No major deal has been completed so far this year, indicating that loan book growth in many institutions will be dramatically different to preceding years, writes Gretchen Friemann.

A COMPETITIVE divide has opened up among Ireland's commercial property lenders with a number of banks effectively discouraging new business by pricing loan-to-value ratios and lending margins at far more stringent rates than their rivals.

According to a leading brokerage firm, the Irish Mortgage Corporation, the institutions attracting the greatest level of new business with its clients are AIB, Bank of Ireland, IIB and Rabobank. However the company's marketing director, Frank Conway, said that even these banks were shunning loans on speculative developments as confidence in the sector continues to plummet.

He identified Bank of Scotland (Ireland) and Ulster Bank as two of the institutions transacting the least amount of business, but also singled out Anglo Irish Bank, Irish Life and Permanent, and Irish Nationwide as comparatively expensive options with margins at these banks often quoted at over 2.25 per cent.

Although he stressed these institutions "remain open for business" and "continue to consider all loan applications", he said the difference in lending costs means clients now have far less choice when it comes to selecting a bank loan. "When you're offered a loan-to-value ratio of 65 per cent and a lending margin of over 2.5 per cent on the cost of funds, then it's very difficult to make that stack up, so some banks have definitely pulled back in the sense that they are much less competitive than they were."

Publicly, however, financial institutions are insisting there is no change in strategy and, when contacted for comment, simply reiterate that they are open for business.

But earlier this month a leaked memo from EBS afforded a rare glimpse of the negative sentiment many lenders seem to share about commercial property's short-term prospects. The document revealed that EBS is pulling down the shutters on new clients in this sector after its management team concluded that it was not in the building society's "best interests to grow its non-membership commercial business any further at the current time".

In a statement EBS' chief executive, Fergus Murphy, confirmed the institution was not "soliciting new business in an active way" and predicted that lending in the commercial sector would be "flat this year".

Although EBS has a relatively small slice of the commercial property market, compared to some of its competitors, its retreat from the market is seen as symptomatic of a wider industry move.

As property sources have pointed out, not one major deal has been completed so far this year, indicating that loan book growth in many of the institutions will be dramatically different to preceding years.

So rare have the big spenders become that industry experts are predicting no Irish buyer will venture a bid on the Liffey Valley shopping centre. Over the past few months the property's UK owners, Grosvenor and Morley, have been seeking a partner who will take a 50 per cent stake in the centre for between €300 million and €400 million.

According to one high-ranking property advisor, few banks would have the appetite or the means to "stump up €200-€300 million in a single asset", while virtually no "investors could raise equity of a €100 million in the current market".

Part of the problem, he said, is that "people think there is still further to go" and he predicted that while that lack of confidence persists, investors and banks will continue to sit on their hands.

Yet the fact that many now regard the sum required for Liffey Valley as beyond the stretch of most Irish buyers and banks, indicates just how far the market has shifted in the past 12 to 18 months.

It was only in April last year that developer Bernard McNamara splashed out €288 million for the Burlington Hotel in Dublin's Ballsbridge. At a cost of €75.79 million per acre, the deal ranks as one of the most expensive property purchases ever made in Ireland.

Back then however, banks were happy to be associated with such mega-deals. Bank of Scotland (Ireland) is thought to have committed well in excess of €300 million to that one transaction by its decision to take a significant equity stake in the development as well as provide debt-financing and land acquisition costs.