MIPIM 2011: UK investment market sees less visible distress

At a panel session at this year’s MIPIM conference in Cannes, delegates heard from Barclays Corporate how rebounding market valuations in the UK have led to less distressed real estate situations.

Rebounding market values in the wake of the credit crisis are turning previously distressed real estate situations in the UK into 'un-distressed' ones, according to a banker speaking at the annual MIPIM conference in Cannes Thursday.

Dennis Watson, managing director of specialist debt finance at Barclays Corporate, told an audience of delegates that the ‘extend and pretend’ approach adopted by many British lenders had transformed many distressed real estate situations to the point where distress was less visible.

Property values in the UK fell as much as 50 percent in the immediate aftermath of the global financial crisis prompting widespread anticipation of banks unloading their colossal loan books. However Watson said: “We’ve seen a rebound in valuations so some of what was distressed in 2008 and 2009 is no longer distressed.” He said value recovery had been somewhat polarised towards ‘quality’ assets, with some secondary markets still yet to experience significant recoveries, but that there was little value to be seen in these. 

“Do I think there is still distress? Absolutely,” he said, “But is it as widespread as people think? Probably not.”

The value of Barclay’s loan book is currently valued at approximately £25 billion (€29 billion; $41 million). Watson said in the immediate aftermath of the global financial crisis, the bank formed a real estate loans workout team of 20 professionals to evaluate which parts of the book should be deemed “distressed”. At the time, the bank envisaged the team would be in operation for between three and five years, however after market values rebounded, the team was disbanded last year.

“We were pleasantly surprised,” he said, “We disbanded the team as there wasn’t the critical mass to keep it going, “ he said, stating that Barclays was one of the more fortunate banks in that regard.

Raymond Jacobs, managing director at Franklin Templeton Real Estate Advisors, the global fund of funds firm, confirmed that the amount of distressed debt assets to be offloaded by the banks had been “underwhelming”, and suggested that the reason was rapidly changing personnel. “We talk about banks but behind these banks are people,” Jacobs said. “Those which had severe problems often no longer employ the people that originated loans, so they aren’t able to easily work with the same equity partners.” He said there are still opportunities, but particularly in mezzanine debt.

Earlier in the day at MIPIM, global property services giant, Richard Ellis said many investors were prioritising investments in Germany and other European countries over the UK.

In an intentions survey, revealed at the event , CBRE said investors “have shown a clear strategic shift in their investment preferences in Europe in favour of Germany and Eastern Europe as the most attractive markets in which to purchase real estate in 2011”.

Approximately one third of 350 investors polled preferred Germany ahead of other European countries, with about 15 percent preferring the UK. The firm added that secondary property investments in Europe were attracting more enthusiasm from investors.