October 2, 2012 FT
Era of global ownership dawns. By Ed Hammond
The freewheeling “develop first, ask questions later” years that defined the past decade are long gone, replaced by a new financial sobriety. The global banking system, having lent so freely, is awash with trillions of dollars of real estate debt; much of which it will have to sell.
Two distinct categories of investor have emerged as the new front runners in global property. “There are those who are relatively risk-averse – these would be sovereign wealth funds, pension funds and private investors; and those who embrace risk – US opportunity funds, local property companies, and private trader/developers.”
The long-term, risk-averse investors are attracted to the perceived safety of London, New York, Hong Kong and Paris, says Mr Hope. Property values in the large, world cities typically operate in vacuums, unencumbered by the difficulties of their respective domestic markets. “Those that are risk embracing, meanwhile, are looking to buy at the bottom; they are interested in buying distressed properties that will provide capital growth.”
Cash-rich entrants to the property market have started to self-finance development in the hope of taking advantage of the lack of new supply. On the other, a new breed of financial institution has begun making tentative forays into real estate lending.
Global insurance groups Axa, Met Life, Aviva and Legal & General have launched programmes for providing debt finance to property companies. And specialist mezzanine and stretched senior debt funds have sprung up to try to cash in on the gap created by the shortfall in bank lending.
Even in the residential property market – long the territory of traditional lenders – new sources of capital are appearing.
Robert Hodges, managing director at Carlyle, the US private equity group. says: “The reason the market for residential looks interesting at the moment is that there is a gap in the capital structure that has been left by the banks withdrawing finance. That has created an opportunity for new types of investors, such as private equity funds.
“The demand profile is looking very good and, even though there are a lot more players coming to market, supply is still constrained,” he adds.
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