WestLB’s Iron Lady invades UK real estate market

Copyright: David Lawson- Property Week March 2000

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Margaret Thatcher once summarised the difference between two favourite ministers with  devastating simplicity: 'One  brings me problems. The other sees solutions.'  Mark Taylor feels the same about financial advisers  after meeting another memorable blond. Robin Saunders seems to have that affect on people.

 Taylor is finance director of Workspace, a London-based specialist in high-yielding industrial property. The portfolio has more than tripled in five years to almost 300m pounds and share  values doubled since 1998. But keeping up that pace means dealing with bankers. Problems proliferated as the ambitious young firm began  lusting after a clutch of portfolios. Saunders and her team strode in  with solutions.

 This is one impatient lady. In the first year as head of asset securitisation in London for Westdeutsche Landesbank (WestLB), her team  underwrote  more than 30 deals across Europe worth Euro22bn. Yet she shows amazing patience in explaining for the umpteenth time how it is all so simple:  companies cut borrowing costs by selling future income. This can come from whisky, cigarette stocks, electricity supplies, TV rights for grand prix racing - in fact, anything  with a  predictable cashflow.

 One glaring gap is real estate, where the number of deals this side of the Atlantic can be counted on one hand and still leave fingers to spare. Bond issues for major London office developments like Broadgate and Canary Wharf were a rare exception.

  Workspace is a  minnow by comparison. The company is raising 120m pounds via a package deal which initially uses  the bank's money to securitise the cashflow, selling this into the medium-term market and then moving to long-term  bonds.

 Some City observers question how a regional German bank can make a difference.  But while WestLB is itself a relative minnow among  German giants like Deutsche Bank, it still has  assets of almost Euro400bn and made first-half profits this year of almost Euro500m.

 It also has Saunders, who brought her team over from Deutsche Bank 18 months ago. In that time it has seen through some spectacular deals outside the mainstream property sector. She points out that merging Granada and Thorn TV Rental will also be around the same size as the Broadgate securitisation. It also had a significant property element, as the deal is anchored by a chain of shops.

 The Workspace arrangement is a small taste of what could be offered to landlords. Taylor is happy because borrowing costs have been trimmed from 1.25% to less than 1% over base rate. The property has been ring-fenced, so there is no claim on other assets, and the finance  takes account of full value rather than the norm of 70% offered in conventional bank loans.

 Saunders sees wider benefits. It has introduced the  small outfit to global capital markets, making it more disciplined in financial reporting and easing the path to further borrowing. She must also hope the message gets through to bigger  landlords which have yet to drink from this huge pool of cheap money.

 But the possibilities stretch beyond pure real estate companies. Property values could be crucial to the likes of Sainsbury, Storehouse  and Marks & Spencer, the UK retailers weighed down by a huge crisis of stock market confidence. A much broader swathe of occupiers also face problems from new  rules which will force them to put real estate costs through profit and loss accounts.

 'This comes at a time when everyone is under pressure to add shareholder value. It is bound to raise questions from investors if property is not being exploited,' says one City analyst.

  It is all too obvious to Saunders, who despite eight years in various London-based banks, comes from the US, where the asset-backed  securities market is worth hundreds of billions.

 'It is remarkable it took so long for the Broadgate deal to happen,' she says, adding wistfully that she wished she had know it was on the cards. 'I would have had it but I was too busy.'

  Being 'busy' involved a sudden burst of  fame structuring a 1.4bn dollar bond for  the Formula One motor racing circus owned by Bernard Ecclestone late last year. Ecclestone was another bank-hater after seeing an initial bond issue go sour. He now waxes lyrical about Saunders.

 'She has done what she said she would do, and that is unique,' he told the Sunday Telegraph.

  'Bernie's Banker' now   wants to create similar shock waves in real estate and has a clutch of deals in the pipeline.  Racing  and property might seem to have little in common, any more than whisky and electricity.  'But cashflow analysis is no different for real estate than for Formula One cars,' she says.

 She will need all her patience to persuade a notoriously conservative property industry. Cashflow securitisation is one of those ideas that has floated around for much of the Nineties without ever taking a firm grip. It was usually brought  to the surface by  some smart American  winging across the Atlantic, overflowing with private cash and a mission to teach the natives a few lessons.

 Saunders winces at the stereotype. 'I hate that picture. I happen to be an American in a large team,' she says. And it so happens that team is part of a German rather than a US bank.

 The difference is also the one-stop-shop approach to repackaging assets. Rivals bring various departments together, with all the baggage of doubt,  bureaucracy and delay. They can also end up pushing their own products as solutions rather than serving clients. The single-team approach is much simpler. 'There cannot be many who could write a single 860m pound cheque as we did for  Granada Thorn,' she says.

  Saunders has no precise shopping list, looking across Europe for  deals ranging from 35m to 1.5bn pounds. Commercial real estate portfolios would best fit this template and while she refuses to give away secrets, some  blue-chips must be in her sights. Retailing holds no fears because she feels bricks and mortar operators could be bought by bricks and clicks e-commerce giants.

 'A lot of public companies are trading at big discounts to net assets,' she says. 'They will need to find a way to handle this or face attack by people who are much more sophisticated about using financial markets.'

 Perhaps Taylor, as a buyer of these services, should have the last word, however. 'It is technically complex and not for the feint-hearted, but worthwhile at the end of the day,' he says.

 'We believe that cashflow is the important driving force, so our goals were the same.' That, in a nutshell, is what this patient-impatient banker will need  persuade a whole industry.

Westdeutsche Landesbank (WestLB)

The largest public German credit institution - central bank for savings banks of North Rhine-Westphalia and Brandenburg - 10,750 staff in 37 countries - assets of Euro391bn

 Asset Securitisation - releases liquidity of non-core assets to generate new business or reduce borrowings - alternative to raising equity (which dilutes earnings) or more expensive bank borrowing.

 Specialist Team - The London Asset Securitisation and Principal Finance Group has  around 23 specialists headed by Robin Saunders, a thirtysomething American with experience in London at Citibank and  Chase Manhattan before shifting her  team from  Deutsche Morgan Grenfell to WestLB in 1998.

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