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ABN Amro completes first office sector swap
An article in Property Week of 13 January 2006 reports that
ABN Amro completed the first office sector swap with Lehman
Brothers, swapping the IPD office return against the IPD allproperty
index for a one-year period. The size or price of the
trade was not disclosed. Rawle Parris, Executive Director of
property derivatives for ABN Amro was quoted as saying:
“This is the first time the office sector has been traded and the
first time someone has done a property-for-property swap.”
Maybe this might signal something interesting.
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1 – 200 of 215 Newer› Newest»Hawaiian Real Estate Prices Are Falling, S.F. Chronicle Says (Bloomberg) 2006-01-15 11:50 (New York) By Nadja Brandt Jan. 15 (Bloomberg) -- Hawaiian real estate prices have been declining because of higher inventories and declining home sales, the San Francisco Chronicle said today. In November, the median price for a home on Oahu was $418,000, below the peak of $569,000 in August and 8 percent below the year-ago median, the newspaper said, citing a study by DataQuick, a La Jolla, San Diego County, firm that tracks real estate markets throughout the country. The Honolulu Board of Realtors last month reported an almost 25 percent drop in the number of single-family houses sold at the same time the supply of listings increased 47 percent, the newspaper said. Equally, the housing markets in Denver, Las Vegas and San Diego have also cooled off. Typically, Hawaii's real estate market lags the mainland's by six months to 24 months, the newspaper said, citing unidentified experts
This is exactly the kind of contrarian trade i am looking for the 5 waves are almost complete and i suspect a bounce coming.
MILLS QUICKTAKE
Yesterday’s Mills-related “bombshell” was that its long-time jv partner, Munich-based KanAm, closed its $579 million open-end fund (i.e., its US-Grundinvest Fonds) for 90 days because “strong redemption demand” left the fund close to breaching its 5% minimum liquidity threshold. KanAm explained that the redemptions were triggered by negative press reports relating to Mills’ recent earnings restatements.
[Intraday on Wednesday, Mills hit $38.40, a new 52-week low; its 52-week high of $66.44 was set on August 3, 2005. MLS’ NYSE-only close yesterday was $38.50. The last trade – noted on the NYSE website – was $39.45.
Volume was 1,258,300 shares. Said differently, MLS either ended yesterday’s session down $1.50, or 3.75%; or up 8 cents, or 0.20%. Point your browser to http://tinyurl.com/8gdas.]
The KanAm fund holds a 50% interest in Mills’ Great Mall/Bay Area (San
Francisco) and a 50% interest in Opry Mills (Nashville). “Beyond the two assets in KanAm’s open-end funds, KanAm also has 11 other Mills assets in its closed-end funds which include the Meadowland Xanadu development. In addition, to those investments, as of December 31, 2004, KanAm owned 1.23% of Mills’ operating partnership units,” Steve Sakwa and his colleagues on Merrill Lynch’s REIT team noted in a report published yesterday.
KanAm’s decision to suspend withdrawals for 90 days came roughly five weeks after Deutsche Bank Grundbesitz-Invest fund was closed pending a revaluation of its assets – which is expected to trigger property sales to meet liquidity demands.
While the fund closures are for DIFFERENT resons, they have prompted calls for better regulation. “Germany’s government has intervened in the country’s mounting open-ended property fund crisis, calling for legislative change to restore shrinking public confidence in the sector after the unprecedented freezing of two funds in as many months,” the Financial Times reported in today’s issue. “Barbara Hendricks, deputy finance minister, yesterday presented a report on the issue to the parliamentary finance committee, with proposals for changes that could be tacked on to an amendment to Germany’s new Investment Law, due before the cabinet by the summer,” the FT added.
“The report, seen by the FT, suggests reforming the widely criticized valuation system, which has led to routine overvaluation of funds’ assets and consequent accusations that the funds were missold to millions of private investors. It also argues that the funds’ system of self-regulation has failed and that they should now be obliged by law to create a sector-wide safety net,” the article explained.
Sources told REIT Wrap yesterday that KanAm hopes that over the next 90 days, its investors will regain confidence in Mills. “Mills has produced great returns for KanAm’s investors over the years. This is a hiccup.
Unlike the Deutsche Bank situation, this isn’t a case of an overvaluation of the real estate,” a veteran buy-sider told us late yesterday in an email. Another industry veteran agreed; however, he said the near-term issue is whether “KanAm capital events” might trickle down to Mills. “If KanAm needs to raise cash; where does it get it from,” he asked rhetorically.
Longer-term, our sources agreed, fallout from the Mills’ situation, but more importantly the German property-fund crisis, could have an impact on KanAm as a future capital source for Mills. “Assuming all of the bad news is out and Mills management starts rebuilding trust, Mills shouldn’t have trouble accessing capital,” a veteran PM stressed. Nevertheless, near-term, he added, the risk/reward equation will remain out of kilter.
REITs Seen Delivering Returns As High As 12% In 2006 (DOW JONES NEWSWIRES) By JANET MORRISSEY January 18, 2006 2:16 p.m. Of DOW JONES NEWSWIRES NEW YORK -- They're trying to make it seven in a row. Real estate investment trusts defied naysayers and cautious market soothsayers when it outperformed the S&P 500 for the sixth consecutive year in 2005 by delivering total returns of 12.1% on average, outpacing the S&P's 4.9% return. Market experts are now predicting REITs will generate returns of at least 4% and possibly as high as 12% in 2006, with some cautiously optimistic the group could again outperform the broader market. REIT market watchers appear less apprehensive entering 2006 than they were at the start of 2005, when predictions ranged from a 20% correction to a 5% to 10% positive return. In early 2005, the sector was clouded by uncertainty over rising interest rates, a slower-than-expected economic rebound, fears of multiple contractions, and other issues. As the group starts 2006 though, some of those fears have subsided. The Federal Reserve board has hinted it's close to the end of its rate hikes, taking the pressure off rate fears and the long bond. Merrill Lynch analyst Steve Sakwa, Lehman Brothers analyst David Harris, and Raymond James analyst Paul Puryear are predicting equity REITs will generate total returns, including dividends, of 8% to 10% on average in 2006. Deutsche Bank's Lou Taylor and FBR's Paul Morgan are more bullish, estimating 8% to 12% returns, and 10% to 12% returns respectively. The outlook is close to the 10% returns some economists are predicting for the S&P 500. Several analysts and investors are more conservative. Robert Promisel, principal at Adelante Capital Management, which invests in REITs, is expecting equity REIT returns of 4% to 8%. However, he said returns could be higher, depending on how strong investor appetite remains for REITs. Promisel said he expects the REIT dividend yield to remain around 4.5% on average. "We think that that's stable, and we don't envision any major REIT cutting their dividend as Equity Office Properties Trust (EOP) did in December of last year," he said. At the same time, he sees funds from operations growth of 5% to 6% on average. Based on these assumptions, Promisel said the group has the potential to deliver returns "in the low double-digits." He also said he doesn't expect real estate prices, which have surged in the private market, to correct in 2006. "I don't see that as likely to happen this year unless there was some exogenous shock - some geopolitical event," he said. However, Promisel said investor sentiment toward REITs could pressure these returns. He estimates that at the end of the 2005, the group was trading at about 15 times 2006 FFO, which "is higher than what REITs have been at historically." Historically, REITs have traded in the 8 to 12 range. As a result, he said the REIT multiple could contract slightly, bringing total returns down to the 4% to 8% level. Promisel said investor sentiment - more than REIT fundamentals - is key. "That's the great unknown," he said. "If - for whatever reason - the broader market has investors a bit apprehensive or spooked, then perhaps the visibility and durability of REIT cash flows would prove to be more attractive and we could see further multiple expansion," said Promisel. "We believe worldwide and domestic money flows will have more relative influence on REIT share prices in the coming 12 months than at any time in the past, potentially overriding earnings trends," concurred Raymond James analyst Paul Puryear. Other factors that could pressure REIT returns in 2006 are yield spreads and the fallout related to a massive equity offering recently announced by Macerich Co. (MAC). Spreads between yields on REITs and the 10-year Treasury have been contracting. Last week, REIT yields actually fell below that of the 10-year Treasury, marking only the third time such a phenomena has occurred in more than 10 years. In the past, when REIT yield spreads turned negative - in April 1994 and December 1996 - the stocks sold off, said Bank of America analyst Ross Nussbaum. "History does not always repeat itself, but we see risk to valuations by mid-year," he said, in a note. "We believe the negative yield spread should at least sound some alarm bells." On the other hand, if the 10-year Treasury yield fell, REITs would look more attractive and more investors would move into the REIT sector, potentially driving returns up, said Promisel. REIT yields recovered slightly this week, with REITs averaging 4.38% Wednesday while the yield on the 10-year treasury averaged 4.33%. A decision last week by retail REIT Macerich Co. (MAC) to do a $660 million overnight equity offering triggered a selloff in the REIT world as jittery investors wondered which REIT might be next. Morgan Stanley analyst Matt Ostrower described the offering as "perhaps the largest of its kind in REIT history." The offering "raised concern among investors that the spigot for new equity may increase if REIT prices continue to climb," said Merrill Lynch analyst Steve Sakwa, in a note. As a result, this could also temper REIT returns in 2006. [TOP]
Million-Dollar Home Sales Hit New Peak In California (WSJ) By DANIELLE REED January 24, 2006 2:53 p.m. Of DOW JONES NEWSWIRES NEW YORK -- The number of million-dollar home sales in California reached a new peak for the fourth year in a row in 2005, real estate information service DataQuick Information Systems reported Tuesday. There were 48,666 California homes sold for $1 million or more in 2005, up 47% from 33,107 in 2004. As recently as 2002, the total was just 13,871, DataQuick said in a press release. The biggest change wasn't at the upper end of the market, either. "The prestige market remained pretty stable from 2004 to 2005," said Marshall Prentice, DataQuick president. "But because of the increase in home values across the board, more sales prices crossed the million-dollar threshold," he said. "In other words, homes that would have sold for $900,000 in 2004 sold for more than a million last year." The highest price paid for a home was $23.5 million for a 13,636-square-foot, 6-bedroom, 12-bathroom home on six acres in La Jolla. The largest $1 million-plus home sold was on 2.2 acres in Solana Beach, San Diego County. It measured 18,369 square feet with 7 bedrooms and eight bathrooms, and sold for $6.2 million. The higher the prices go, the smaller the percentage of all-cash buyers. Approximately 10% of buyers paid cash in 2005, down from 15% in 2004, according to DataQuick. Among those buyers who financed their purchases, DataQuick said in the report, the median down payment was 28% of the purchase price. [
REIT FLASH
SATURDAY, JANUARY 28, 2006 -- 9:23 P.M. ET
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REITs ARE OFF TO THEIR BEST START IN OVER A DECADE
The total-return version of the MSCI US REIT Index (RMS) is off to its best start since the benchmark was launched in 1995. Through Friday’s close, RMS had chalked up a 7.60% total return. [The benchmark’s price-only version (RMZ) is up 7.33%.] Its next best start – a distant second – was in 2004. At the same point in 2004, RMS was up 3.35%. The benchmark’s worst start since its 1995 launch was last year; at this point in 2004, RMS was deep in the red, down 8.84%.
