Commercial prop. debt squeeze to benefit REITs, JVs

Fri Dec 3, 2010 11:30am EST

* Advantage seen for listed propcos in debt squeeze

* More JVs expected as cash-rich investors seek partners

By Daryl Loo

LONDON, Dec 3 (Reuters) - Well-capitalised listed property companies in Europe could come into their own next year, benefiting from the lack of debt financing that continues to plague their unlisted peers, real estate experts said on Friday.

Listed entities, such as real estate investment trusts (REITs), have an advantage in their ability to issue corporate bonds or shares, said John Carrafiell, managing partner of GreenOak Real Estate, at the annual Thomson Reuters Global Property Outlook conference.

"I can see listed property companies in 2011 breaking some of that ice, as corporates and markets are in a healthier place and that is the cheapest way to raise capital," Carrafiell said.

He cited as an example a deal last week by Capital Shopping Centres CSCG.L to acquire the Trafford mall in Manchester for 1.6 billion pounds ($2.5 billion), partly paid for with 747.6 million pounds in shares and convertible bonds. [ID:nLDE6AO063]

With an estimated debt funding gap of $245 billion for global commercial real estate in the next three years, as banks remain unwilling to lend to the sector, experts said property investors are desperately seeking other options. [ID:nSGE6AM00F]

A potential source of financing could come from insurance companies, such as AXA (AXAF.PA) and Generali (GASI.MI), which were less damaged than the banks in the financial crisis, said Jos Short, executive chairman at Internos Real Investors.

"The hope is that insurers will come back with longer term debt, because banks typically won't go more than five years. And with CMBS (commercial mortgage-backed securities) completely off the table at the moment, I hope insurers do step up," he said.

Italy's Generali, Europe's third-largest insurer, told investors last week it plans to boost its real estate exposure by about 24 percent to 30 billion euros ($39.6 billion), with a particular focus on China and the United States. [ID:nLDE6AP083]

RISE OF JOINT VENTURES

The growing attraction of prime-grade UK commercial property means cash-strapped developers could also get a boost in 2011 from a rising trend towards joint ventures, as cash-rich investors seek refuge in the recovering sector. [ID:nLDE6B0120]

"I think the day of the joint venture is very much here. If you're a developer who cannot afford finance to get your stalled investment going, this model will work for them," said Nick Brown, director of real estate transactions at Ernst & Young.

Major recent JVs include as Norway's sovereign wealth fund taking a stake in the UK Crown Estate's Regent Street properties for 448 million pounds, and British Land (BLND.L) teaming up with a Canadian pension plan to build a London skyscraper. [ID:nLDE6A3077] [ID:nLDE69O0A3]

"You also see this in the emergence of big international conglomerate such as from India ... they have a lot of cash that need to be invested, they want exposure to safe haven markets and they are picking up trophy assets," Brown said. (Reporting by Daryl Loo; Editing by Andrew Macdonald) ($1=.6402 Pound) ($1=.7582 Euro) (See www.reutersrealestate.com for the global service for real estate professionals from Reuters)

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