Simulating the cyclically adjusted returns to UK property lending. Issue 1 (2nd February 2015)

• Record Type: Journal Article
• Authors: Barkham, Richard; Frodsham, Malcolm
• Is Part Of: Journal of property investment & finance. Volume 33:Issue 1(2015)
• Page Start: 66
• Page End: 80
• Publication Date: 2015-02-02
• Subjects: Simulation -- Commercial mortgages -- Commercial real estate -- Default risk -- Real estate debt returns -- UK banks; Real estate investment -- Great Britain -- Periodicals; Real property -- Valuation -- Great Britain -- Periodicals; Real estate development -- Great Britain -- Finance -- Periodicals; 332.6324094105
• DOI: 10.1108/JPIF-06-2014-0045
• Languages: English
• ISSNs: 1463-578X

Abstract

Abstract : Purpose: – The purpose of this paper is to provide an indication of the returns to commercial property lending over the last 30 years in the UK. Design/methodology/approach: – There is no long-term index of the returns to commercial property lending in the UK. This paper provides a partial solution by simulating the performance of bullet loans of various vintages, based on the value movements of the IPD index. Findings: – On average over the long-term debt returns are higher than equity returns. However, in certain periods, the losses incurred by real estate lenders are very large. Research limitations/implications: – No account taken of risk mitigation strategies used by lenders such as cross-collateralisation. Practical implications: – Provides an alternative approach to that recommended by the recent IPF "Vision For Real Estate Finance" Document based on the use of ICR. Makes the case for a loan equivalent of the IPD index. Social implications: – Reduced chance of resource misallocation and recession due to excess real estate lending. Originality/value: – Very limited information on private real estate debt returns.