I love it when a plan comes together!

European leaders might or might not be putting together CDO² in order to save (or kill for that matter) the Eurozone. The ECB might or might not become a large hedge fund. European banks might be under-capitalized (from what we can see it is fair to say that at least their real estate loan book is nowhere close where it would need to be). The US are facing huge budgets constrains while US politics seem just as reliable as Europeans. Maybe, or maybe not, but there is nothing much we can do about all of this.

The capital market sentiment seems to be back in 2008. Sell side analysts are focusing (again) on debt covenant, short tern refinancing, and other liabilities on companies balance sheet. We hear that this time it is different. This time banks have learnt their lessons, and will call loans…

The key question is shall or shouldn’t be worried about all of this. Well clearly the Eurozone uncertainty and lack of political leadership is something that we feel relatively worried about. As a German company solely investing in Germany alstria’s fate is link to Germany’s fate. We knew that, and have no intention to change this.  On the positive side, we feel that on a relative basis, we should be (at least in the beginning) doing better than other European countries. Being German is not so bad after all (being French citizen I feel I know what I am talking about here).

If you forget about all the macro noise, then it is fair to say that the market is exactly where we thought it would be by now. We have been openly communicating (including on this blog) and acting on the assumption that the years 2012 to 2014 would be tough real estate years. Mainly as a consequence of the amount of debt still in the system to be refinanced. In the beginning of 2011 we have written to our shareholders:

“The years 2011 to 2014 are still going to be challenging years for a number of real estate owners. Debt overhang, overleverage, lack of equity capital: there are still a number of issues that need to be addressed one way or the other in the market. These tensions will, however, provide significant market opportunities for well capitalized companies with strong operational focus. We have been working for the last three years to position alstria for this exact moment. Now will be the time to reap the benefit of this work”.



So from this perspective the current situation and the concern around debt availability should not really come as a surprise.  We have successfully used the three previous years to reduce debt level on the company’s balance sheet, and reinforce its operational capability. We were expecting a bumpy ride. So we are very confident when it comes to sailing into the bumpy weather.  

I used to love the A-tean when i was a kid. Even when it all looked very bad, every episode ended with Hannibal saying : "I love it when a plan comes together!". It all come down to how good the plan is...

Same Player Shoot Again.

A recent article in PropertyEU (http://bit.ly/dXPKja) and other real estate newsletters report on the last IPD/IPF conference where a number of commentator have indicated that the solvency II directive will increase insurance companies willingness to lend to real estate. This might as well be true, but between you and me Solvency II will have potentially more far reaching implication for the real estate market as a whole than just additional lending. 


More interestingly, one of the main commentator is reported to have said: "I expect CMBS to return 'in some form or shape ... because without access to the capital markets we don't stand a chance".

In the credit crunch, the credit might have already left, but the crunch still has to come

In November 2008 a panelist at the ninth annual European Real Estate Opportunity & Private Fund Investing Forum had the following remark: “Is CMBS dead? It can't be dead--there's no other place to get [that money] from” I guess it is relatively fair to say that if CMBS is not clinically dead, it is in a very deep coma.

European real estate markets were less relying on the CMBS market than the US markets. Nevertheless the share of the CMBS market has been constantly growing and it is estimated that more than 20% of the commercial real estate financing was financed through these markets. That still leaves us with a significant number of billions of commercial real estate financed in the CMBS markets…