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Copyright 2006, REIT ZONE PUBLICATIONS, LLC. All rights reserved.
This is basically the same post as above, but you can read between the lines at the inuendo that this will be another up year because of a strong January, what rubbish!!!!
REITs ARE ROCKIN’...Since it was launched 12 years ago, at the start of 1995, the total-return version of the MSCI US REIT Index’s (RMS) best January – until this year – had been January 2004 when it posted a 4.4% total return. (RMS delivered a 31.5% total return in 2004.) As noted, through Friday’s close, RMS had chalked up a 7.6% total return.
RMS has posted negative full-year returns only twice since its 1995 launch. It fell 16.9% in 1998 and 4.6% in 1999. It ended January 1998 down 1.4% and January 1999 down 2.7%. Last year, RMS’ worst January since its launch – down 8.6% -- the benchmark ended the year with a 12.1% total return. Its second worst start was January 1995’s 3.5% drop; RMS ended that year with a 12.9% total return.
Over its 12-year history, RMS has ended January in the black six times (assuming no mega-drop in the final two sessions of this month).
Democrats and Republicans Both Adept at Ignoring Facts, Study Finds
By LiveScience Staff
posted: 24 January 2006
10:03 am ET
Democrats and Republicans alike are adept at making decisions without letting the facts get in the way, a new study shows.
And they get quite a rush from ignoring information that's contrary to their point of view.
Researchers asked staunch party members from both sides to evaluate information that threatened their preferred candidate prior to the 2004 Presidential election. The subjects' brains were monitored while they pondered.
The results were announced today.
"We did not see any increased activation of the parts of the brain normally engaged during reasoning," said Drew Westen, director of clinical psychology at Emory University. "What we saw instead was a network of emotion circuits lighting up, including circuits hypothesized to be involved in regulating emotion, and circuits known to be involved in resolving conflicts."
Bias on both sides
The test subjects on both sides of the political aisle reached totally biased conclusions by ignoring information that could not rationally be discounted, Westen and his colleagues say.
Then, with their minds made up, brain activity ceased in the areas that deal with negative emotions such as disgust. But activity spiked in the circuits involved in reward, a response similar to what addicts experience when they get a fix, Westen explained.
The study points to a total lack of reason in political decision-making.
"None of the circuits involved in conscious reasoning were particularly engaged," Westen said. "Essentially, it appears as if partisans twirl the cognitive kaleidoscope until they get the conclusions they want, and then they get massively reinforced for it, with the elimination of negative emotional states and activation of positive ones."
Notably absent were any increases in activation of the dorsolateral prefrontal cortex, the part of the brain most associated with reasoning.
The tests involved pairs of statements by the candidates, President George W. Bush and Senator John Kerry, that clearly contradicted each other. The test subjects were asked to consider and rate the discrepancy. Then they were presented with another statement that might explain away the contradiction. The scenario was repeated several times for each candidate.
The brain imaging revealed a consistent pattern. Both Republicans and Democrats consistently denied obvious contradictions for their own candidate but detected contradictions in the opposing candidate.
"The result is that partisan beliefs are calcified, and the person can learn very little from new data," Westen said.
Vote for Tom Hanks
Other relatively neutral candidates were introduced into the mix, such as the actor Tom Hanks. Importantly, both the Democrats and Republicans reacted to the contradictions of these characters in the same manner.
The findings could prove useful beyond the campaign trail.
"Everyone from executives and judges to scientists and politicians may reason to emotionally biased judgments when they have a vested interest in how to interpret 'the facts,'" Westen said.
The researchers will present the findings Saturday at the Annual Conference of the Society for Personality and Social Psychology.
* The Biggest Popular Myths
* How Ambiguity Messes with Our Brains
* Brain Scans May Unlock Candidates' Appeal
* Adult Brain Cells Do Keep Growing
ANOTHER NEW HIGH/WHAT A MONTH
The price-only version of the MSCI REIT Index (RMZ) hit a new intraday high of 902.73 today; it ended Tuesday’s session at a new closing high of 899.53, up 3.64 points, or 0.41%.
For the month, RMZ was up 7.4%; its best monthly showing since the price-only benchmark was launched in late-June of last year. RMZ’s best month prior to January 2006 was its 6.9% gain in July of last year.
The Standard & Poor’s 500-stock index was up 2.5% in January.
I think the book in December is a classic sign, the selloff is just beginning.
SAN FRANCISCO (Reuters) - Shares of Google Inc. fell as much as 19 percent
on Tuesday after the Web search company missed Wall Street profit targets
for the first time in its short but spectacular history, as disappointing
British results led to higher-than-expected taxes.
The slide, which at one stage wiped out more than $20 billion of Google's
market value, illustrated the big risks investors have taken by buying the
shares after a meteoric rise since their initial public offering in August
2004.
Earnings, excluding one-time items, were $1.54 per share, below the
consensus expectation of $1.77, according to Reuters Estimates.
That ended the uninterrupted winning streak Google has had since its August
2004 public offering, a run in which it topped Wall Street quarterly profit
expectations by at least 10 percent.
The big miss is bound to raise questions about what Google executives knew
and when, and whether they failed to release important information to the
market in a timely fashion.
Google shares fell 12 percent in after-hours trade to $379.00, slicing
roughly $15.3 billion from a market capitalization that had stood around
$126 billion. To put that in perspective, the decline represents the entire
market value of Gannett Co. Inc. , the largest U.S. newspaper chain.
Google had become a Wall Street darling as well as a household word as its
Internet services have become synonymous with Web search. Bullish analysts
have predicted the stock price could race to levels last seen during the
dot-com era, with one recently predicting the shares could rise to $600.
"It would be fair to say that the bloom is off the rose," said Stifel
Nicolaus analyst Scott Devitt, who issued a rare "sell" recommendation on
Google stock this month. "Google remains a great company. But there is a
disconnect between the business and the market capitalization."
While valuations appear stretched on an historical basis, a majority of respondent to our survey noted that the post-modern REIT era period is well short of the dataset available with regard to equities in general.
“Yes, multiples are higher than they were pre the late-1990s REIT bear market, but that observation is of limited value, in our view.
WHAT RUBBISH, nothing more than trying to squeez an argument into an anchored frame set.
REIT FLASH
SUNDAY, FEBRUARY 5, 2006 -- 8:03 A.M. ET
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ORIOLE BETTERS ITS OFFER
In the latest reminder that a growing number of investors, including some public market participants, believe real estate assets/platforms in at least some instances are mispriced by the public market, Oriole Partnership LLC, a joint venture of Essex Property Trust (ESS), UBS Wealth Management - North American Property Fund Limited, and AEW Oriole Co-Investment, LLC, has bettered its own $36 per share bid for Town and Country (TCT).
