Towers and their finance remain an attractive investor option in the UK, according Cushman & Wakefield’s head of structured finance James Spencer Jones.
He said that strong East Asian interest in towers showed no sign of slowing, and that it presented considerable opportunities for UK lenders to provide debt.
“They have cheap access to cost of capital and its really as simple as that,” he said.
“They will be highly competitive on the terms they provide, if not more competitive than some of the Asian banks. We are seeing that on some of the deals that have happened, where typically an Asian bank has underwritten a large tower deal, and its been syndicated and sold down to European banks and insurers.”
EG was hosting a session at EXPO 2017 on “The London investment market: Trophy Towers and Beyond”.
Spencer Jones said: “The market in the UK remains strong, especially for towers in the city. It’s a very special type of investor coming into that market, we are seeing a lot of Korean money coming across, Hong Kong, Singapore money, and the Chinese are actively investing in the market.
“On the financing, some of these buildings are being purely taken out in equity, by investors with very deep pockets, others are requiring debt, and largely that’s through Asian contacts and some of the large banks in Asia.
“But equally, financing is available here in Europe, and some of the larger insurers and other banks are providing very attractive debt terms on those deals.”
He said that for the moment there seems to be few signs of the market topping out, particularly from the debt provision side: “Right now we are in a market really that’s clearly got a lot headwinds. The main one, from a financing side, is base rates and where spot rates go out.
“I think for prime assets there will continue to be a tightening of yields. But they are tighter in Europe than they are in the UK at the moment.
“There is still plenty of debt out there in the market and there is a lot of competition amongst lenders.”
Cushman & Wakefield’s Capital Flows report and survey of lenders said that 17% feel they are at the peak of the market, 31% think it will peak in 12 months, and 41% think it will over the next two years.
However, he did warn there were still a few areas where investors remained cautious, and that headwinds from across the Atlantic should be heeded.
“I think overall it will be tightening of equity – we are seeing in the US, which is often a pattern to follow here in Europe and the UK, that there is tightening of equity by the funds, and where they are targeting it, and I think that will come through in time.
“The toughest area remain development, and speculative development is difficult, except for clearly high prices of debt, and typically you have some of the mezz providers in that space getting decent returns.”
But Spencer Jones remained broadly optimistic about the prospects for the market: “I think there is enormous diversity of capital around the market, and that’s only a good thing and it would help in any downturn.”
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