IPF Commissions Next Stage of Real Estate Lending Valuations Study
21 May 2018
The global financial crisis highlighted the adverse impact of excessive commercial real estate lending on the UK economy, which had developed to a scale where it had become a systemic risk. Over subsequent years, the Property Industry Alliance Debt Group (PIA DG) has worked to understand these risks, resulting in the 2014 Vision For Real Estate Finance report. This put forward a number of recommendations, a key one of which was the use of long-term value to act as a reference point against which to judge current market value and provide valuable information about where values are relative to previous peaks and troughs.
Following development of the concept of a Long Term Value methodology, and recognising the significant benefits for the wider property market and economy, the IPF Research Programme (2015-2018) has commissioned the University of Cambridge, led by Professor Colin Lizieri and Nick Mansley, to interrogate and develop the findings from this initial work of the PIA DG Long Term Value group.
The core of this latest phase of research will involve more detailed analysis and independent testing of the methodologies that emerged from the earlier work, particularly Investment Value and Adjusted Market Value, to help identify periods when the probability and scale of potential falls in value are high. This project is regarded as one of the most important, and largest, projects to be commissioned by the IPF Research Programme.
In partnership with the University of Reading’s Professor Neil Crosby and Dr. Steven Devaney, the research team will go on to expand the analysis of these two main long-term valuation methods, review alternative inputs and test the efficiency of the models. They will also explore how these methodologies might work at different levels of granularity, from total market to segment and sub-segment level, in order to test the extent to which a general approach can deal with varying circumstances.
Matthew Bennett, Head of Property Underwriting at Wells Fargo Bank International (London Branch), is chairing the Project Steering Group (PSG) that will oversee the research on behalf of the IPF. He commented: “This independent research, by a well-respected team, is one significant step in a larger process, which provides a rare opportunity for behavioural change in the property lending market, helping reduce these adverse impacts on the financial system from the inevitable cyclical movement in commercial property prices.”
Other members of the PSG include: Martin Arrowsmith, Bank of England; Mark Bunney, Kames Capital; and Robin Goodchild, Special Adviser, LaSalle Investment Management & Visiting Professor, University of Aberdeen.
The research findings will be published in 2019.