“Global uncertainty” wrecks €2bn European real estate deal

An Israeli-led consortium revealed today it has terminated an agreement to buy a package of Swiss properties in a clear example of how large property deals are failing to get done in the wake of the recent credit crunch and fears that commercial property values are falling.

London-listed Delek Global Real Estate is scrapping a €2 billion;($2.9 billion) acquisition of a package of properties owned by Switzerland’s Jelmoli Holding AG primarily due to “the change in, and continuing uncertainly of the global commercial property market.”

Delek told the London Stock Exchange that it feels changes in the market have not “been adequately reflected in an adjustment to the price of the portfolio.”

The statement comes three months after Delek, and members of its consortium, which are Delek’s Israeli holding company, Delek Belron International, and the Igal Ahouvi Group, said it had agreed to pay SwissFranc3.4 billion for the portfolio.

However, since then the hiatus in significant areas of the commercial property lending market triggered by the credit crunch, combined with fears that commercial property values are falling around the world, have ended the deal.

Adding to fears that trouble lies ahead for real estate investors, the UK’s Bank of England today suggested commercial property is particularly exposed to new shocks in the world’s financial systems.

Its Financial Stability Report says commercial property is exposed to the twin problems of softening yields (cap rates) and oversupply.

“Problems could mount in the commercial real-estate sector where price inflation has weakened and a sizeable development pipeline has raised the potential for future overcapacity,” it says.