Banks are taking a tougher line with commercial property investors and could foreclose on underperforming loans in the sector in the next few months, according to research from Drivers Jonas, the surveying firm.

Property investors that are unable to bring new equity into their investments, to bring loan-to-value ratios back into line, may find themselves in difficulties, the research suggests.

"There seems an inevitability that situations which are deemed to be "underwater" for the long-term could end up with lenders foreclosing," Drivers Jonas says in its summer investment trends report.

"It remains the case that, if possible, banks are using LTV (loan-to-value) breaches to renegotiate loan terms but they will not hesitate to act if they feel that the loan is under threat," the report continues.

It says that banks will become more vocal in the next few months as the risk of tenants failing to pay their rents rises, along with the continuing pressure of capital write-downs across the banking sector.

Drivers Jonas says the current commercial property investment market is seeing a sharp and necessary readjustment of prices. It adds that 2008 will be a year to write off for property investors.

Commercial property valuations have been falling for more than a year now and have collapsed by 15 to 20 per cent. While property shares are down on average by 80 per cent over the last 12 months.

However, unlike the last major property recession of the early 1990s, some deals are still taking place and there remains a competitive market amongst international investors, particularly for West End offices.

There is also renewed interest in well-let, long-lease distribution units from German funds.

Industrial property is also continuing to attract investors who may be interested in short-term asset management opportunities or alternative uses.

Drivers Jonas suggests that the long-term investor should look to 2010 and beyond for full recovery.

It says: "The debt-fuelled era with quick-fire trading is over. We are in a more circumspect period driven by sanguine equity players who will focus on property fundamentals rather than the prospect of short-term windfalls."

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