What is your role at BNP Paribas?
My focus is finance and investment banking solutions for property, in both the corporate world and project finance.
How would you describe the investment climate at the moment?
We are seeing a number of the larger and more thoughtful investors thinking about the future in terms of alternatives to plain bank finance. Real estate investors are considering creative ways of moving away from a total reliance on project finance towards other ways of raising money.
Can you give any examples of this happening in real estate?
In 2011 family property companies in London such as Grosvenor or Howard de Walden have raised very attractive funding in the US private placement market. Derwent London raised money in the convertible bond market; Hammerson and British Land raised money corporately.
How do you think the new regulatory devices such as Solvency II and Basle III will affect financing?
They will attract insurance companies, institutional investors, such as pension funds, and other non-bank funds that are keen to provide money for the right deal or client. If a client sought 30-year funding on a portfolio of assets, a pension fund could match that up with their annuities requirements. We are heading to a world that is not defined by a single source of capital for property finance.
Where is the future for bank financing and what role will banks play?
Well, 2008 was really tough and 2009 was tough; but while 2010 and the first half of this year seemed to be getting better, the second half of this year looks like it will be tough again. How can investors plan for certainty? They are historically used to a monogamous provision of bank finance, whereas we are heading for a disparate array of providers. It takes someone focused and motivated to know where all the pockets of money are. Part of banks’ role in future will be to intermediate in that disparate world, putting parties together as well as to use their own balance sheet.
Won’t this lead to less transparency?
Arguably so. It certainly will be a much more complex market. The flip side is that it could be better than investors being dependent on a single source of capital. Changes are happening, and the industry has to accommodate them. I think there will be opportunities as well as complexity and the pain of transition.
Banks are very risk-averse at the moment. Will this change?
Banks will probably be able to take more risk only as a result of economic growth. Leasing is related to this. If growing businesses are seeking additional space, that leasing demand encourages banks to taking leasing risk.
We’ve heard a lot about distressed assets coming to market. Will this finally happen soon after some encouraging deals done recently?
There is plenty of equity wanting to look at distress. But they typically need leverage to buy loan portfolios. If you come to a bank with a single distressed loan, a bank can understand it and feel that it’s a property deal, albeit a structured one. Portfolios have an aggregation impact: if there are a 1,000 loans, this turns the project into a business of working them out and making money. I think the banks struggle to be able to underwrite those ideas because they want to touch and feel property to understand the deal. This is hard on big portfolios.
Can we learn from the US model?
The big difference between the US and Europe is that in the US there are parties and lenders that have experience of and are comfortable with lending to workout businesses that can process these portfolios. Here there isn’t that background nor the business model. I think there is more potential for distressed portfolios coming out soon but the continuing issue will be how they are leveraged.
