December/January 2014 Issue

Banks may cut new lending to raise capital reserves if they fail tests, reports Alex Catalano On December 16th, the Bank of England will unveil the results of its stress tests to see if eight UK lenders have enough capital to withstand a bad shock to the economy. The general feeling is that Barclays, HSBC, Lloyds, Standard Chartered, Co-operative Bank, RBS, the UK arm of Santander and Nationwide probably will pass the test, even though the BoE’s worst-case scenario is harsher than that of the recent European Banking Authority’s Europe-wide ‘comprehensive assessment’. “It’s hard to make comparisons between the two, as the methodology is different,” says Samuel Tombs, senior UK economist at Capital Economics. “But as one or two UK banks only passed the EBA test by a slim margin, there’s a risk banks will have to raise more capital, hindering new lending.”

Banks may cut new lending to raise capital reserves if they fail tests, reports Alex Catalano. On December 16th, the Bank of England will unveil the results of its stress tests to see if eight UK lenders have enough capital to withstand a bad shock to the economy. The general feeling is that Barclays, HSBC, Lloyds, Standard Chartered, Co-operative Bank, RBS, the UK arm of Santander and Nationwide probably will pass the test, even though the BoE’s worst-case scenario is harsher than that of the recent European Banking Authority’s Europe-wide ‘comprehensive assessment’. “It’s hard to make comparisons between the two, as the methodology is different,” says Samuel Tombs, senior UK economist at Capital Economics. “But as one or two UK banks only passed the EBA test by a slim margin, there’s a risk banks will have to raise more capital, hindering new lending.”

Laxfield study shows jump in debt requests, especially for acquisitions, writes Alex Catalano. The UK’s real estate debt market has moved into expansion mode. Financing requests are up to a seven-year high, with acquisition-related borrowing pulling ahead of refinancing and diversification into mixed portfolios, industrial, hotels and student housing, according to Laxfield Capital’s Q2-Q3 UK debt barometer. “In the past six months the big signs of dysfunction have almost gone at the core end of the market,” says Emma Huepfl, Laxfield’s head of capital management. The barometer logs a pool of 496 loan requests totalling £46bn.

BREDS co-founder joins Mack’s three-pronged expansion push, reports David Hatcher When Peter Sotoloff joined Mack Real Estate Group in October to launch its new debt division, it was clear the company meant business. “We have a vision of a great real estate debt business built on three different types of investing,” says his new employer, Richard Mack. “To do that required finding a superstar and I think we did that by bringing Peter in.” Sotoloff is a co-founder and former origination head of Blackstone Real Estate Debt Strategies (BREDS) and helped build the division into a $9bn-plus business. Mack is part of the dynasty that established fund managers Apollo and Area. Mack Real Estate Group was set up last year after Area was sold to Ares.

Stockland's €300m green bond joins wave of Australian issues abroad

Lenders back wave of apartment towers as prices reach new highs, reports Al Barbarino After clinging to a development site at 50 West Street in Downtown Manhattan for nearly three decades, in August 2013 Time Equities founder Francis Greenburger landed a $400m financing package to jump-start the 63-storey, 200-unit luxury condominium scheme 50 West. The pipeline for New York condo finance began to open up in mid 2013 as the city’s economy continued to grow. At the time only a few privileged sponsors had obtained big financing packages on condo schemes. “For most people who needed a construction loan, there just weren’t any,” Greenburger recalls. “The opening up of that market was pivotal for us.”

Recovery has led to price rises, but investors still see openings, writes David Hatcher If there has been one market that has captured investors’ imaginations more than any other this year it has been Spain. Simply labelling the country as distressed is clearly now an oversimplification, as prices have soared, institutional players are outbidding opportunistic buyers and lenders are fighting hand over fist to get a piece of the action. With yields now dropping to 5% for prime retail assets, those that entered the market early have got great value for their investments and have already seen capital values improve markedly. Most investors think there is further value to be found and that the Iberian revival is just starting, with Spain’s economy showing its first tangible signs of improvement.

Big foreign investors are taking the plunge and getting in early on The Netherlands’ recovery

Private equity players and institutions target expanding asset class, reports David Hatcher Logistics has rarely been seen as the most glamorous of sectors, but with its high yields, technological and infrastructure advancements and the growth in e-commerce, some of the world’s largest investors have been deploying huge sums into the sector in Europe. Private equity investors are competing aggressively to build new platforms, looking to create value through economies of scale with the view to floating businesses later. Blackstone has been building up its Logicor portfolio, P3 has been fuelled by new backers TPG and Ivanhoe Cambridge, while Gazeley has been active under the ownership of Brookfield. Institutional players also continue to target these assets, in combination with sovereign wealth funds. Segro has linked up with giant Canadian pension fund PSP and Prologis has been given extra impetus through its tie-up with Norges.

Our panel of debt experts talks about strategies for beating the rest of the pack to the best deals

Click to see October-November 2014 lending deals: Capital Watch: Recent lending deals

UK investors are still mad for industrial property, the top pick to buy in this latest Colliers International and Real Estate Capital Investor Pricing Survey. The sector had the biggest compression in yields since the last survey, in July 2014: 50 basis points.

PERE Research and Analytics' monitoring shows 52 real estate debt funds in the market this month, seeking to raise $25.7bn.

This time it’s different...’ is possibly one of the most exploited phrases by researchers, but it’s pertinent because every cycle is different. Today we face similar pressures in a number of markets where capital flowing into real estate is driving up prices. In core locations, yields paid for some assets this year are nearing 2007 levels. However, we argue that the cycle has further to play out and 2015 will not be a repeat of 2008.