A VISION FOR REAL ESTATE FINANCE IN THE UK
In 2014, the IPF sponsored the publication of A Vision for Real Estate Finance in the UK’, written by a cross-industry real estate group, which was chaired by Nick Scarles of Grosvenor Group and comprised experienced professionals from across the market spectrum, acting in their personal capacity. The ‘Vision’ set out a series of recommendations for reducing the risk of damage to the financial system from the next commercial real estate market crash.
The recommendations fall into three categories:
(a) Information, analysis and expertise
1. Establishing a central loan database
2. Access to expertise and insight for the regulator
3. CRE finance qualifications for key members of CRE lending teams
(b) Incentives
4. Use of long-term value measures for risk management
5. Better risk differentiation in regulatory capital requirements
(c) A market structured for stability
6. Encouraging diversity of lender types and lender strategies
7. Regulatory governors, not switches, operating consistently across the cycle
A Vision for Real Estate Finance in the UK - final recommendations
Vision Recommendation 4
Long-term Value Methodologies in Commercial Real Estate Lending
The IPF Research Programme commissioned research in 2018, which included the following:
- A review of the report published in 2017 by the Long-term Value Working Group
- A comparison of property indices;
- Long-term sustainable rents;
- Long-term sustainable capital valuation measures and cap rates; and
- Leverage and leading indicators of potential downturns.
The summary report can be found at: https://www.ipf.org.uk/resourceLibrary/long-term-value-methodologies-in-commercial-real-estate-lending---summary-report-february-2020.html