Billions earmarked for European real estate refinancing

Copyright: David Lawson - Property Week Feb 2001

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Almost £38bn of corporate real estate has come to the market as leading European companies rush to restructure their assets. Yet this is only a fraction of the potential business likely to emerge. High-profile deals in the UK such as BT’s bid to offload almost £2bn of property are only the tip of an iceberg that is already creating a pan-European market in real estate finance. Names like UBS in Switzerland, Fiat in Italy, De Telmmobilien in Germany, AXA in Belgium and Microsoft in France have all found different methods to draw value from assets. These range from outright sales to finance leases, new kinds of debt, bond issues, securitisation and  PFI-style deals.

   ‘Billions of pounds more real estate is set to follow this path,’ says Denis Kavanagh, international director of Jones Lang LaSalle, who boasts that he has been involved in raising more money than all the merchant banks put together in recent years. ‘A large number of names are in early stages of restructuring.’

  Most are comprehensive portfolio deals rather than mere house-keeping. And many will break new ground by bundling assets from across Europe into single packages denominated in euros. Pressures for change are:

  Two other factors are leading Europe in a catch-up race with the US - increasing globalisation and greater transparency of financial markets. Big US companies are seeking a uniform approach to asset management while European companies can no longer hide behind traditional secrecy. The potential for closing this gap is enormous, says Kavanagh. In the US, where commercial real estate is valued at around 4trillion euro,  35% is owner-occupied. In Europe, the market is an only slightly less impressive 3.4trillion euro but owner-occupation runs at about 70%.

  ‘But there is no one size to fit all,’ says Kavanagh. The choice of vehicle to release capital  can range widely according to the neds of each company. Nor is the process easy. Traditional investors have been slow to adjust to new methods.  Companies and investors are still cautious as they build trust and evolve financial measurement techniques.  The traditional strengths of real estate development are also difficult to match with modern finance. ‘Commoditisation and creativity are not natural bedfellows,’ says Kavanagh.  The progress of ‘pathfinder’ deals will spread confidence and trickle down to the mass of the market, however.