Lloyds Banking Group has placed the first set of its distressed property assets on the market, a commercial property portfolio with a guide price in excess of £60m, reflecting an initial net yield exceeding 9%.
It is the first time such a portfolio has been placed on the market, comprising properties previously investor-owned and now in the hands of receivers. Lloyds is reported to have almost £30bn of troubled commercial property assets and managed to dispose of £4bn worth last year. Many of these were large, single-ownership sales, pushed through by encouraging investor exits or by instigating administration.
The commercial property purchaser is expected to benefit through improved economies of scale offered by such a range in stock, half of which are located in the south of England, with vacancy rates below 4%.
If the sale, codenamed Flagstaff, is a success, Lloyds are expected to continue with this strategy. Placing a portfolio up for sale means Lloyds can manage the sale of the smaller commercial property loans, made on various sectors across the UK, in one transaction. Jones Lang LaSalle has been contracted to market the portfolio, partly due to the property consultancy being appointed as receiver for each case.
The move comes after the release of an Investec survey, forecasting that banks would begin offloading some of their problematic commercial property holdings. Having examined their exposure to the property market, the report observed ‘the days of kicking the can on commercial property loan refinancings are coming to a close’. This is attributed to stagnation in property prices, stringent capital requirements and a potential interest rate increase.
The survey expects increased institutional pressure to exit ‘non-core’ commercial property assets, which ‘involve time, effort and human resources that banks would be better to commit elsewhere for a better return’.
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