Good time to play hardball

THERE have never been more of them in the market and they're bending over backwards to lend you their money. The financial institutions offering commercial loans are feeling bullish in these days of low rates and high hopes.

The pond is more crowded since the building societies got in on the act in the last five years and commercial deals are being packaged more like mortgages.

The word that crops up most among the money people at the moment is "bouyant". The second most popular word is "competitive". The only problem is a shortage of quality property, according to one Dublin property developer. Two years ago, he says, the financial institutions were "very hard to deal with very stroppy". Then the building societies came along and interest rates dropped.

According to Tom Browne, senior banking manager at Anglo Irish Bank, the competition has never been more intense. "A year, or two years ago, the pressure wouldn't have been there," he says.

Anglo Irish links its commercial lending rate to the Dublin Interbank Overnight Rate (DIBOR). He says the bank will look at a large number of variables in a commercial lending proposal. One of the big factors is the tenant. "The gilt edged tenants are the multiple retailers or multinationals," he says.

The retail sector is hotting up, he says, with the Jervis Street shopping centre and the Blanchardstown development. Some financiers believe these centres could have an effect on adjoining retail space, maybe even taking some of the shine off Henry Street prices.

Anglo Irish, along with Irish Intercontinental Bank, Ansbacher and ICC, is part of the consortium behind the £47 million Jervis Street development.

The majority of the Irish Life portfolio bought by the property developer, John Ronan, was financed by foreign banks. Their presence in the Irish market puts an extra edge on the competition among lenders.

Mr Browne believes there is a lack of quality office space and this year should see third generation office space being built. It is unlikely that much, if any, of this will be built on spec.

"That depends on the deal itself. A lender might accept a lower level of pre let space if the quality of the covenant was very good. Every institution has an appetite now to go back into the market to lend money. They're just trying to identify the right projects." He feels foreign banks take a cautious attitude to the market, after previous bad experiences.

Although he says rates differ according to the types of proposals, a typical commercial deal of £750,000 over 15 years for an industrial premises would cost around 9 per cent. In today's market, it would probably be possible to get in slightly under that rate.

About a year ago, the rate would have been around 9.5 per cent. A fixed, five year loan could be negotiated at between 6.9 and 7 per cent, with the margin depending on the deal. Competition among lenders has forced margins to below 2 per cent in some cases. It is a good time to play hardball in negotiations with lenders.

The head of commercial lending at EBS, Jackie Gilroy, says the gap between fixed and variable rates has narrowed recently. Fixed is becoming popular again. The feeling is that over the next few months, if there is a small increase in variable, people will start to look at fixing again." The EBS rates range from the low sevens to the high nines. Like most lenders, it comes in under the psychological benchmark of double figures.

The EBS has its own base rate and will also link loans to the money markets. The society is seeing a lot of first time investors, especially private individuals buying residential property to rent out. As the deposit rates drop, bricks and mortar are providing a more attractive investment prospect.

Ms Gilroy says the EBS is seeing an annual increase of around 20 per cent in the commercial lending sector. Like the other institutions, it looks at the calibre of the tenants being proposed for the property, as well as the borrower's financial status.

She says the building societies have redrawn the boundaries in the market. "Somebody buying investment property used to find it hard to get a loan for longer than seven years. Building societies have changed that and 15 year loans are now the norm."

Bank of Ireland offers what it calls a commercial 10 year to 15 year mortgage based on a variable rate, with an option to transfer to fixed. The loan is geared at businesses which want to buy or renovate their premises.

The bank has filled its allocation on the Government funded Access to Finance scheme, which offered a seven year loan fixed at 6.5 per cent. However, so far, there has been a 30 per cent take up and some applicants may not take up the funding, possibly leaving more money available to new applicants.

Its published business property loan rate is 8.5 per cent variable and, like the other lenders, it can be linked to the money markets. Loans for new business expansion or purchase are on offer at a 1 per cent discount until September, bringing it to 7.5 per cent. A bank spokeswoman says commercial lending is becoming as flexible as mortgage lending.

Industrial premises adjacent to Dublin's motorways are attracting a lot of interest. There is an emphasis on Dublin, she says, as it tends to feel the effects of a boom more than other cities and towns.

Like the EBS, ACC Bank is a relative newcomer to the market. ACC's head of commercial lending, Michael Walsh, says the bank will consider the amount of funding requested, the length of time and the arrangements involved before giving a rate.

"Until recently, virtually every bank was concentrating on variable lending. The cost of fixed rate money has come back substantially and you can now lock in at single figures for a five year period."

He believes there is enough business in the commercial sector to sustain all the new players. Barring an interest rate rise or a market slump, that looks set to continue.