In a statement early this morning, Town and Country said Oriole had upped its bid to $38.50 per share or OP unit.
Oriole's latest bid not only tops Morgan Stanley Real Estate/Onex Real Estate's December 19 bid of $33.90 per share or OP unit, but also Berkshire Property Advisors' $37 per share/OP unit bid, which is still subject to due diligence. Oriole said its new bid would remain open until Thursday, February 9 at 10 A.M. ET.
While either Morgan Stanley/Onex or Berkshire could revise their bids upward; it's worth noting that Oriole's latest bid not only represents a 29.2% premium over TCT's closing price on December 19 -- just before the Morgan Stanely/Onex bid was announced, but also that the $20 million break-up fee Oriole has agreed to pay effectively increases its bid by roughly another $1 per share.
ROBERT STEVENSON - MULTIFAMILY &
HEALTHCARE
4Q05 Earnings Recap — Best Fundamentals Since 2001
The 4Q05 reporting season kicked into high gear this week
with earnings from EQR, CPT, BRE, ASN, and MAA. Four of
the five companies beat consensus estimates and all five
posted strong same-store metrics that were at the highest
level since 2001.
IS A DEAL FOR SHURGARD AT HAND?
It’s been a long time coming, but this week, industry veterans told THE NEWSHOUND over the weekend, Public Storage’s (PSA) more than 10-year on-again, off-again pursuit of Shurgard (SHU) will finally end. “It’s never done until it’s announced, but it looks like this is really it,” an industry veteran not directly tied to the deal told us Sunday.
Property group Hospitality heavily oversubscribed
06 Feb 2006
Inet Bridge -
Demand for units in the listed property sector reflects in the scramble of fund managers to obtain linked units in soon-to-be listed Hospitality Property Fund
By Nick Wilson
Strong demand for units in the booming listed property sector was reflected in the scramble of fund managers to obtain linked units in soon-to-be listed Hospitality Property Fund.
The hospitality-focused property company, which is expected to list on the JSE main board in mid-February, said on Friday that its private placement of linked units was about 7,6 times oversubscribed.
The company said previously that the private placement of 2,725-million Hospitality Property Fund "A" linked units and 2,531-million "B" linked units at R10 a linked unit for both A and B units would raise R512,5 million if fully subscribed.
Applications that were received exceeded R3,8 billion.
Hospitality said that it was unable to allocate full subscriptions to participants in the private placement.
The success of this application reflects strong market support for this specialised listed property vehicle, particularly given its private place status as opposed to an initial public offering, said Grapnel Property Group MD Gerald Nelson.
Grapnel said it conceptualised the assembly and listing of the hospitality-focused property fund in early 2004 and approached Horwath Tourism and Leisure Consulting to work as co-promoter of the fund.
Horwath is providing a supporting role as hospitality and industry consultants to the fund.
Colin Young, head of asset management at Old Mutual Properties, said Old Mutual was bitterly dissapointed it could not get the allocation it wanted.
Young said, as there had been so much demand for units, fund managers had not been able to obtain the allocations they would have liked.
"We asked for double what we wanted because we knew there was going to be an oversubscription. We didn't realise it would be to this extent," he said.
Young said the demand for Hospitality-linked units showed that now was the time for property funds to list on the JSE.
"If anybody is wondering if now is the time to list on the JSE, the answer is, yes. There is demand for paper," he said.
Hospitality said listed property was the top-performing asset class of 2005 on the JSE and that the sector's total market capitalisation had grown from R13 billion to R60 billion over the past three years.
"It has outperformed equities, bonds and direct property ownership and there is currently strong institutional support and investor demand for listed property," said the fund.
Business Day
WHEN IS A DIVIDEND CUT A RESET?
You gotta hand it to the folks at Glenborough (GLB). This morning, the company announced a dividend cut just north of 20%. But reading the press release, well, you decide...
"Now that our portfolio realignment is completed, the Company's Board of Directors believes it is important to reset the common stock dividend to reflect the new portfolio and provide the ability to retain cash flow for future growth. The new dividend recognizes the substantial increase in the quality of the property portfolio and its higher concentration in the Company's core markets; as well as the decrease in overall balance sheet leverage (both current and planned) and the increased costs associated with converting much of our floating rate loans to fixed rate borrowings over the past year. In this regard, the Company anticipates that the 2006 common stock dividend, which is subject to quarterly board approval, will be $1.10 per share annualized, down from the current annualized dividend of $1.40 per share."
CBRE lifted by ‘insatiable demand’ for property (FT) By Jim Pickard in London Published: February 5 2006 20:37 | Last updated: February 5 2006 20:37 CB Richard Ellis, the world’s largest property advisory group, has announced a strong set of results amid an insatiable demand for global property. The Los Angeles-based group announced a leap in net income for 2005 to $217.3m compared with $64.7m in 2004, on revenue up 23 per cent to $2.9bn against $2.24bn in 2004. Diluted earnings per share were $2.84 against $0.91 in 2004. As middlemen for the commercial property industry, companies like CB Richard Ellis have found themselves reaping the rewards of investors’ unprecedented interest in offices, shopping centres and industrial parks. That will continue for years, predicted chief executive Brett White, unless investors recovered their faith in other asset classes. Mr White suggested, however, that the strong growth in prices across the world would start to slow down. “I think volumes will hold up but the pace of price appreciation will slow down, we are not going to see rises of 20 or 30 or 40 per cent,” he said. The future direction of prices would depend greatly on whether occupier markets picked up from their generally weak position, he said. Shares in CBRE leapt by 8 per cent on Thursday after the group’s results, which came a day after a strong but less impressive showing by the next biggest company, Jones Lang LaSalle.
This is a classic case of the fundamentals following the stock not the other way as these people see it.
BOOYAH, REITSTERS
CNBC's Jim Cramer got excited about Public Storage (PSA) on "Mad Money"
yesterday. For those REITsters who have yet to catch Cramer's funfest, it has to be seen to be believed. Complete with sound effects and flying objects, Cramer is nothing if not, well, enthusiastic.
On Thursday's show, he explained that he focused on PSA after catching an episode of "The Shield" with Michael Chiklis. Apparently, Chilklis stashes some purloined cash in a "storage unit." This got Cramer's wheels turning. PSA, he concluded, is a play on Baby Boomer's downsizing. When they move out of their homes and have lots of stuff to store, where are they going to store it. Booyah!
Cramer quickly reviewed PSA's latest quarter and even mentioned, in passing, PSA's bid for Shurgard (SHU). Bottom line, Cramer likes PSA and recommended it wholeheartedly.
PSA was up 0.91%, or 67 cents to $73.92 on volume of 675,600 shares yesterday. After hours, the shares rose another 51 cents, to $74.43 on volume of 58,200 shares.
Booyah, REITsters!
The good news is already in the price:
Other Key Takeaways from 4Q05 Earnings
• PSA reported another very strong quarter. Reported
FFOPS of $0.96, was well above our estimate of $0.90
and consensus of $0.89. PSA sustained high
occupancy levels and boosted REVPAF 4.7%, while
reining in media and advertising costs as well as other
operating expenses. As a result, same store NOI
increased 9.4%, with a 5% increase in revenues and a
3.4% decrease in expenses. However, management
noted that most of the savings it was able to achieve
over the last year is done, and it expects pressure on
payroll, insurance and utilities expenses in 2006.
ON CNBC...Ed Scheetz, CEO of Morgans Hotel Group (MHGC), a REOC that priced its IPO yesterday, pays a visit to CNBC’s “Power Lunch” today. The program airs between 12 p.m. and 2 p.m. ET.
Any wagers on whether Scheetz will be asked any questions on the very sweet deal Morgans’ founder Ian Schrager is getting. His perks include:
“...fixed payments for use of a private aircraft; use of an automobile leased by the company; a full-time driver; and a full-time secretary, as well as complimentary rooms at any of Morgan’s hotel properties (whether owned or managed) for him, his immediate family members and ‘any other person whom he believes could advance or further [MHGC’s] objectives,’”
MarketWatch’s Steve Gelsi noted yesterday.
Could this be the classic kiss of death.
