There have been embers for some while, but since the turn of the year the debt market has sparked into life. It may not be universally good news.
First the positives: many borrowers have been able to take advantage. “Safe bets” looking to refinance have been able to cut their cost of debt considerably.
A fortnight ago DevSec brought down its annual borrowing bill by a cool £800,000 after restructuring €47m in medium-term floating rate loan notes. This week SEGRO agreed new and amended bank facilities totalling €460m. The new arrangement is around 25 basis points lower than the average bank margin on its previous debt and cuts commitment fees (should the facilities remain undrawn) by around £2m a year. British Land, meanwhile, has raised £1.5bn of debt finance over the past 12 months – “on competitive terms” – highlighting perhaps the fact that the market has been improving since last spring.
But refinancing activity – and the sums involved – pale into insignificance compared with loan sales. A staggering €30bn (£25bn) of European property loans have been sold already this year – only just shy of the total for the whole of 2013.
Full-year sales could reach €50bn, says Cushman & Wakefield Corporate Finance, a 25% hike on its previous, already sizeable, forecast. And yes, I hear you say, it’s the underlying assets not the loans that are driving interest. But whatever the motive, investor appetite for these books is at a record high.
Now what should concern us is the concentration of ownership. “With such large portfolio sizes,” says the Cushmans report, somewhat ominously, “it has been very difficult for mid-sized investors to get involved in the sales processes and the large US private equity firms have been left to fight it out amongst each other.”
Yes it’s welcome news that the debt market is flowing more freely. And yes, as Becky Worthington writes this week (p33), the shadow banking market is growing to bring more diversity in debt provision. Yet control over the biggest pools of existing debt is being concentrated in a smaller number of hands. And if what interests the owners most are the assets themselves, the consequences could be profound.
¦ Ireland is getting interesting. Having exited bailout last year, and with its investment market performing well, it has moved to stand on its own two feet quicker than many expected.
Its investment property market has also begun the year well. Some €934m of direct assets were transacted in the first quarter, according to JLL. Meanwhile, with Irish Bank Resolution Corporation in special liquidation completing several large disposals, and any remaining loans expected to be transferred to Nama later in the year, the loan sales market will stay active.
Speaking of Nama, it has now brought to market its first retail-only – and first regional – portfolio (p27). So active is the state bad bank, there’s talk of it winding up ahead of its 2020 schedule.
And with capital values breaking their seven-year losing streak in 2013, it’s little wonder that investors are piling in. This week, Lone Star paid €48bn for a Dublin office let to the Irish government (p23). Meanwhile, DevSec has hired former Shelbourne Developments managing director Tom Hamilton to lead its expansion in Ireland (p23). Definitely a market to watch in 2014.
¦ The Irish resurgence means there will be no shortage of topics to discuss at Estates Gazette’s first Dublin Question Time, which takes place on 22 May. Nama’s head of asset management Mary Birmingham is on the panel, alongside Paul McDonnell, head of Bank of Ireland’s property finance group. Pat Gunne, MD of Ireland’s first real estate investment trust, Green REIT, and Savills’ research director will also be among the panelists. It’s one not to miss. All the details as ever are at www.estatesgazette.com/questiontime.
damian.wild@estatesgazette.com
