According to the NARA, the association of Property and Fixed Charge Receivers, the first half of 2024 has seen a 13% increase in the appointment of fixed charge receiverships for corporate loans, following a 38% increase recorded throughout 2023.
Now, with the year’s halfway mark crossed, the development finance industry is looking ahead to what the rest of 2024 could hold.
Michael Street, founding partner at Word On The Street, does not expect receiverships to increase in 2024 but does concede that organisations on larger development finance transactions have slowed down.
“One would expect that this means developers are spending longer in existing schemes and by default are at risk overrunning, and therefore risk receivership,” said Michael.
However, he takes confidence from the way the industry is operating: “Lenders are very much clear on the current market state and in our experience are doing (mostly) the right thing by highlighting this early and putting a plan of action in place with developers to mitigate the ongoing risk.”
The industry has been forced to operate this way due to challenging market conditions, something Chris Oatway, CEO at LDN Finance, points out has been in place for some time.
Highlighting the fact that some receivers’ deals are still coming through from the aftermath of COVID, Chris doesn’t see this pressure abating soon.
“Having spoken to a few [receivers] recently, they are saying they have never been busier and there is no sign of it easing,” added Chris.
“With interest rates remaining at the peak for a prolonged period it is not helping the market from firing up and there is still considerable caution from lenders and property investors.”
The receivers’ view
To get insights on both sides, DFT spoke to Charles Kornbluth, head of receivership at Strettons, Charles said his team had been so busy they’d had to grow the team with an extra member.
“We continue to take appointments across the country and we’re noticing more cases outside London — some 65% of our current workload,” he explained.
“One trend over the past year has been the number of appointments over very high value residential assets in the £5m-40m range – understandably, most of these are in London.
“Over the last six to nine months we have seen more partially completed development sites go into receivership.”
This tallies with NARA’s findings. In the half year analysis of its data, NARA found that residential schemes accounted for over 75% of these appointments.
The association identified interest rates, material costs and labour shortages as putting these developments — especially partially-completed ones — under particularly heavy pressure.
Geographically, London was only the second most active area for receivership appointments with 18%, while the South East was the most active with 27%.
Of course, a recent development that could play a factor is the change of government with the newly-appointed Labour cabinet throwing its weight behind the housing sector.
In its analysis (pre-election and regardless of outcome), NARA members expected to see the residential sector continue to be under pressure, but some in the industry take confidence from the recent Labour win.
“There is a glimmer of hope following the recently appointed chancellor’s announcement of the government's plans to build 1.5m new homes over the next five years — a stretch, but a target which should have developers heading in the right direction,” said Michael.
What next?
Likewise, Callum Taylor, CEO at Portway Finance, said he is seeing a change in outlook.
“My outlook for the market is beginning to turn, I believe lenders and brokers still have a difficult six to 12 months ahead but with a more stable market post-election reducing uncertainty,” said Callum.
“I think the landscape will begin to change. Interest rates will start to fall later on in the year, possibly even next week with the Bank of England meeting.”
Though Callum expects receiverships to increase over the coming weeks, he argues that lenders and borrowers may be more willing to work together to avoid these situations from the outset.
Here, he explains that receiverships can take time with lenders reluctant to make such appointments and have defaults on their books.
“We are all aware that sales are taking longer, refinances aren’t happening as quickly and other factors,” added Callum.
“So I think we will see receiverships peak in the next six to 12 months but good lenders and communicative borrowers will be given more time.”
Adopting a pragmatic view, Chris Gardner, CEO at Atelier, said receiverships are simply an inevitable component of a “functioning and healthy” real estate market.
“Many assets going through the receivership process will have been out of the market for some time, they come to market at a fair market price — which is really important at a point in the cycle when new sites and opportunities are desperately needed,” he added.
This issue of value is a pertinent one. From a receiver’s perspective, Stretton’s Charles said the recent change in government is already changing how some are making these valuations in anticipation of potential receivership outcomes.
“We’ve noticed a significant tightening in the insurance market for properties in receivership and we expect a significant tightening in loan to value ratios by lenders for BTL portfolios, and even vacant residential,” said Charles.
“With the proposed end to no-fault evictions, any borrower who enters into an AST without the lender’s consent could be dropping the potential recovery value by 20%.”
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