A VISION FOR REAL ESTATE FINANCE IN THE UK
With the encouragement of the Bank of England, the Real Estate Finance Group set out in 2012 to develop a set of coherent, informed and strategic recommendations for the operation and regulation of the UK CRE finance market with a view to protecting financial stability. The members of the Real Estate Finance Group included Peter Cosmetatos, who subsequently became chief executive of CREFC Europe.
After the late 2013 publication of that group’s draft recommendations for industry consultation, CREFC Europe formed a working group chaired by Mark Nichol, Bank of America Merrill Lynch, to prepare a (essentially supportive) response.
In May 2014, the Real Estate Finance Group published its final report, A Vision for Real Estate Finance in the UK, and the project is now being taken forward under the umbrella of the Debt Group of the UK’s Property Industry Alliance (PIA). CREFC Europe is part of the PIA and is involved in that process, so our voice will continue to be heard.
Long-term value methodologies (Recommendation 4)
In June 2017, a report was published setting out the results of research into alternative long-term value methodologies – a key milestone in taking forward recommendation 4 of the original Vision report. The focus of this work was on developing a metric that can help lending institutions and indeed their regulators better manage property cycle (or vintage) risk. Further, much more technical research on that topic was then commissioned through the Investment Property Forum Research Programme and published here. As far as we know, there has been no further progress in terms of integrating this kind of approach into the way lenders underwrite (or manage existing) CRE exposures across the cycle.
Loan database (Recommendation 1)
Iin late 2017 and early 2018, a new working group led by Paul Coates, now at CBRE, developed proposals for implementation of recommendation 1 of the Vision report. The goal was to create a loan-level data repository capable of providing far better CRE finance market information (both snapshot and over the cycle) than is currently available, while respecting confidentiality and the anonymity of individual transactions and transaction parties. That work, lacking the decisive regulatory encouragement that might have driven strong market engagement, stalled.
In 2021, the Bank of England included CRE market information as one of the phase one 'use cases' in its broader data transformation and digitalisation strategy for financial services more broadly. A new working group formed for this purpose primarily focused on improving data collection by the Bank from the firms that it regulates (e.g. improving common data standards and modernising reporting instructions and the overall approach to data collection). However, the possibility of developing a broader data pooling framework for the wider market remains as a longer-term goal with the Bank, as well as some in the industry, excited by the benchmarking, analytics and insights that more comprehensive, market-wide data pooling would allow. See what the Bank is saying about this work here.
If you would like to know more about the Vision project or to be involved in influencing how particular recommendations are taken forward, please contact Peter.