IPD/IPF Conference 2010: European insurance companies will increase lending to property (EU)

Solvency 2 will encourage European insurance companies to lend against property, delegates at the IPD/IPF Property Investment Conference held last week were told.

Speaking at the annual conference in Brighton on Friday November 26, Peter Denton, Managing Director at West Immo said: "Lending on property will, for the first time, become interesting for insurance companies. I spoke to a European insurance company this morning and they have just had a board decision to commit €2.5 bln. in new lending to property next year. We will see an increasing number of insurance companies following suit in the provision of debt."

Denton said he also expects CMBS to return "in some form" because "without access to the capital markets we don't stand a chance".

The scale of insurance company lending, however, is dwarfed by that of the wall of refinancing which faces the market. Denton shared the stage with HSBC's Head of Real Estate Andy Armstrong who put the deleveraging of UK property debt into context.

Armstrong told delegates: "In 1999, the UK property debt market was £42 billion – today it's around £280 billion: 60% of that debt sits in the two nationalized banks and NAMA. Each one has confirmed they wish to reduce their exposure to UK property financing – quite how they do that I haven't worked out."

The UK's nationalized banks, he said, are aiming to reduce their property loan books by £30 to £40 billion each, while NAMA is unwinding a £27 billion UK property loan book. "£150 billion of that debt is coming to maturity over 2011 to 2013. If the nationalized banks don't want to keep it where is it going? Whilst there will be alternative debt markets, are they going to come forward that quickly?"

Armstrong calculated that the value of property which needs refinancing and the debt raised against it is around £90 to £100 bln. "That's a lot of money to write off," he said.

Denton added: "The major providers of debt over the last couple of years are not likely to be the driving force going forwards."
Earlier in the first session on Thursday morning, Hans Vrensen, Head of Global Research at DTZ presented the outlook for the equity side of the equation.

He told delegates that available capital for investment in commercial property increased by 22% from 2009 compared with the first 10 months of this year, according to DTZ Research's Wall of Money Report.

Vrensen said: "That's an incredible increase. On a regional basis, there is a 54% increase in the available capital, 29% in Asia Pacific, while Europe stays the same. Our Fair Value Index told us that the US and Asia were the most attractive markets, and we are seeing that actually allocation into commercial property is strongest in the US and Asia Pacific. More capital is targeting the most attractive regions. We expect this to continue going forward."

The UK, Vrensen continued, has been able to attract quite a lot of overseas investors because it is a transparent market." Going forwards, the UK will have to show overseas investors that it is attractively priced otherwise they will go elsewhere. Other markets will catch up on transparency because they know that they need to in order to attract overseas capital."

Vrensen concluded: "Globally, cross border flows suffered more than overall volumes – but we expect recovery based on equity raise. Impediments from debt and pending regulatory reforms will slow border recovery but last down cross recovery, will benefit UK."

Source: IPD

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