Who's lending now?

“I'm still alive!” was the first thing this correspondent overheard at this year's annual Expo Real property fest in Munich last month. The real estate professional was only half-joking with an acquaintance because there seemed to be corporate carnage at every turn.

On the opening day of the conference, visitors to the trade show were rocked by news that Germany's fourth largest lender and one of the world's biggest commercial real estate lenders, Hypo Real Estate, had been handed a €50 billion lifeline from the German government and various institutions.

Televisions news crews arrived at Hypo's stand in their effort to capture the latest symbol of the deep freeze affecting European banks. The next day, PERE was told by a harried marketing executive that Hypo's chief executive Georg Funke had just handed in his resignation.

Delegates might have been putting a brave face on the whirlwind of events taking place around them, but there was a palpable sense of concern.

On the final day of the conference, which this year took up nine halls, 74,000 square metres and attracted 42,000 participants (24,500 visitors and 17,500 trade stand executives), the Hypo stand was virtually empty of people.

But it wasn't just Hypo causing fear among the rank and file of Europe's property industry. Most other banks were admitting that they were not faring much better.

One employee at a German retail and business bank was on the one hand rubbing his hands at Hypo's predicament, but at the same time confided how on Monday evening senior executives of the bank had met up to discuss strategy. Though some employees hoped it would increase interest rates in order to boost profits, instead the bank decided to stop underwriting new business altogether until further notice.

As the Expo Real week wore on, the news flow seemed to get more alarming.

Spain announced an emergency €50 billion fund to buy up as-assets from its banks to try to ensure their smooth running. The UK announced a mind-boggling €628 billion rescue plan for banks and building societies to use should they need funds. Then, Iceland nationalised its two largest banks.

By the time Expo Real visitors were leaving after three days of networking, Iceland was finalising the nationalisation of a third bank. There was hardly time for delegates to digest one bit of shocking news, before the next arrived.

Delegates might have been putting a brave face on the whirlwind of events taking place around them, but there was a palpable sense of concern.

Private equity real estate funds present were telling their advisors they were simply waiting for things to get even worse before investing. According to one advisor, there has been a slight shift in strategy among clients.

They are now much more interested in cherry-picking attractive projects they can fund for a cash-strapped developer than in pursuing a stake in the company. At the same time, they are, in some cases, still negotiating with potential partners in anticipation those same people might be forced to capitulate to more generous terms.

That might be a ray of sunshine for private equity firms and others with equity to deploy, but the question remained who will lend to them?

Waiting for a taxi to the airport, one acquaintance said he had spent much of the time at Expo with bankers, or more accurately, looking for a banker willing and able to lend to funds.

“Everybody is really miserable,” he said as he packed his suitcase into a Mercedes. As the rest of the participants took taxis, the shuttle bus or trains to the airport, they waved goodbye to what was frankly a very downbeat event.

Expo Real 2008 will be remembered for what happened to Hypo and Europe's other top banks for a long time to come. But leaving the show, one couldn't help but recall an event that took place a fortnight prior to Expo, when a senior executive at Lehman Brothers Real Estate held a birthday dinner at the exclusive London club Annabel's. Many of Europe's property elite were there. It might be a while yet before the industry breaks open the bubbly in celebration.

LPs to increase long-term allocations
Despite the turbulence of the credit markets and its impact on Europe's property markets, LPs will increase their allocations to real estate in the future, according to a report by Richard Ellis. The report, European Investment Marketview, said investors would target an extra €250 billion to the asset class, though the capital would not “be spent immediately.”

GPs extend fund lives
Almost two-thirds of real estate fund managers are contemplating extending the life of their vehicles in a bid to prevent selling into a depressed market, a report by the European Association for Investors in Non- Listed Real Estate Vehicles (INREV) has revealed. INREV said 59 percent of managers presiding over funds set to terminate over the next two years were opting to continue the life of their vehicles in some form.

Spazio revises Pirelli RE's contract
Shareholders in Europe's second largest light industrial property company, Spazio Investment, which includes prominent hedge fund GLG Partners, are forcing a shake-up of the company in a bid to accelerate a €450 million asset disposal programme, an end to new acquisitions and the alteration to incentive fees for external asset manager, Italy's Pirelli Real Esate.

Getting off the sidelines
Real estate prices are set to fall up to 25 percent in developed markets in the US and Europe, according to The Townsend Group co-founder Kevin Lynch. However he said now was the time private equity real estate funds should be preparing themselves to invest dry powder, rather than “sitting on the sidelines blindly.” Speaking with PERE at the Expo Real conference in Munich, Lynch said real estate prices were expected to fall up to 25 percent in the UK and 18 percent in Germany.

Unite raises £58m
UK student accommodation provider, the Unite Group, has completed the third closing of the Unite UK Student Accommodation Fund. The fund raised £58 million (€74 million; $100 million) from third party institutional investors, of which £26 million has been subscribed by four new investors, taking the total third party equity commitments in the Fund to £428 million.

Cube to invest in UK
London-based Cube Real Estate has raised a fund with enough capacity to invest £100 million (€127 million; $176 million) in UK property. The Cubemaker Partnership will target multi-let commercial property and the principal investor is Ropemaker Properties, the property investment arm of the BP Pension Fund. The firm already manages a number of small vehicles, notably two joint venture companies with Lehman Brothers.

DTZ forms leaseback JV
DTZ, the property services firm, and Deutsche Real- Corp, have established a joint venture to capitalise on sale and leaseback transactions in Europe. The pair plan to earn fees for advisory work, but they also want to raise and mange an investment fund to take advantage of opportunities. The joint venture will be called DTZ RealCorp to be owned 50-50 by the firms.