Now on Sale: Real Estate in Germany Europe's Largest Economy Attracts International Bargain Hunters Hoping to Buy at Bottom of Cycle (WSJ)
By CHRISTINE HAUGHNEY and EDWARD TAYLOR February 15, 2006
For decades, New York real-estate investor and literary agent Francis Greenburger associated Germany mainly with the Frankfurt Book Fair, which he has attended for the past 34 years. But these days, Mr. Greenburger -- who owns property in 26 U.S. states and parts of Canada -- views Germany as one of the world's best real-estate bargains, which explains why he's shifting much of his buying there. In the past several weeks, he has spent $1.7 million to buy a 23-unit apartment building on the border of Berlin's Prenzlauer Berg district and a retail building a five-minute walk from Frankfurt's main shopping strip. Over the next two years, he says he wants to invest €100 million (about $120 million), through his company, Time Equities, in German residential and commercial property. A Berlin residential property and a Frankfurt office building (below) are among foreign-owned assets in Germany. "It's one of the top opportunistic markets," says Mr. Greenburger. "I look at Germany as a market that is hopefully at the bottom of the cycle." Germany is for sale, and investors from across the world have descended on Europe's largest economy looking for deals. They are flooding the country to buy suburban malls, thousands of apartments and block upon block of office buildings and towers. The trend got rolling in the spring of 2004, with deals such as the Berlin government's sale of 4% of its housing stock to a group of investors including Cerberus Capital Management and Goldman Sachs Group Inc. It picked up speed in May 2005 when British private-equity firm Terra Firma Capital Partners Ltd. swallowed up Germany's largest residential real-estate company from E.On AG, including 140,000 apartments. By October last year, Morgan Stanley had bought eight office buildings in downtown Frankfurt, and by year's end the royal family of Dubai paid $101 million for a suburban shopping mall in Rostock with tenants including a Toys "R" Us and a McDonald's. A combination of forces has created this perceived bargain hunt. Overbuilding has left Germany with too much office space, putting downward pressure on rents. Investors have been pulling out of some German open-ended real-estate funds, amid fears that value declines and asset revaluations at certain individual funds will spark more widespread losses. In response, several funds have been frozen to investors hoping to get in or out. Some funds are liquidating some of their assets to raise cash. As a result, what used to be one of the priciest places in Europe to buy real estate has become international investors' destination of choice. "Where else can you buy 100,000 apartments in one go in one of the world's largest and most developed economies?" asks Gabriel Low, London-based managing director of the global special-situations group at Citigroup Inc. Over the past decade, most foreign investors eager to buy in Europe rarely ventured into Germany. German retail investors had poured much of their savings into the country's open-ended real estate funds, and these funds then paid what foreign investors viewed as high prices. "The only people who were buying German real estate were Germans, because they were pricing it at returns that the rest of the world thought made no sense," says Jeff Jacobson, European chief executive of Chicago-based investment firm LaSalle Investment Management, which has spent $400 million on about two dozen German shopping centers and retail warehouses in the past two years. Germany's real-estate troubles date back to the fall of the Berlin Wall in 1989. To encourage investment in formerly communist eastern Germany, the government introduced tax incentives for building. But as new towers punctured Germany's urban skylines, unemployment rose and the population declined, leaving many towers empty. Office-building vacancy rates in Frankfurt hit 10.8% in 2005, more than triple the 2001 rate. Asking rents dropped 31% over the period to about $13.30 per square foot, according to real-estate brokerage firm CB Richard Ellis Group Inc. Sellers trying to get rid of these properties have plenty of inventory to compete with: Public agencies are selling off real estate to limit debts accumulated in the stagnant German economy, and private- and public-sector banks are selling real estate as they look to compete in Europe's consolidating banking market. German open-ended funds own $95.2 billion in real estate that they potentially could sell off, estimates Simon Martin, who runs investment strategy for London-based fund Curzon Global. Still, many German investors have little interest in putting more money in real estate because of the problems that have plagued the country's open-ended funds. After some German open-ended funds said it was necessary to revalue their assets, individual investors panicked and began to pull out. In 2005, Germans pulled $4.08 billion out of German real-estate funds, according to German funds association BVI. German investors had poured $3.64 billion into such funds in 2004 and $16.3 billion in 2003. The problems have even begun to hurt foreign markets: German real-estate investment fund KanAm Grund Kapitalanlagegesellschaft mbH recently had a run on assets because investors worried about its investment in U.S. shopping-mall developer Mills Corp. The Berlin government sold 4% of its housing stock to investors including Cerberus Capital Management and Goldman Sachs Group Inc. in 2004. It was among the deals that got the foreign-investment trend rolling in Germany's real-estate market. In the past, German investors had been the leading buyers of commercial properties in the U.S. According to Real Capital Analytics Inc., Germans in 2004 surpassed any other foreign investor in the U.S. by purchasing $5.1 billion in office buildings and apartment towers. By 2005, Germans had slipped to second place, behind the Australians. Germans purchased $3.8 billion in real estate; the Australians, $7.7 billion. At the same time, Germans have become net sellers of U.S. real estate. German investors sold off $4.5 billion in real estate in the U.S. last year, up from $2.1 billion in 2004. Meanwhile, foreign investors in the German market have become so enthusiastic over the past year that they have surpassed German buyers in terms of investment there. The percentage of commercial real-estate deals in Germany completed by foreign investors more than doubled in 2005 to 62%, with foreign buyers purchasing more than $24.6 billion of property, according to data tracked by real-estate advisory firm Jones Lang LaSalle Inc. Recent residential portfolio sales to foreign investors would boost the number to more than 80% of all of Germany's real estate sales last year, Jones Lang executives estimate. Foreign investors say the prices they pay in Germany remain bargains compared with rising prices in other major markets, such as France and the United Kingdom. "For a long time, German real estate has been the most expensive real estate in Europe," says Mr. Martin of Curzon Global, which has bought $1.2 billion of German retail properties in the past 18 months. "That's now flipped around." German prices are falling as those in most other parts of the world have surged. Investors say they are seeing higher returns there than in other major markets. One measure for comparing relative returns across markets is "initial yield" -- the income a property generates, minus expenses. Buyers in London and New York City are accepting initial yields as low as 4%, while in German markets they can earn nearly 7%, Mr. Martin says. Berndt Perl, whose investment firm APF Properties, of New York, used to focus on second-tier Manhattan office buildings, says he gets double the returns buying similar properties in Germany. In the past six months, he bought five office buildings in Berlin and Frankfurt for prices ranging from $2 million to $20 million and hopes to buy 15 more office buildings in 2006[TOP]
More of the same
KarstadtQuelle Has More Than 20 Bidders for Property (Bloomberg) 2006-02-14 12:35 (New York) By Patrick Donahue Feb. 14 (Bloomberg) -- KarstadtQuelle AG, Germany's biggest department-store chain, said more than 20 potential bidders have expressed interest in its property assets, which the company plans to sell by the end of September to eliminate debt. There is ``strong demand'' among foreign investors for property in prime shopping districts in German cities, Chief Executive Officer Thomas Middelhoff said in a faxed statement today. The retailer said it hired Goldman Sachs Group Inc. to oversee the sale- and-leaseback of 90 department stores and 32 sports stores. Essen, Germany-based KarstadtQuelle announced in December it would sell its remaining property portfolio to eliminate 2.8 billion euros ($3.3 billion) in debt. Middelhoff plans to free up funds to invest in an overhaul of the stores that involves selling more high-end goods such as furniture and fashion items. Shares of KarstadtQuelle rose 7 cents to 18.33 euros in Frankfurt. The gain extended this year's advance to 43 percent. [TOP]
BEYOND A FRENZY, PART II
In an email blast on October 27 of last year, we commented on the velocity of REITland deal-related buzz. We noted: "Numerous buy-siders and others say there's more deal-related buzz currently than at anytime in their careers, and most of those making the statements are far from newcomers to REITland. Many were around before Kimco's landmark November 1991 IPO; others before Taubman came public roughly a year later."
The velocity of deal-related buzz is again off the charts. There are so many rumors that either some are the REITland equivalnet of "vaporware,"
or REITland is on the verge of being rocked to its core by a capital glut so enormous that it exceeds the very generous estimates already out there.
Today's buzz machine is responsible for sending shares of Mills (MLS) and Associated Estates (AEC) to the head of our daily top performers list.
MLS is up in part on a report from down under speculating on possible Aussie interest in MLS (http://tinyurl.com/8rk62). Comments in daily trader emails no doubt helped fan the flames.
Associated Estates (AEC) is a different story. While some veteran REITsters believe a name like Home Properties (HME) is a leading candidate to be the next multifamily takeout, there's a handful of folks who view AEC as the son of Town and Country (TCT).
Even at its new 52-week high of $10.92 per share hit earlier today, AEC trades well below our consensus NAV of $14.87 per share. That AEC is popping up on some folks' list of potential privatization candidates isn't a surprise; however, as the folks at Home Properties (HME) found out, AEC management has given potential suitors an icy cold shoulder in the past.
Still, based on recent conversations, we know that AEC is a name that has popped up on the radar screens of at least a couple of potentially interested parties.
The Who's The Next Takeout" game isn't for the faint of heart; nevertheless, as one veteran REITster noted recently in an email, it does help to pass the time.
I think it is interesting that another hedge fund is coming to market. There is a growing sense that things are expensive.
REIT FLASH
WEDNESDAY, FEBRUARY 15, 2006 -- 5:56 P.M. ET
-----------------------------------------------
ANOTHER HEDGIE?
We'd been hearing rumors that Jay Leupp, who headed the REIT team at RBC Capital Markets, was raising money for a "fund." Well, Leupp reportedly has left RBC to head up Alesco Global Advisors in San Mateo, California.
According to one source, Leupp is CEO and portfolio manager.
We reached out to Leupp at his new digs, but hadn't received a response by the deadline for this blast email.
