In the current global property investment market with constrained credit and debt-laden balance sheets, companies with strong cash positions are poised to make investments in companies owning financially distressed commercial property.
Organizations with cash to invest are Brookfield Properties recently reported to have $200 million available for property acquisition . The Canada Pension Plan Investment Board is reported by the Globe and Mail to have at least $1.4-billion to buy bargains in the U.S. and Britain's property sectors and LaSalle Investment Management has raised a U.S. $632 million fund.
Emerging from this scenario is the expression that "debt is the new equity." In other words, the most effective way to invest in property is to purchase the debt of companies with investment quality property who have unwilling or bankrupt lenders.
Commenting on the notion that "debt is the new equity" Mark Rose, Chairman & CEO, Avison Young (Canada) Inc. formerly CEO, Grubb and Ellis said, "It is only partly true."
"The impact of change in the credit markets has fundamentally altered valuations. Global reaction to the change in debt underwriting standards has forced a 20% to 30% decline in valuations alone," said Rose.
"Although the paradigm may shift once again, debt is still the basic building block of the investment market." Rose explained. Significant amounts of equity are currently being raised, but deal structures have not adjusted quickly enough to accept the true reality of the debt markets and ultimately pricing. "
Rose said, "As is the case with every market downturn, opportunistic investors who utilize 'war chests' of equity will fill the gap that has been created and will turn the market around."
Mark Rose will be moderating a panel of experts from Oxford Properties Group, Cadillac Fairview and Cadim, all real estate companies owned by Canadian pension funds, as well as Graeme Eadie, Senior Vice President, Real Estate Investments,
CPP Investment Board at the Global Property Market to be held in Toronto on December 2nd. – Global Property Market Brochure (PDF)
The questions Mr. Rose intends to ask the panelists include: When do you think the market will reach the bottom? What benchmark or sign will signal its safe to return to the market? How will your investment strategy differ from the past? Is credit risk rising in the priority scale for your investment strategy?
"We are experiencing unprecedented dislocation in the global commercial real estate markets. Our panel of experts will analyze the situation, provide insight into its impact on your business and provide a road map to capitalize on the opportunities. " said Mark Rose.
The challenge and importance of making sense of the rapidly evolving global property market is underlined by the following recent news stories.
First the bad news.
CalPERS real estate value falls by 35% – The market value of the US$189bn California Public Employees’ Retirement System (CalPERS) housing portfolio has been reduced by 35% to $6.1bn. America’s largest public pension fund has completed an assessment of its housing investment portfolio and said it was in the process of structuring its assets for future performance.
Global Pensions, November 13, 2008
Bad news piles up for North America's retailers – U.S. retail sales could actually shrink this Christmas, the first decline in almost 25 years.
America's Research Group said Americans will spend one per cent less at stores this Yuletide than they did last year, a sign that conditions might be worsening as Christmas approaches.
CBC, November 12, 2008
Credit crunch bites global property markets – The property market in India and Eastern Europe has been hit hard by the global economic crisis but China is holding up well, according to RICS global commercial property survey.
Building, November 10, 2008
The good news stories are:
NAI Global Forms Venture with Bluestone Real Estate Capital – NAI Bluestone Real Estate Capital will work with lenders, property owners and investors to arrange debt and equity financing for commercial real estate assets. It will also leverage their extensive experience working with banks and financial institutions to provide asset recovery strategies for non-performing and underperforming real estate assets.
NAI Global News Release, November 10, 2008
Building boom in Vietnam – A building boom is taking place throughout Vietnam as contractors take advantage of falling
prices for materials to complete delayed building projects. The boom is aided by falling interest rates and a call by the State Bank for all banks to give priority to real-estate projects that are feasible.
Property Report Asia, November 9, 2008
Brookfield looks to go bargain hunting – Brookfield Properties says a third quarter profit has helped it amass a small war chest in order to pick up distressed commercial properties. Brookfield, which owns more than 100 properties in a number of major North American cities, made $174 million in the latest July-to-September period.
CBC, November 7, 2008
Also presenting at the conference are Jacques Gordon, International Director and Global Strategist, LaSalle Investment Management and Laurent Ternisien, Managing Director Investment Property Databank Limited who will provide an overview of how major international markets are performing.
A panel led by Tim Boytinck, Managing Director, Farragut Capital LLC, USA titled, "Is Debt the New Equity?" will examine the replacement of highly leveraged transactions and readily available capital by constrained credit markets and masses of balance sheet debt seeking new lenders.
What is an advisable global property investment strategy for 2009? How can you turn the challenges of failing financial markets into a global property opportunity? Find out at this years Global Property Market.
Registration cost for the Global Property Market is only $395.00 plus tax until November 24th including the Chairmen's reception for the Toronto Real Estate Forum.
Registrants to both the Global Property Market and Toronto Real Estate Forum receive a $50 discount for a combined registration fee of $990.00 + tax.