Banks resist restructuring pain: Blackstone

LONDON (Reuters) - Banks unwilling to take losses on their troubled property assets are limiting restructuring experts to giving them one-dimensional deleveraging strategies, possibly extending a credit logjam for a decade.

Simon Davies, managing director in the restructuring and reorganization group at Blackstone (BX.N), said real estate had degenerated into a "amend and extend business" where stressed creditors tended to view active restructuring as a last resort.

"The ideas they don't want to hear about are ideas where you take a haircut to the debt's notional price," Daviestold the Reuters Global Real Estate and Infrastructure Summit in London.

"So long as an asset is producing sufficient income and cashflow to cover debt costs, for the bank's purposes of being not a loss-making instrument ... I think you will probably see banks hanging in for a longer period of time," he said. Standard & Poor's has warned European lenders face higher impairment charges on real estate loans in 2011, likely a major issue for banks such as RBS (RBS.L), Lloyds (LLOY.L), Allied Irish Bank (ALBK.I) and Spain's BBVA (BBVA.MC).

This followed a report earlier in 2010 showing an estimated 207 billion euros ($252.3 billion) of unpaid commercial property loans in Europe, one-fifth of the total, were secured by problematic, low-quality assets.

SLUGGISH

Davies blamed slow deleveraging of European lenders for restricting the flow of credit to businesses and consumers, which he said was likely to exacerbate sluggish economic conditions across Europe for a "painfully long time."

"I'm concerned personally that I could be 47 -- not 37, which I am this year -- before we actually feel there's economic growth filtering through on a sustainable basis," he said.

The age of austerity was likely to be more severe than people are hoping for, Davies warned, citing particular concerns for the value and income streams of consumption-backed real estate like upmarket malls and trophy real estate.

"It's going to be a slow and steady, problematic issue because fundamentally consumption will have to drop, and it will drop in stages as people get taxed more and get unemployed more, and as fiscal spending is cut back," he said.

Resistance to active restructuring was also evident in the global real estate opportunity funds sector, Davies said, where major operators including Morgan Stanley (MS.N) and Goldman Sach's (GS.N) Whitehall were counting the costs of highly-leveraged, ill-timed investments at the peak of the boom.

"We've looked at talking to limited partners, to funds whether its real estate or private equity (for restructuring advisory) ... but there's limited appetite, is the best way of putting it," he said.

"They seem to be resigning to a certain amount of losses, but not really in the mood for change."

(Additional reporting by Quentin Webb and Douwe Miedema, Editing by Andrew Macdonald)

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