If you've been out of the country...or out of the galaxy and you needed a report folks, here it is. BearingPoint, Inc. , a global management and technology consulting firm, today issued a white paper, "Credit Derivatives In Crisis: Alleviating the Backlog," discussing ways financial services companies can address the serious delays in completing credit derivative trades resulting from the increased transaction volume, the growth of the industry and errors in the confirmation process.
The paper comes just before the New York Federal Reserve is expected to meet February 16, to discuss dealers' and industry executives' progress on these issues. Credit derivatives are financial contracts that allow market participants to assume either a positive or negative exposure to a company's credit to facilitate hedging and speculation.
"Although the size of the credit derivatives market has exploded, the backlogs and inefficiencies in its current technology infrastructure have created a transaction, confirmation and clearing process straight out of the seventies," said Robert Benedetto, a manager with BearingPoint and co-author of the paper. "The extensive backlog in processing trades can create substantial operational risks for banks and other financial services companies.
"In fact, the overstressed credit derivatives market infrastructure has created the potential for a financial disaster if an event triggers a significant strain, such as a major U.S. company filing for bankruptcy. Unless this technology is updated and improved, the industry will continue to operate with lead weights and put the health of the market overall at risk," added Benedetto.
Terence Sawchuk, a management analyst with BearingPoint and co-author of the paper, pointed out that most credit derivative trades are not standardized and have to be reviewed individually by each party, raising the possibility of error and extending the time delay on trade execution.
This is the view of developers in China:
Risk of margin squeeze?
Companies are not too concerned about development margins as they expect prices
across the country to still be on an uptrend against the backdrop of 8-9% GDP
growth nationwide and over 10% in major cities. Even if there is no price increase,
they still can achieve a 20-30% gross margin for the land acquired recently. The
bottom line should still grow nicely with rising production volume of 20-30% a year.
Could this be another sign:
NAREIT GOING REAL-TIME...Real-time versions of the FTSE/NAREIT U.S. REIT Index Series debut on March 6. As part of the deal, FTSE takes over calculation of the indices. Discussions are underway with product providers for ETFs and index funds tied to the benchmarks. For more details (including a FAQ sheet), point your browser to http://www.nareit.com.
London's Priciest Homes Post Biggest Gain in 30 Years (Bloomberg) 2006-02-17 07:51 (New York) By Peter Woodifield Feb. 17 (Bloomberg) -- London's most expensive homes posted their biggest monthly increase in value in at least 30 years in January as bankers and traders started spending record bonuses, according to U.K. real-estate agent Knight Frank LLC. The average apartment costing more than 1.5 million pounds ($2.6 million) and houses priced at 3 million pounds or more gained 1.5 percent last month, the fourth straight monthly gain of at least 1 percent, said Knight Frank. The annualized increase of 9.8 percent is the highest since September 2002. ``To see such strong growth in November, December and January is amazing,'' Liam Bailey, head of residential research at Knight Frank, said in an interview. ``There is greater confidence in employment and there is no doubt bonus money helps.'
When the powers that be realise they have gone too far and created something dangerous, they try to give warning in a non disciplinary manner, but almost always we don't listen to parents who have encouraged us to run wild and be irresponsible. This is Ben's approach to tough love, it ain't mine.
Bernanke:Banks Have'High Liquidity;'MustManage Risk
By Steven K. Beckner
Market News International - Federal Reserve Chairman Ben Bernanke
said Wednesday that American banks are presently enjoying "relatively
high liquidity," but advised them to be prepared to manage "liquidity
risk."
Bernanke also expressed concern that some community banks may be
getting overexposed to high concentrations of commercial real estate
loans and becoming excessively dependent on wholesale sources of funding
instead of lower cost local deposits.
The Fed chairman, in only his second speech since becoming Fed
chairman at the beginning of last month, told an Independent Community
Bankers convention in Las Vegas that their member institutions are
"generally doing quite well," but said they face "important long-run
challenges" along with more near-term risks.
Although his prepared remarks were mostly directed toward smaller
sized community banks, he concluded them with advice for the banking
industry at large.
"With the banking system enjoying a period of relatively high
liquidity, now is a good time for all companies to assess the adequacy
of their processes for managing liquidity risk," he said.
Bernanke did not elaborate. But the Chicago Federal Reserve Bank
defines liquidity risk as "the potential that an institution will be
unable to meet its obligations as they come due because of an inability
to liquidate assets or obtain adequate funding (referred to as "funding
liquidity risk") or that it cannot easily unwind or offset specific
exposures without significantly lowering market prices because of
inadequate market depth or market disruptions ("market liquidity risk").
Bernanke prefaced his comment with warnings about the growing risks
some banks are taking in the area of commercial real estate lending and
about the way some banks are funding such loans.
He noted that "in recent years, community banks have become more
focused on commercial real estate lending, leading to a significant
shift in the balance sheet and risk profiles of growing numbers of
banks."
Bernanke said that "in most local markets, commercial real estate
loans have performed well," and the Fed's bank examiners have told him
that "lending standards are generally sound and are not comparable to
the standards that contributed to broad problems in the banking industry
two decades ago."
"However, more recently, there have been signs of some easing of
underwriting standards," he continued, adding, "The rapid growth in
commercial real estate exposures relative to capital and assets raises
the possibility that risk-management practices in community banks may
not have kept pace with growing concentrations and may be due for
upgrades in oversight, policies, information systems, and stress
testing."
Bernanke noted that the Fed and its fellow bank regulators recently
proposed guidance that would "focus examiners' attention on those loans
that are particularly vulnerable to adverse market conditions -- that
is, loans dependent primarily on the sale, lease, or refinancing of
commercial property as the source of repayment."
Bernanke emphasized banking supervisors are not trying to
discourage commercial real estate lending but want banks to "recognize
the risks arising from concentration and to have in place appropriate
risk-management practices and capital levels."
Bernanke warned that "adjusting to changes in the level of
short-term interest rates can also pose challenges to community banks."
So far, he said, "the relative stability of community bank net
interest margins suggests that they have done a good job of managing
their interest rate risk exposure throughout the recent increase in
market rates." He said community banks have higher net interest margins
-- the difference between what banks pay for deposits and what they earn
on assets -- than larger banks.
"Importantly, most community banks have effectively controlled the
maturity distributions of their assets and made significant improvements
over the past decade to their management and measurement of interest
rate risk," he said.
"However," he added, "we continue to see a small number of
institutions with concentrations in longer-term assets."
In another area of concern, Bernanke said most community banks
"continue to fund themselves primarily with relatively low cost and
stable 'core' deposits." But he said "a limited segment of community
banks is increasing its reliance on wholesale sources of funding."
He said, "greater reliance on these sources places a premium on
appropriate measurement and management of liquidity risk." While "most
community banks manage their liquidity risk positions well," he said
"supervisory reviews suggest that some institutions have room for
improvement."
Do Women Make Better Traders? The Difference Between Men and Women 2.0
posted by holdenr on Thursday 9 Mar 2006 07:42 GMT From New York Times -
Gender differences, you can’t live with ’em, you can’t live without ‘em. Luckily, some academic researchers still find the topic important enough and interesting enough to study. A noteworthy case in point is a recent National Bureau of Economic Research working paper by a Stanford economist, Muriel Niederle, and Lise Vesterlund, a University of Pittsburgh economist, titled, "Do Women Shy Away From Competition? Do Men Compete Too Much?"
It is widely noted that women are not well represented in high-paying corporate jobs, or in mathematics, science and engineering jobs. To this list the authors add a new factor: attitudes toward competitive environments. If men prefer more competitive environments than women, then there will be more men represented in areas where competition is intense.
Is there any evidence that men really prefer more competitive environments than women? One could cite anecdote after anecdote, but the authors took a much more direct approach: by using an experiment, the authors were able to determine not only whether men and women differ in their willingness to compete, but more important, whether they differ in their willingness to compete conditioned on their actual performance.
The economists asked 80 subjects, divided into groups of two women and two men, to add up sets of five two-digit numbers for five minutes. The subjects performed the task first on a piece-rate basis (50 cents for each correct answer) and then as a tournament (the person with the most correct answers in each group received $2 per correct answer, while other participants received nothing). Note that a subject with a 25 percent chance of being a winner in the tournament received the same average payment as in the piece-rate system.
All participants were told how many problems they got right, but not their relative performance. After completing the two tasks, the subjects were asked to choose whether they preferred a piece-rate system or a tournament for the third set of problems. There were several interesting findings in this experiment. First, there were no differences between men and women in their performance under either compensation system. Despite this, twice as many men selected the tournament as women (75 percent versus 35 percent).
