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CBRE, REAM tackle property debt
THE TWO ADVISERS SAY THE TIE-UP RESPONDS TO THE NEED
TO COMBINE REAL ESTATE ADVICE WITH BANKING EXPERTISE
Robin Hubbard, executive director of CBRE’s
real estate finance business and Mike Birch, cofounder of specialist real estate debt and asset
management group REAM Capital Partners,
talk to PropertyEU about the new service they
offer lenders and borrowers.
WHAT IS THE AIM OF THE ALLIANCE?
RH: Our first task is to help clients understand
the nature of the debt problems facing the real
estate sector today and how this may evolve this
year. Many borrowers who originated loans at
high loan-to-value (LTV) ratios are in difficulty
as values have declined 40% since the peak in
2007. Selling assets is problematic for banks at
the moment and refinancing is not an option
due to the scarcity of credit. As a result, banks
are generally rolling over their loans and really
want to know and understand the risks inherent
in the underlying property assets and the best
way to enhance their value. We aim to leverage
our own expertise with that of REAM to develop
solutions for both borrowers and lenders.
HOW BIG IS THE DEBT PROBLEM?
MB: The latest edition of De Montfort University’s survey estimates the level of outstanding
loans to commercial property in the UK rose
10% to £243 bn (€279 bn) by end-2008. We
think the total is about £300 bn, a third of
which will mature in the next three years. This
is a global problem: my calculations are that
€257 bn is set to mature in the rest of Europe
and $835 bn (€596 bn) in the US.
ISN’T FORECLOSURE THE SIMPLE ANSWER?
MB: Most loans involve syndicates of numerous banks rather than bi-lateral agreements
between one lender and a borrower. Banks are
very reluctant, therefore, to take one of the
other banks out of the equation. Another level
of complexity is the huge volume of securitised debt.
RH: Ultimately the banks don’t really want the
keys back. They generally lack the expertise to
deal with distressed investment assets, let alone
development sites. This is where we can add
most value by providing them with the necessary real estate and credit expertise to better
MIKE BIRCH
ROBIN HUBBARD
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with co-investing debt specialist
ŅAim is to help CBRE’s clients get maximum
value from distressed situations
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will mature in Continental Europe over
next three years
understand what actions they should be taking
with a particular borrower to keep their loan
whole or recover most value where the equity
has been virtually wiped out and foreclosure is
the most likely option.
WHAT MAKES THE ALLIANCE UNIQUE FROM OTHER
RESTRUCTURING AND LOAN RECOVERY ADVISERS?
RH: CBRE is the world’s leading commercial
property and real estate services adviser and we
consequently have a large client base comprising both borrowers and lenders. In addition to
our investment banking and credit skills we obviously have the underlying real estate expertise to value, asset manage and ensure that the
day-to-day management of the properties, like
collecting rent, is optimised.
MB: REAM Capital Partners aims to enhance
CBRE’s real estate finance capability. The company was founded by bankers who collectively
have 40 years experience, including the UK
property crash in the 1990s. Together with
CBRE, we are able to advise, manage assets and
– where appropriate – inject fresh equity. This
business is not about fees though – we make
our money when the bank makes money.
by cormac mac ruairi
COMMENT
Wobble U
by judi seebus – The past week provided
plenty of input for the debate on the type of
recovery the world faces. In most circles, expectations of a ‘V’ crash followed by rapid
recovery have given way to a ‘U’ forecast –
crash followed by slow recovery. While some
pessimists are convinced we are in a ‘bathtub’ or a wide bottom, evidence of ‘green
shoots’ is mounting. The facts: a report from
King Sturge’s German arm this week announced: ‘To all appearances (Germany is)
past the rock-bottom stage.’ The conclusion
is based on the fact that King Sturge’s Real
Estate Economy Index saw indicator values
‘perk up’ for the first time in 2009. In the UK,
Cushman & Wakefield this week joined the
chorus of optimists who see the commercial
property market in that country stabilising. In
its latest Business Briefing on the UK investment market, the adviser points out that at
7.35%, the prime average yield across all sectors is at its highest since 1992. In May, C&W
also signalled an improvement in both demand and deal activity in tandem with an
improvement in the financing environment
and signs that a select number of banks are
regaining a taste for lending albeit still at
higher than average margins. PropertyEU
has likewise recorded signs of an upturn in
the investment market in recent weeks – and
not just in the UK. Several of the top 10 deals
included in this Week Edition are well above
the €50 mln mark, with three ranking among
the top 20 for the first half of the year. But
while King Sturge claims there is cause for
cautious optimism, C&W sees reasons to
play down this confidence. Its European investment update for Q1 points out that occupier markets are increasingly negative,
with rents down in 24 of the 32 countries examined and by 14.5% overall. ‘Early signs of a
stabilisation in yields must be treated cautiously until we have a firm handle on where
rents are likely to bottom out,’ it cautions.
Indeed, the job repercussions of the collapse
of major industries like the German carmakers have still to be felt. A fragile upturn may
be on the cards, but the recovery is more
likely to take the form of a Wobble U.