CREFC releases guidelines for due diligence on real estate in the UK

By Bridging Loan Directory 11th October 2013

The Commercial Real Estate Finance Council Europe (CREFC Europe) has announced the release of the Due Diligence Guide on Real Estate in the U.K.

Due diligence is the process of factual and legal investigation, research, analysis and discovery into the relevant borrower, asset, sponsor and other principal parties typically undertaken by a prospective buyer, lender or investor prior to entering into a transaction.

Two years ago CREFC Europe made a key decision. It recognised that one day the shadow of the Credit Crisis would start to dissipate and that it was important to be timely in addressing several fundamental aspects of the real estate lending market. Firstly, numerous and important object lessons had been provided as a result of the crisis that should not be lost or forgotten as the property and financial markets improved. Secondly, that the providers of debt in the future would not be exactly the same as the past; they would be a wider range of entities than simply banks and would represent a broader and probably more bespoke range of lending strategies. Finally, the fall out of human capital meant that educational and training support to the industry may well be generally welcome.

CREFC Europe decided to address these aspects in a number of ways, one of which is building up a volume of thoughtful and rigorous work that offers best practice proposals for the complete value chain of property lending. Key areas of loan structuring, loan documentation, inter-creditor principles and hedging have all been addressed by specific releases. This guide now seeks to address the last key topic, namely due diligence.

Peter Denton Incoming Chairman of CREFC Europe commented:

“This guide will provide a starting point for each lender to consider its own individual approach to diligencing loans it wishes to enter into and, we hope, assist in some small way to generally improving the quality of the overall lending business, increasing regulatory trust in the approach we as an industry adopt and assist in the wider training of those that actively participate in that industry”

The guide considers due diligence primarily in the context of a loan to be secured on U.K., real estate. The guide is designed as an overview only of the main issues the due diligence should address. It is not exhaustive and cannot deal with the specifics of every property or transaction, which may require additional due diligence beyond that contemplated within this document.

The Chairmen of this working group Paul Lewis of CBRE Loan Servicing Ltd., and Mark Menhennet, commented:

“We would like to take this opportunity to thank the industry participants who came together to share their experience and knowledge in an effort to create this guide. It represents the distillation of a huge array of experience and expertise from a wide range of market leading participants and advisers and, as such, we believe will be an invaluable resource for the industry”