Even if one accounts for p
Scepticism about growth after Rightmove outshines inflated expectations (FT) By Jim Pickard and Helen Thomas Published: March 11 2006 02:00 | Last updated: March 11 2006 02:00 The advisers to Rightmove were so confident about the property website's flotation that, even a month ago, they were predicting - at least in private - a market capitalisation of up to half a billion pounds. Yesterday, the market backed the group's optimism, pushing the shares from 335p to finish at 392¼p, giving a £497m valuation - which was described by one analyst as "crazy". In public, the company had massaged expectations down, pointing the market towards a figure of closer to £300m. But even that figure was far more than anyone had expected before Christmas for such a fledgling. Even when in January the group reported operating profit of £8.7m for 2005 on turnover of £18m, the £300m valuation still looked astronomical. The success of the launch will provide a £7.6m windfall for the group's trio of founders, Ed Williams, Scott Forbes and Miles Shipside, and much more for owners HBOS, Countrywide, Royal & Sun Alliance and Connells. Last night, the doubters were already out in force. Subscribers to the Interactive Investor bulletin board were sceptical. "It started far too high and it's gone up even further - madness," wrote one yesterday. "Smells of dotcom," said another. Even at the flotation price of 335p, Rightmove was valued at £425m, a multiple of 49 times pre-cost operating profit. By the time the stock market closed yesterday, its market capitalisation was £497m, a multiple of 57. If initial public offering costs and investment in new services are included, the multiple is in the order of 71 times profit of £7m. This is far in excess of the multiples of operating profit achieved by other recent flotations, such as Inmarsat at 13; IG Group at 17; Qinetiq at 18; and Britvic at 7. Looking at the valuation another way - as a multiple of earnings per share of 2.86p - it is on a price/earnings ratio of 136. Even Google, perhaps the internet's greatest success story, is on 67. The Rightmove flotation was thought to be 45 times subscribed, reflecting the fact that only 18 per cent of the company was put to the market. "That has created a big squeeze and people have been suckered in . . . perhaps they are not looking at what they are paying for," said Iain Staples, an analyst at Clear Capital. Fears about the future trajectory of Rightmove's share price hinge around the question of how it will grow. Not everyone is convinced that it can sustain its huge market share of 80 per cent of online property classified advertising in the UK. "Rightmove's competitors are backed by media groups with resources to disrupt its dominant position, limiting price increases and market share," said Mr Staples. Daily Mail & General Trust bought Primelocation.com for £48m in December,having already purchased Findaproperty.com for £13.8m. Rupert Murdoch's News Corporation made the £14.3m acquisition of Propertyfinder.com while Trinity Mirror spent £11.3m on Smartnewhomes.com. Andrew Walsh, a media analyst at Bridgewell, said investors had convinced themselves that internet websites were taking market share from established media. DMGT's failure to find a buyer for its Northcliffe regional papers has reinforced this impression. However, "in relation to property, the logic doesn't quote follow since property advertising for the regional newspapers has been pretty good", Mr Walsh said. UBS, Rightmove's brokers, expect revenue from the existing business to increase from £18m last year to £27m this year and £38m in 2008 - solid but not exponential growth. Total turnover, however, is expected to jump to about £400m, of which £360m would come from Home Information Packs (HIPs), which all home sellers will have to pay for from June 2007. Rightmove wants to sell packs to its existing customer base. Yet UBS expects Rightmove to get only £20m of profit from this business. [TOP
Carlyle puts its faith in UK with £750m fund (FT) By Jim Pickard, Property Correspondent Published: March 10 2006 02:00 | Last updated: March 10 2006 10:13 Carlyle, the US private equity group, is to set up its first UK-only real estate vehicle - with £750m spending power - despite fears from some domestic operators that high returns have become harder to achieve. The group has set up a joint venture with Skelton, a private developer run by Duncan Moss, to buy and develop property throughout the country. The commitment by Carlyle, which has seven real estate funds with $4bn (£2.3bn) of equity across the world, is significant given the belief that the UK commercial property boom may be approaching its peak. Total returns last year hit a record 19.1 per cent, according to the Investment Property Databank, prompting suggestions that the market has become "frothy". Many local companies are instead venturing into mainland Europe in search of better returns. But Carlyle believes there are still many UK opportunities through selective purchases, refurbishments and redevelopments. The new joint venture vehicle has bought two central London buildings, an office block in Mayfair and another in Waterloo that it hopes to turn into a hotel. "I do not see the market falling away, I can say that with conviction," said Robert Hodges, managing director of Carlyle in Europe. "It is expensive but we have seen several opportunities, for example in the City."
Irish Beat Royals, Moguls To Win Posh Properties (FT) By CHRISTINE HAUGHNEY March 15, 2006; Page B6 Irish investors are beating out royal families and other deep-pocketed buyers to snatch up trophy buildings in some of the world's most expensive real-estate markets. They outbid Ralph Lauren for the Manhattan mansion where the fashion mogul houses his flagship store. They grabbed a collection of London hotels once coveted by Saudi Prince Alwaleed bin Talal. And they bought Gap Inc.'s flagship store along Chicago's North Michigan Avenue. Buoyed by Ireland's booming economy after its entry into the European Union and tax incentives that have drawn business to the island nation, Irish investors are directing much of their newfound wealth into real estate. They also are increasingly looking abroad, because almost any market offers better real-estate investment returns than at home. So many Irish investors are chasing hometown deals that initial returns -- or the return on the property if it were resold shortly after the purchase -- on properties in Dublin have shrunk to as low as 2%, among the world's lowest levels. Last October, five bidders engaged in a 10-minute auction for a 4.95 million ($5.92 million) building in downtown Dublin that generated 1.65% in annual income. The amount of Irish money invested in foreign real estate jumped to $8.5 billion in 2005 from $1.5 billion in 2001, according to data tracked by brokerage firm CB Richard Ellis in Ireland. "When you think of the population size of the country, they're exporting an enormous amount of wealth into real estate," says Robert Orr, a international director in London for Jones Lang LaSalle Inc. "They're punching well above their weight for the size of their economy." To be sure, the total of Irish investment remains dwarfed by much larger foreign buyers such as the U.S. and Australia. Even the Germans, who are struggling with scandals involving their open-ended real-estate funds, buy more foreign real estate than the Irish. Last year, the Irish bought $410 million in U.S. properties, while Germans bought $3.9 billion and British investors spent $920 million, according to research firm Real Capital Analytics Inc., based in New York. "The Irish made less than 20 deals. But the prices of the deals are astounding. They're buying the most expensive properties," says Robert White, Real Capital's president. Sales brokers say the prices the Irish are paying abroad aren't as high as the prices historically paid by Japanese investors in Manhattan. Some Japanese investors still are trying to unload real estate they purchased in the 1980s. "The Japanese, when they came into the market, were paying prices that were paradigm shifts," says Woody Heller, head of the capital transactions group in Studley Inc.'s Manhattan office who brokered the sale of the Ralph Lauren mansion in Manhattan last year. "You don't see [the Irish] paying prices that are wildly out of scale." Irish investors started to attract attention in 2004, when Derek Quinlan, a former tax inspector and now head of the firm Quinlan Private, beat out the Saudi prince to buy for a group of wealthy Irish investors the posh Savoy chain of four London hotels for 750 million ($1.3 billion). Less than a year later, he sold one of the hotels for a 30 million profit. Months later, he outbid the Abu Dhabi royal family for the coveted Knightsbridge Estate retail property in London between department stores Harrods and Harvey Nichols. While Mr. Quinlan admits that these types of properties may offer initial returns of less than 4%, he views them as more stable than stocks or bonds. "See that, you can touch it," he said in a January interview while rapping on a restaurant windowsill at Manhattan's Four Seasons Hotel. "It can never be replaced." In the past two years, dozens of syndicates of wealthy Irish investors have followed. In 2005, private Irish investors bought two office towers in London's Canary Wharf and a Unilever building in Greenwich, Conn. Many Irish have poured their money into real estate in the past decade because it has been an attractive investment during the time they accumulated much of their wealth. Moreover, as interest rates have remained low, real estate has offered higher returns. "There is a view that bricks and mortar you can touch, feel and control much better than stocks," says Pat Gunne, a managing director in Dublin with CB Richard Ellis. [TOP]
