by Alex Catalano
Eighteen months ago, a stock market for single-property units was all the rage. The RICS and the Barkshire Committee favoured the unit trust vehicle; Richard Ellis and County Bank devised PINCs; Goldman Sachs and Baring Brothers floated their Billingsgate single-property company on the Luxemburg stock exchange; and last August the London Stock Exchange said it would accept single unitised properties for listing.
In the light of today’s market conditions, how do unitisers see the future for their product? “In timing terms, the stock market collapse doesn’t help,” says Tim Simon of Savills, one of the members of the Barkshire Committee. “Any new market needs a bull market to establish itself.”
However, he is still bullish about the future. “It hasn’t altered the fundamentals at all; if anything it’s strengthened them,” he insists. “The need for an equity market for property has been concerning people for some time. If banks or developers want to refinance a property and in the absence of banks wanting to refinance, we are going to need some kind of market.
“It’s interesting to speculate, if there had been an established market in unitised property. Instead of fund managers moving out of equities into gilts, would they go into gilts and property units?”
SPOTs, the unit trust vehicle, is waiting for the Department of Trade and Industry to finalise the regulations which will govern its marketing. These are due early next year.
PINCs, the brainchild of Richard Ellis and County Bank, is also awaiting the DTI all-clear. Originally billed as a novel vehicle which could be quickly launched. PINCs fell foul of the DTI and aborted a flotation planned for October 29. With hindsight, the postponement was a lucky stroke.
“A sharp stock market collapse is no time to launch a new product,” says Stephen Barter, of Richard Ellis Financial Services, echoing Tim Simon. The PINCs sponsors also resigned themselves to waiting for the DTI to fire the starting pistol. “The best start to a new market is to have a common set of regulations that applies to all products,” says Mr Barter.
He sees unitisation of property being “highly relevant” as long as illiquidity is a problem. “It is too soon to say what the effect on the market will be, but as big institutions are cautious about committing large amounts of money to property, unitisation should make it easier to finance large developments.”
And he notes that strong asset-based property company shares have held up better than trading companies in the last few weeks. PINCs, he says, is a “totally asset-backed stock”.
As for the single-asset property companies, their flotation also seems to be in abeyance. At one time, there were indications that Billingsgate might be launched on the London Stock Exchange, but in June Goldman Sachs and Baring Brothers announced that the company had been approached by a potential bidder for all the shares. Since then, no news, and Billingsgate shares were changing hands at £1.20 to £1.30 (pre-crash), compared with £2.10 to £2.15 quoted in June.
Potential investors in property units are also assessing the market pros and cons. “The first thing that came to mind was whether they could have escaped the general fall in equities, and I think not,” says David Doubble, chairman of the Association of Property Unit Trusts. “It illustrates the probable volatility in these equities. They will be traded just as other equities and be vulnerable to spur-of-the-moment, knee-jerk reactions because trading is instantaneous.”
But he also wonders how easy it would have been to get out of unitised property, given that it was not that easy to get out of ordinary equities during the stock market turmoil.
And the future? “At the moment there’s a shortage of liquidity in all markets so the money is not there,” he says. “If there were liquidity around one or two brave souls might move into them. . . Very much depends on what kind of unitised properties are offered.”
