Real Estate Forum - April 2012

NEWS FRONT
Athens, Cairo Depict Top Global CRE Struggles

ATHENS—Two of the world’s oldest trading markets, Athens and Cairo, have seen better days. Greece cut thousands of jobs in February to help gain billions of dollars in bailout from euro zone partners, and Egypt has struggled to recover from the revolu-tion-spurred removal of president Hosni Mubarak. Commercial real estate in the two countries is locked in recovery mode.

Greece has made the biggest headlines recently, as the country has taken billions in bailout money from European finance ministers and the International Monetary Fund. The country’s troubles led the debt crisis problems in the second half of 2011. Now, it seems like the country’s leaders have showed that the government is ready to initiate austerity measures, though residents launched riots in protest.

Recently, L.P. Ellinas Real Estate
Consultants & Valuers, based here, joined
the TCN Worldwide organization. General
manager Evi Chaviara says she believes
Greece’s original entrance into the
European Community was one of the cata-
lysts for her country’s current crisis.

Debt Crisis: Elephant In the Room at MIPIM

In the midst of the hand shaking, deal making and the all-around merry-making, one thing stood out at this year’s MIPIM Conference in Cannes, France. While there was plenty of “cautiously upbeat optimism,” there was little talk (except for a dour assessment by keynote speaker and former German minister of foreign affairs Joschka Fischer) about the economic crisis affecting much of Europe, including the full scale Greek debt crisis that now threatens to envelop both Italy and Greece. It was the elephant in the room of which no one spoke, and business continued as usual.

In the meantime, major lending institutions in countries such as Germany and Ireland are bringing record numbers of loans to market. Jones Lang LaSalle predicts the European note sale market will rise to more than $20 billion this year and be characterized by larger portfolio sales and recovery rates meeting or exceeding book values. This is because European lenders will face increasing pressure to deleverage themselves of the large volume of debt coming up for refinancing through 2013.

Activity will definitely pick up this year as investors look to establish an early foothold in pioneering loan-sale markets. Over the past 12 to 18 months, we’ve seen the note-sale market in the US mature very quickly, achieving prices closer to asset value. We anticipate this pattern beginning to develop in certain European countries as the euro zone crisis and volatility in the debt markets

By Steve Collins

causes more investors to aggressively pursue seasoned paper with bulk transactions for all types of notes across the risk spectrum.

Foreign lenders have begun the deleveraging process by marketing their US-based mortgages first as the pickings there are considered far more fruitful than in Europe. However, lenders are expected to secure extremely strong pricing for notes attached to major market, prime European properties as well.

Investors in the US have amassed large quantities of capital to purchase such loans. But in addition, a corresponding number of lenders have also stepped up to offer financing for distressed mortgages.

As we predicted last year, for international investors looking across the pond, secondary markets are piquing major interest. Markets like Atlanta, Chicago, Seattle, San Diego, Houston and even Pittsburgh shine brightly and are quickly becoming the belles of the ball due to substantially higher yields. A new asset, with investment-credit tenants and weighted lease expirations, will fetch a yield of only 4.5% to 5% in New York City, while a similarly well-endowed asset in Atlanta will weigh in several basis points higher at the upper 6% to 7.5% range. Different product types are also capturing suitors’ attention, especially high-street retail.

So while the European debt crisis simmers on, international investors are turning to the US for safe, transparent and profitable returns.

Steve Collins is a managing director, Americas, with Jones Lang LaSalle’s international capital group, based in Washington, DC. He may be contacted at stephen.collins@am.jll.com. The views expressed here are the author’s own.