Morgan Stanley's Carrafiell Warns Over Property (Bloomberg) 2006-03-15 09:43 (New York) By Peter Woodifield March 15 (Bloomberg) -- Some investors seeking to benefit from the global boom in real estate are going to make ``huge mistakes'' by failing to differentiate between prime and secondary properties, said John Carrafiell, co-head of real estate at Morgan Stanley. The search for yield will result in investors making mistakes buying weak properties in weak markets, Carrafiell today told delegates at MIPIM, the world's largest real-estate conference at Cannes in southern France. ``People will end up in tears in a lot of the deals they are doing today, Carrafiell said. ``People are going to make huge mistakes.'' Carrafiell's comments came as brokerages Jones Lang LaSalle Inc. and CB Richard Ellis Group Inc. both reported record levels of investment in 2005. Global investment in shops, offices and industrial properties rose 21 percent to $475 billion last year, with an additional $120 billion spent buying multi-let residential apartment blocks, Jones Lang said at MIPIM today. The people who would make mistakes were those who didn't know enough about what they were buying, Carrafiell, who has been based in London since 1989, said in an interview. Carrafiell, 41, pointed to the number to property companies that have gone public in London since the start of last year. He declined to be more specific. Almost 30 companies trading in London have sold shares to investors since the start of 2005, with about a third planning to invest in former communist Europe. Structural Change Real estate is undergoing structural change as an asset class, having been in a backwater for many years, as yields fell to record lows, said Carrafiell. Yield is calculated by dividing the income of an asset by its price. ``On a relative basis I am not sure you can fault investors for moving into real estate when you consider the yields on cash, stocks and bonds,'' he said. Carrafiell said he wouldn't be surprised to see real-estate yields fall by another 50 basis points to 100 basis points as institutional investors sought to double their asset allocation to property. One basis point is 0.01 percentage points. The issue for investors and real-estate companies from 2007 would be to ``own and control people who can add value to the bricks and mortar,'' said Carrafiell. ``The next 12 months feel really good.'' Morgan Stanley oversees $40 billion of real-estate assets for clients. Carrafiell and Jay Mantz were appointed co-heads of real estate in December following the appointment of Owen Thomas as head of asset management. Commercial real-estate investment increased at an even faster pace in the 15 countries that share the euro than it did globally, according to Los Angeles-based CB Richard Ellis. Investment in the eurozone rose to 141.7 billion euros ($170.6 billion), with about half in the U.K., said Nick Axford, head of European research. [TOP]
Property Investment Sets Global, European Records (Bloomberg), Agents Say 2006-03-15 06:25 (New York) By Peter Woodifield March 15 (Bloomberg) -- Global commercial real-estate spending rose 21 percent to a record $475 billion last year as investors put more money into property instead of stocks and bonds, according to brokerage Jones Lang LaSalle Inc. In another report, CB Richard Ellis Group Inc. said investment in the 15 countries sharing the euro rose 40 percent to 141.7 billion euros ($170.6 billion) in 2005. The agents, the world's two largest property advisers, issued the figures today at MIPIM, the world's largest property conference, taking place in Cannes, France. ``As allocations to international real estate grow, opportunistic capital is increasingly targeting the shores of recovering and emerging markets,'' Tony Horrell, head of Jones Lang LaSalle's international capital group, said at a press briefing. Investors are putting more money into real estate to cut risk and diversify beyond stocks and bonds. Property is the only U.K. asset class to make money for investors every year since 1992, and international investors are targeting countries such as Germany and Japan, where real-estate prices have not kept up with global gains. Total global real-estate investment, including $120 billion spent buying large residential apartment blocks, was $595 billion last year, 8.2 percent ahead of the $550 billion that Jones Lang had estimated in the middle of the year, said Horrell. Investment rose 17 percent in the U.S. to $216 billion, 19 percent in Europe to $191.4 billion, and 43 percent in Asia to $67.5 billion, said Chicago-based Jones Lang LaSalle. Uncommitted Capital ``Demand for property remains strong,'' Nick Axford, head of research in Europe for Los-Angeles based CB Richard Ellis, told reporters at a briefing. ``Many investors were still left with uncommitted investment capital. Turnover could increase further in 2006.'' Spending on European commercial real-estate has doubled in the past five years, said Axford. Investment in offices, malls and shops in London and Paris alone represented more than a third of spending in European countries, he said. Cross-border investment accounted for 38 percent of European transactions in 2005, up from 31 percent a year earlier, said Axford. Global cross-border spending, led by U.S. and Australian buyers, rose 44 percent to $164 billion, said Jones Lang LaSalle. The U.S., the U.K., Germany France and Sweden accounted for 80 percent of all inter-regional purchases. There was a net inflow of $7.8 billion into the U.S. from international buyers, with a net $6.2 billion flowing into the U.K. and $4.7 billion into Germany, said Jones Lang.
Glasgow speculation points to confidence (FT) By Andrew Bolger,Scotland Correspondent Published: March 20 2006 02:00 | Last updated: March 20 2006 02:00 The launch of Glasgow's biggest speculative commercial property for more than 50 years is the latest sign of growing confidence in the future of the city's international financial services district (IFSD). The £40m Aurora building, which has 176,982 sq ft of grade-A accommodation, was developed by Commercial Estates Group an "an exceptional city centre building that will equal any in London, or indeed Europe, in terms of design and specification". The company cheekily hammered home its pointby advertising the Auroraon a spoof website, www.andnotinlondon.com. The IFSD is being developed at the Broomielaw, aformerly run-down section of the Clyde's north bank,close to the city centre, asa business area that can offer fast-track occupancy to UK or overseas financial organisations seeking anew location for their operations. The ambitious project got off to a shaky start because it was launched in August 2001 - just before theSeptember 11 attack onthe World Trade Center caused many financialinstitutions to postponestrategic decisions such as relocation. However, to date more than £450m has been spent on providing the Broomielaw area with more than 1msq ft of grade-A office space - more than any other cityin the UK outside ofLondon. There is 120,000 sq ft still under construction and planning permission has been granted for a further 1.4m sq ft. The partnership of the Glasgow arm of Scottish Enterprise, the development agency, Glasgow City Council and Strathclyde Passenger Transport has so far worked with private sector companies to attract more than 4,500 jobs. The IFSD was recently commended by the Chicago-based International Economic Development Council as an outstanding example of public and private partnership. It was also named the best commercial-led regeneration project in the UK at the 2005 UK Regeneration Awards. Ryden, the commercial property consultancy, says market sentiment in Glasgow's office sector continues to be upbeat with strong occupied demand and healthy inquiry levels. The take-up level of office space in the year to September was 1m sq ft - substantially above the city's long-term average and almost double the previous 12-month period. There will be a gap of12 months before the next new-build city centre building completes, accordingto Ryden, which saysmarket dynamics aremoving in favour of landlords. It forecasts grade-A headline rents will increase from about £21.50 to £23 per sq ft to £23 to £25 for best-quality accommodation. Companies that have moved in the IFDS since its inception include Morgan Stanley, Esure, Lloyds TSB, Clydesdale Bank, Aon and Direct Line, the Royal Bank of Scotland's general insurance arm. JPMorgan recently announced it would create a further 100 jobs at itsGlasgow-based European technology centre, which designs and develops systems to support the US-based bank's financial services operations around the world. The group already employs 600 people - double the number that it expected to when it moved to the IFSD in 2001. JPMorgan said Glasgow, which was a key location for the bank globally, continued to provide it with access to a highly talented and skilled workforce. The IFSD can certainly claim access to an impressive labour pool, with 1.4m potential staff living within 45 minutes of the area, which is close to motorways, railways terminals and Glasgow Airport. There remains some sceptics about Glasgow's claims to be a significant financial centre. Although eight of the UK's 10 largest general insurers have a presence in thecity, it is Edinburgh that hosts the headquarters of the biggest Scottish-based banks, RBS and HBOS, and the capital also dominates the fund management scene - a situation not helped when Abbey moved themanagement of £27bn of funds away from Glasgow in 2004. Glasgow has succeeded in attracting many call-centre and back-office administration jobs but there is still nervousness that such work could prove easy to move offshore in the longer term. The IFSD has spread the risk by welcoming a variety of public sector tenants, including the Crown Office and Scottish Qualifications Authority. BT, Hymans Roberston, the actuary, and theAssociation of Chartered Certified Accountants have all moved into thedistrict but the development arguably still lacksa high-profile "anchor tenant". James Scott, managing director of the London-based Commercial Estates Group, said he was talking to several potential tenants for the Aurora building, which could house up to 1,750 employees. Mr Scott said demand was very positive, although a multi-let was a more likely outcome than one singletenant. [TOP]
