Banks across the UK and Europe are renegotiating loans with landlords as the ongoing slump in commercial real estate continues to weigh on valuations and stall sales activity.
With owners struggling to offload assets, lenders are calling for borrowers to contribute additional equity, accept revised interest rates, and agree to refinancing arrangements.
Some landlords are also seeking to lengthen loan terms and loosen covenant conditions to avoid technical breaches.
The industry term for this cooperative approach, where banks roll over loans to sidestep forced sales, has become “extend and pretend”, or, as some prefer, “delay and pray”.
But while the strategy has kept the market stable for now, the Financial Times reports there are growing doubts about how long it can last.
“I don’t think it can carry on indefinitely,” said David Eden, managing director at the restructuring firm Kroll, which is increasingly being engaged by lenders to prepare business improvement plans for struggling buildings.
The correction began as interest rates rose in response to post-pandemic inflation, making borrowing more expensive and depressing valuations.
Figures from property analysts Green Street show that London office values have fallen 37 per cent since early 2022.
This sharp decline froze dealmaking. Data from MSCI revealed that between 2022 and 2023, global transaction volumes dropped by 45 per cent.
Even landmark properties such as the City of London’s “Can of Ham” building were caught in the downturn; its sale collapsed last December due to a dispute over valuation.
Although interest rates are now edging lower, the pace has been too slow to deliver a rebound.
A report from Bayes Business School described 2024 as bringing only “a modest recovery from a generally poor performance in 2023” across markets including the UK and Germany.
Against this backdrop, landlords are working closely with lenders, (often non-bank or private debt funds), to push for extensions and revised terms in the hope that values will eventually recover.
“The phrase delay and pray has been well used,” said Andrew Antoniades, head of lending at CBRE.
“It almost implies ‘let’s just see what happens’. There is an element of that because sometimes these valuations can come back within a quarter.
In which case, there is a duty in some sense for a lender to not use these things just to their advantage and default a borrower.”
He noted that lenders are using a mix of tactics to manage risk, including tweaking interest rates, requesting extra equity from owners, and refinancing with other lenders.
“There tends to always be the solution,” he added.
Still, not everyone believes the strategy can continue without consequence
A more conservative approach is echoed by analysts.
“The key difference to previous [episodes] is the leverage levels that people are at are so much lower,” said Jess Qureshi, analyst at Knight Frank Capital Advisory.
“So while values might have dropped the amount of debt that people have taken on is much more conservative on the whole than what it used to be.”
For now, that restraint may offer some comfort – even as London’s landmark buildings continue to test lenders’ patience and balance sheets.
