By Sinead Cruise - Analysis
LONDON (Reuters) - The days of easy borrowing and cheap real estate debt are gone for good, some of the world's top commercial property executives conceded this week.
Speakers at the Reuters Global Real Estate Summit in London said they had abandoned hopes of ever seeing a return to the halcyon days of credit that fueled an unprecedented bull run in property prices following the turn of the millennium.
With the world's economy in shreds after the near collapse of the banking sector, the global property market is facing a watershed period with grim growth prospects.
Executives are now bracing for permanent changes in the way they fund deals and lukewarm future relations with nervous lenders and investors, who either want to minimize escalating property losses or protect huge fortunes reaped during the boom.
"The lending market is basically dead," Ed LaPuma, president of U.S. real estate financing company W.P Carey said.
"There needs to be a very compelling reason for a lender to lend or else they look at every loan they have made in the last four years, shake their head and they say they have lost too much to go in for more," LaPuma said.
Once the darling of investors from Joe Public to national wealth funds and governments, real estate has suffered a massive fall from grace since hitting its zenith in 2007.
The asset class was pitched as a near-perfect hybrid between unexciting bonds and volatile equities, but is now broadly seen as the ultimate investment pariah -- trumping risky hedge funds, default-prone high-yield bonds and bombed-out stock markets.
This new-found infamy could restrict the volume of so-called big-ticket property deals that rely on high leverage.
"There was probably 70-80 billion pounds of new debt arranged in the years 2004, 2005, 2006 and 2007 but I can't see more than 25-20 billion pounds this year and next year," said Max Sinclair, head of UK lending at property lender Eurohypo.
MULTI-TRILLION DOLLAR TROUBLES
While dealmaking opportunities slow to a trickle, some executives are trying to work out how they can help restore the battered reputation of a market that so many consider the source of the world's financial ills.
"Underlying the whole problem is $2 trillion dollars of loss in the financial sector around the whole world," Roger Orf, president of Citigroup Property Investors said.
"In terms of commercial mortgage losses, it's about $300 billion more, another incredible number. To cure this is a matter of years, not a matter of months," Orf said.
Some fear the slow rehabilitation of the credit market could curb growth of emerging property markets in Asia, Africa and Latin America, which rely on pioneering, debt-driven buyers. Continued...
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