Banks start releasing distressed property assets

Nearly two thirds of property investors believe that banks have either already begun releasing their distressed assets back into the market or will start over 2011, according to a new study.

Since the beginning of the credit crunch, many banks have been holding onto large volumes of distressed assets in order to repair their damaged balance sheets. Now 64% believe lenders would prefer to exit as soon as they are in a position to recover their debt, a figure that has increased by 16% since last year.

The research by Investec Specialist Private Bank’s Structured Property Finance division also found that 18%)predict that banks will delay this process until 2012 while 8% doubt it will start before 2013.

In contrast, one in four, 27%, believes that lenders would prefer to continue working with their clients to maximise the sale price of the property at a later date, a figure that has fallen by 12% over the past 12 months.

Investec believes that lenders who opt to exit once their debt is back in the money risk damaging the client relationship while those who take a more long term approach can benefit from significant opportunities.

Investec’s research highlights that when it comes to judging how levels of support differed amongst financial institutions towards dealing with distressed situations over the past year, independent specialist banks were judged to have been the most supportive while state backed banks were the least helpful.

‘A year ago many banks were choosing to sit tight, quoting the old adage, a rolling loan gathers no loss. But sufficient time has passed now for the worst affected banks to have assessed the full extent of their exposure to the property sector. We’re already seeing banks releasing more stock onto the market at an impaired level in a bid to reduce their overall exposure to property,’ said Gary Dobson of Investec’s Structured Property Finance division.

‘However, not all lenders are choosing to offload mothballed stock back into the market and have developed an alternative approach, which has involved getting their hands dirty and partnering the developer, or where they have gone into liquidation, injecting more equity into the scheme and doing the developing job themselves,’ he explained.

'As lenders start to reappear on the scene again, developers will no doubt be questioning whether the banks’ claims to offer old fashioned relationship banking really stack up,’ he added.