LONDON (Reuters) - Debt levels among European real estate investors remain manageable as long the underlying economy holds up and tenants continue paying their rent, a leading real estate figure said on Monday.
Even property investors that had bought near the top of the market, before the onset of a global credit crunch last summer, should have the cashflow to ride out the storm, said Neil Lawson-May, co-head of Palatium Investment Management, at the Reuters Global Real Estate Summit.
"A typical loan term was five years and that suggests that a loan written right at the peak of the market in 2007 has got until 2012 to work itself through," Lawson-May said.
Palatium is the former funds arm of Commerzbank-owned Eurohypo EHYG.DE, Europe's biggest commercial real estate lender, and is looking to raise 300 million euros for a preferred equity and mezzanine finance fund that will target investment opportunities as property debt matures and refinancing needs grow.
Lawson-May and partner Paul Rivlin bought the company and rebranded it Palatium this year after several years together at the helm of Eurohypo's investment banking division.
According to data from Dealogic, about 73 billion euros in European real estate loans were written in 2006 and 2007 and so would be most at risk in a refinancing, because commercial property values have since come down, notably in the UK but increasingly elsewhere in the region.
Although the loan-to-value ratios on these loans varied, the bulk had been written at 60-75 percent, providing borrowers and creditors alike with a cushion as real estate valuations fall.
To a degree, time was also on their side.
"Most borrowers borrowed money for three to seven years," Lawson-May said. "So there is plenty of time for people to address issues, and depending on the nature of the loan there will probably be some accrued cashflows to amortize the loans so you are managing potential problems down."
"If you are an on-balance sheet lender and you have a loan that is being serviced, your inclination will be to stay with the loan and not try to accelerate it," Lawson-May said. "I do not detect that there is a sense of any panic or impending doom among senior lenders in the main."
Property investors and creditors nonetheless faced a growing and potentially onerous refinancing challenge as loans matured because many of these loans were based on a real estate valuation that was becoming less relevant.
(For summit blog: summitnotebook.reuters.com/)
(Additional reporting by Sinead Cruise and Richard Barley)
Reporting by William Kemble-Diaz and Sinead Cruise; Editing by Erica Billingham)
© Thomson Reuters 2009. All rights reserved.
| Japan Investment | Jul 07 - 8, 2009 | Country Summits |
| Global Real Estate | Jun 22 - 24, 2009 | Real Estate |
| Investment Outlook | Jun 15 - 18, 2009 | Financial Services / Exchanges |
| Global Retail | Jun 10 - 12, 2009 | Consumer & Retail |
| Global Luxury | Jun 08 - 10, 2009 | Hotels/Casinos |
