avoiding situations of default. However, Sharma said more distressed sales were likely in the next couple of years: “It’s difficult to predict, but I expect to see some loan sales in 2019, and more in 2020 and 2021.”

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