DTZ sees property bonds closing financing debt gap by 2015

Among researchers dealing with the looming debt gap in European property financing over the coming years, among the more prominent has been the research team at property adviser DTZ under head of research Hans Vrensen.

Vrensen gave an interesting presentation last week at the annual Real Estate conference of the European Business School out on the banks of the Rhine at Oestrich-Winkel, near Wiesbaden, attended by REFIRE. The key topic of the day was “The Future of Real Estate Financing”, a subject perennially close to the heart of the real estate school’s dean, Professor Dr. Nico Rottke.

Vrensen highlighted the rise in the issuance of corporate bonds over the last twelve months which should go some way to helping bridge the gap in the absence of traditional bank financing, likely to be (depending on whose figures you use) at least €80bn this year. Last year’s €15bn of bonds issued is likely to be at least equalled this year, he said.

“In 2012 real estate companies issued bonds worth some €15bn, almost double the €8bn in 2011,” he said. “We are working on the assumption that this year will see the around the same amount of issuance.”

Several major bond issues have been well received by investors recently, include a jumbo €750m eight-year issue by retail giant Unibail-Rodamco which was twice oversubscribed, and a €500m issue from Dutch shopping centre specialist Corio.  “However, it’s clearly not only the large companies who are raising money now, but also smaller companies and even developers are tapping into this market at small size. This is relieving the pressure on their access to borrowing, which has been getting a lot more difficult recently.”

The widest funding gap is in the UK, he said, with about 20% of the potentially uncovered refinancing needs of the entire European region. Uncovered financings in Britain, Germany, Spain and France make up about two-thirds of the total. But, offering what we thought was a remarkably optimistic outlook on the coming three years, Vrensen said he and his team saw a lot of light at the end of the tunnel.

Adding to the good news, he said, prices of property debt portfolios, still at a discount to face value, are easing and stabilising as more financing sources including insurance and pension companies move into the segment. “There is a good €200bn of equity and other capital now available, compared to a financing gap ahead of us of around €80bn.”

“However, it should be noted that - although the net financing gap is largely a European problem - the available equity should be able to balance this out. A number of US-based firms are also active in Europe buying up these portfolios. We at DTZ now estimate that the financing gap could indeed even be closed by the end of 2015,” he concluded.