The trading market for non-performing loans (NPLs) is still extremely buoyant eight years after the collapse of Northern Rock and the Lehman crisis, according to solicitors, Rosling King.
The quantities of NPL portfolios being traded has reached remarkable levels, said James Walton, real estate finance partner at Rosling King.
He said: “Anyone involved in the real estate and real estate finance market is acutely aware that the market is hot, with both the sheer volume of lending and the number of new lenders to the market continuing to increase. However, with all this new origination going on, what is surprising is the sheer quantities of NPL portfolios which continue to change hands.”
Reports such as those produced by Savills and De Montfort University have revealed 46 new providers of commercial real estate loans to the market within the previous 12 months, bringing the total of new entrants to the market to 150 in the past three years and that commercial property lending in the UK had reached a six-year high topping £45bn for the 2014 calendar year.
“The contents of the Savills and De Montfort reports didn’t come as any great surprise; one may have thought that, some seven years post-Lehman, those banks holding NPLs would by now have cleaned up their balance sheets. That appears not to be the case,” added Walton.
Project Churchill, Aviva’s recent disposal of a £2.7bn loan book to Lone Star is a prime example, the firm said. Earlier this month it was announced that Lone Star had paid £2.25bn (reflecting a 17% discount) for Aviva’s performing and non-performing loan book which is secured on over 1,000 commercial properties across the UK, including various care homes, shopping centres and even a Rolls Royce depot.
Walton said: “As a law firm, we started winning mandates to provide loan workout services to NPL buyers almost from the onset of the financial crises. We thought that such work would have dried up by now. Instead, we have found a situation whereby we are advising clients, who are sometimes the same client, on both new loan originations and working out NPL’s they have recently acquired. That is an extremely unusual and unexpected situation.
“In the last recession, Rosling King were still working out the rump of distressed loans some 10 years after the recession began. This time round it is fair to say that this work could be going on for in excess of that period.”