CoStar Chaired a Martin’s Properties-Sponsored Roundtable Discussion That Also Highlighted ESG

The commercial real estate lending market has been dealing with another major economic shock thanks to the pandemic, but how similar are the issues to those created during the great recession more than a decade ago? CoStar News caught up with a panel of leading real estate lenders and borrowers to find out.


  • Richard Bourne, managing director, Martin’s Properties.
  • David Brown, finance director, Martin’s Properties.
  • Gregor Bamert, head of real estate debt, Aviva Investors.
  • Toby Cohen, head of real estate, debt advisory, Rothschild and Co.
  • Tom Sharman, head of research & strategy for real estate finance, NatWest Group.
  • Uma Rajah, co-founder and chief executive, CapitalRise.

To review the changing landscape CoStar recently chaired a Martin’s Properties-sponsored roundtable discussion on real estate finance.

Emerging trends identified by the panel included variable income and lease structures and the greater importance of ESG. However, the discussion began by looking back and assessing the level of liquidity and diversity in the lending market.

CapitalRise chief executive Uma Rajah saw the greatest change in the market in recent years as more lenders, and more variety in lenders. Rothschild & Co’s Toby Cohen noted that this had resulted in “liquidity in the market that is much better now than it was in 2009”, with insurance and pension fund lenders and, more recently, institutional investors backing debt funds and broadening the lender universe beyond traditional banks. As many of these new lenders did not have legacy loan books at the onset of the pandemic, liquidity has been greater than during the 2008-09 crash.

Overall, the panel’s view was that lenders had been highly supportive of borrowers during the pandemic in all but the most challenging situations. The majority of the more difficult conversations were in the retail sector which has faced structural headwinds for a number of years.

Aviva Investors’ Gregor Bamert said: “COVID has served as a reminder that while lending is often secured against buildings, it is borrowers that are the critical part of underwriting. In most cases the key for Aviva Investors is the sponsor and their track record and credentials. The other key piece is what they are doing to the building in terms of sustainability.”

The panel then discussed the increasing trend of lenders to support operational real estate businesses. Toby Cohen said ultimately all real estate was operational even when long-term leases were in place, with the level of financial performance information available to lenders being key as most leases do not provide landlords with much visibility. It is also important for landlords to understand the environmental performance of tenants, with many looking to include green clauses within leases where energy usage and performance have to be reported, the panel concluded.


The panel turned to development, where sustainability continued to be a theme as a growing factor in development finance. Starting with prime residential development, Rajah noted that this market had been resilient as people had time to reflect during lockdowns on how they wanted to live. She said developers were now much more open to understanding what the end user wanted from a residential development and sustainability was at the heart of that.

NatWest’s terms have not changed during the pandemic, according to Tom Sharman, who added: “We have always been conservative. We like a scheme to be fully funded up front as the greatest risk is a half-built scheme.”

With regards to commercial development, panellists believed the opportunity to be in the long-term sustainability of a building and the increasing demand for smaller office space.

Bamert said “anything new-build will need to be sustainable” and highlighted the importance of the S in ESG with a focus on the wellbeing of the community using the building. He noted that in older buildings it was important to have a plan to improve assets, while remaining focused on the embodied carbon and life cycle of a building.

Richard Bourne highlighted the importance of ESG for Martin’s Properties as a business and for its shareholder group, team, customers and ultimately the long term “letability”, value and liquidity of the portfolio. He highlighted that ESG is not about “box-ticking” but assessing and implementing opportunities to deliver meaningful changes including the environmental impact, positive social and cultural factors. He said: “Property is the biggest contributor to carbon dioxide out there and we have an obligation to make a difference. We are also majoring on health and well being by providing healthy buildings for our customers and looking after company staff.”


In terms of the shift towards turnover and shorter term retail leases, the panel discussed how the appetite for short- and long-term lending was dependent on the lender’s attitude towards them and that it varied considerably.

Bamert commented that short-term lending was not attractive to pension funds as reinvesting in a couple of years would add further risk.

Sharman noted: “Shorter term turnover leases are a niche reality for now in the retail sector but that is changing. In the student space everyone wanted a long lease at first and now that has changed. Lease changes in the retail sector would prove a challenge for unproven new operators, where lenders would be very conservative to start with.”

Bamert added that with wider changes in retail “it is important to look beyond short-term challenges and look at how bricks and mortar retail interacts with wider online branding and wider customer engagement”.

Martin’s Properties’ David Brown agreed and pointed to the importance of the role of the landlord in curating the right mix of retailers and ensuring areas are well-maintained and regularly “re-energised”.

Class E

The panel discussed the impacts of Class E changes in the planning regime on the lending market. All agreed that Class E changes benefited lenders by adding security derived from being able to repurpose a building.

This has seen retail parks bounce back a lot faster than other assets in the sector, as they are also attractive as last-mile logistics centres and out-of-town residential conversion sites.

Rajah noted that the changes to Class E saw CapitalRise “screen £5.5 billion of loans in 2020 compared to £3 billion in 2019.” She went on to caution that lenders did have to act responsibly as “we want our high streets to continue to have a purpose”.

Bamert welcomed the changes but stressed that Class E opportunities are sponsor-led when it comes to what can be done with property over its lifetime. Bourne added: “Ultimately, Class E flexibility has to be a good thing in changing the way we use and revitalise town centres and buildings, which is an area in which we have substantial experience and specialism. We understand the different opportunities and challenges that uses within Class E present.

“We have done a lot of work on the affordability of retail units and the impact of shrinking pitches as well as alternative use values and underpins. In the last 18 months we have seen the rise in demand of food and beverage operators as retail rents drop within reach of other operators and occupiers. Primarily takeaway operations have helped food and beverage operators find a strong alternative and additional route to market, boosting turnover potential and performance.

“For us, it’s all about understanding the operator and their business and getting the best use and turnover from the unit, as well as curating a robust mix of uses and consumer offer.”

Opportunities And Challenges

To conclude, the panel were asked to look ahead and describe what they saw as the opportunities and challenges in the sector.

Sharman suggested that NatWest’s role was to “look through the pandemic to help businesses keep ticking over.

“In retail it is different and not just a case of waiting for things to come back. We believe we will see more distress in shopping centre markets.”

Rajah said that there will continue to be more conservative lending with a sharp focus of due diligence on borrowers.

Cohen concluded: “While there is a greater level of liquidity today than a decade ago driven by a greater breadth of lenders it makes it more difficult for borrowers to work out what lenders and structures will best suit their needs.”

Bamert drew the debate to a close with a note of caution: “For the things most in vogue lenders are pushing the boundaries a bit far and we will see how that will pan out.”

By Paul Norman
CoStar News