Pricey Peripherals (FT) March 15, 2006; Page B4 Despite signs of a housing-market slowdown, the number of areas in the U.S. rated as "extremely overvalued" continues to climb. And in addition to the usual suspects on both coasts, some peripheral markets are getting more pricey. According to Global Insight/National City's quarterly housing valuation analysis, 42% of the U.S. housing market was overvalued and at risk for a price correction during the fourth quarter of 2005. The study analyzed 299 metro areas in the U.S., which account for 76% of all single-family housing units. The number of extremely overvalued markets increased to 71 from 61 in the third quarter. California and Florida had the highest concentration, accounting for 18 of the 20 most overvalued metro areas. But in terms of markets that had the biggest valuation increases during the quarter, Bend, Ore., had the second-highest increase after Naples, Fla., growing 13% from the earlier quarter. Boise City, Idaho, and St. George, Utah, also had substantial valuation increases. Richard DeKaser, chief economist at National City Corp., says the findings show equity-rich homeowners are cashing out of places like California and moving to such secondary markets in Oregon and Idaho. The analysis deems markets that are overvalued by 30% at risk for price corrections based on the typical degree of overvaluation that preceded the 63 market price declines observed since 1985. Houston Magic? Canyon-Johnson Urban Funds, the Los Angeles-based partnership featuring former basketball great Earvin "Magic" Johnson, is adding a 360,000-square-foot Houston entertainment complex to its growing list of turnaround projects. The partnership is acquiring the troubled Marq*E Entertainment Center on Houston's near west side from Chicago-based ORIX Real Estate Capital Inc. for about $50 million. The deal is the first in Houston for Canyon-Johnson, a joint venture between Canyon Capital Realty Advisers and Mr. Johnson's Johnson Development Corp. Canyon-Johnson has about $1 billion committed to projects in Los Angeles, Chicago and Atlanta, among other U.S. cities. Canyon-Johnson is tackling a project in a dense, ethnically diverse area that has been buffeted by freeway expansion and crime. In recent weeks, police have reported a fatal shooting in the entertainment-center parking lot. Canyon-Johnson says it intends to add a police storefront to boost security and fill some 35,000 square feet of vacant space. 'I Double-Dare You' In a hot office market like Bellevue, Wash., developers should be elbowing each other out of the way to get new buildings started. And indeed, it looked like that would happen this year. No fewer than six developers announced plans to construct office buildings in this suburb where rental rates are slightly cheaper than in nearby Seattle. Vacancy in the Bellevue submarket has dropped to 8.8% from 14.8% in just one year, according to Colliers International Inc. But these developers can do the math and have realized that if the six proposed buildings were built, three million square feet of office space would come online in a market with only six million square feet now. So it's become a game of dare, with no developer actually starting construction. "It's interesting to see who is going to go first and see what will get done, because they could easily overbuild the market overnight," says Craig Hill, senior vice president and managing director for Grubb & Ellis in Seattle. Of the six buildings, only Lincoln Square, owned by Kemper Development Co. of Bellevue, has hooked a tenant. Outdoor sportswear company Eddie Bauer is relocating its headquarters from nearby Redmond. Odds are that Lincoln Square will go forward sometime in the second quarter [TOP]
Kerzner Agrees to Buyout Offer Topping $3 Billion (WSJ) By PETER SANDERS March 21, 2006 Casino operator Kerzner International Ltd. agreed to be acquired by a consortium of private-equity concerns for $3 billion in cash plus the assumption of $599 million in debt. The consortium, including Kerzner Chairman Sol Kerzner and his son, Butch Kerzner, the company's chief executive, agreed to pay $76 a share for the Bahamas-based casino company, an 8% premium to the stock's Friday closing price. The company operates its flagship Atlantis properties in the Bahamas and soon in Dubai, as well as the ultraluxury "One&Only" hotels in exotic destinations around the world. Kerzner International also receives income from the Mohegan Sun tribal casino in Connecticut, which it developed, and has a large casino at its Atlantis property in the Bahamas. If successful in their buyout attempt, the Kerzners would see their ownership stake rise to about 25% from about 10%, Butch Kerzner said in an interview. Kerzner officials insist they "will actively solicit superior proposals during the next 45 days," but the proposed deal represents a multiple of about 19 times last year's earnings, according to a person familiar with the situation. "On a multiple basis, this is a rich price," that person says. Butch Kerzner, 42 years old, said that, to be completely forthright with investors, the company will entertain other offers at a higher price by conducting a "full auction" during the next 45 days. He added that "in certain circumstances, we would vote our shares in favor if there is a higher offer." But he expects the buyout to go through and "looking at the horizon, we want it not just to be an investment, but my father and I want to have a strategic stake in what we want to do." Another person familiar with the situation said two of the four members of a special committee formed to examine the proposed deal are shareholders with a combined 14% of the stock. That person said both members have agreed to sell their positions at the proposed price. If completed, the deal is expected to close sometime later this year. Investors reacted positively to the news, driving the stock up 13%, or $9.07, to $79.43, above the $76 offer price, in 4 p.m. composite trading yesterday on the New York Stock Exchange. Private-equity partners in the deal include major shareholder Istithmar, a closely held entity controlled by the government of Dubai that already owns about 12.3% of the company; Colony Capital LLC; Whitehall Street Global Real Estate Ltd.; Providence Equity Partners Inc. and The Related Companies L.P. The proposed deal is another in a frenzy of activity focused on the hotel and casino industry. Last week, casino operator Aztar Corp. agreed to be acquired by rival operator Pinnacle Entertainment Inc. for about $1.45 billion. Last month, Hilton Hotels Corp. completed its roughly $5.7 billion acquisition of its international counterpart. And in January, Fairmont Hotels & Resorts Inc. agreed to be acquired by a Canadian company and Colony Capital for about $3.3 billion. But the proposed deal would be the first in recent memory that would see a hotel company taken private. Mr. Kerzner insists it will be "business as usual" for his company, which competes at the high end in both the casino and hotel world with major players such as Harrah's Entertainment Inc. MGM Mirage, Starwood Hotels & Resorts Worldwide Inc., Marriott International Inc. and others. "We're not looking at this as a typical leveraged buyout," Mr. Kerzner said. "We've grown this company over time, and we will be investing more money in the business, not stripping out cash." In 2004, 81% of Kerzner's revenue came from its megaresort in the Bahamas. Last year, the company pushed forward with a major expansion of its Atlantis property in the Bahamas, which will compete with a newly announced project by Harrah's and Starwood slated for a site nearby. The company is in the continuing race to secure one of two new casino licenses in Singapore, which would see the winner build a multibillion-dollar resort destination there in the coming years.
[TOP]
Kimco Buys Puerto Rico Shopping Centers for $448 Mln (Bloomberg) 2006-03-20 16:24 (New York) By Daniel Taub March 20 (Bloomberg) -- Kimco Realty Corp. agreed to buy stakes in seven shopping centers in Puerto Rico for $448 million, its first investment in the region. Kimco, the largest U.S. owner of community shopping centers, will pay $97 million in cash, $20 million in partnership units convertible into Kimco common stock and $184 million in other partnership units. The transaction also includes the assumption of $147 million of mortgage debt, the New Hyde Park, New York-based company said today in a statement. Kimco, which owns sites in 44 U.S. states, Canada and Mexico, has been expending its holdings. The company in December agreed to buy Atlantic Realty Trust for $82.5 million and is part of a group that agreed in January to purchase grocery chain Albertson's Inc. for $9.8 billion, mainly for its real estate. The Puerto Rico properties are about 97.5 percent occupied, Kimco said. Tenants include Home Depot, Sam's Club and JC Penney. Kimco shares fell 78 cents to $38.80 in New York Stock Exchange composite trading. They have gained 44 percent in the past year, more than the 29 percent increase in the Bloomberg Real Estate Investment Trust Index. [TOP]
Asian Commercial-Property Investing Surges (WSJ) By CRIS PRYSTAY March 22, 2006; Page B4 SINGAPORE -- Investment in Asian commercial real estate last year jumped 46% from a year earlier to US$67.5 billion, driven by a 56% increase in cross-border property investment by Asian and foreign buyers to almost $20 billion, according to a new report by Jones Lang LaSalle Inc. Total global investment in office, retail, industrial and hotel properties rose about 25% to $475 billion in 2005, and North America remained the largest investment destination, the real-estate-services firm said. But the Asian market grew much more quickly. And Jones Lang LaSalle expects investment to increase sharply again this year, driven by interest in Asia from U.S. and European developers as well as property- and pension-fund managers looking to foreign markets for growth. Jones Lang LaSalle predicted China, Japan and India will be the most popular investment targets. "We think there'll be a sustained rise -- there's so much demand," said Guy Hollis, director of the Asian-Pacific capital group at Jones Lang LaSalle, who predicted prices will continue to climb. "Everybody wants to buy Asian real estate." The price of prime office space rose 5% in Tokyo in 2005, 4% in Mumbai and 23% in Shanghai's Pudong-Puxi district, Jones Lang LaSalle estimates. Prime retail-property prices in these key cities rose even more quickly, increasing 29% in Mumbai and 40% in Shanghai. American investors, largely through property funds managed by investment banks like Goldman Sachs Group Inc. and Lehman Brothers Holdings Inc., were the biggest foreign investors in Asian commercial property last year. Within Asia, Australian and Singaporean investors -- notably Macquarie Bank Ltd. and the Government of Singapore Investment Corp.'s real-estate fund -- were among the largest intraregional investors. The Singapore government fund, GIC Real Estate Pte. Ltd., in September invested $600 million to buy an 80% stake in a Japanese property fund managed by industrial-warehouse giant ProLogis, a Denver-based real-estate investment trust. GIC Real Estate also paid 12 billion yen ($103.3 million) to Los Angeles-based Colony Capital LLC for three serviced apartments in Tokyo in March 2005. In February 2005, it bought a 57,000-square-meter shopping mall in northern Japan for an undisclosed sum. Australians, who invested heavily in the U.S. last year, have emerged as one of the world's biggest property buyers. Australian investors accounted for 14% of the world's cross-border purchases of commercial property last year -- on a par with American investors, according to Jones Lang LaSalle. Their rapid expansion into global property markets has been driven by a growing pool of money under management, as Australians sock more savings into pensions and mutual funds. Asia is high on Australian investors' list again this year. Macquarie has been snapping up industrial, retail and office properties in China and is planning to launch some real-estate investment trusts in Hong Kong. "When we speak to them, we hear there's going to be more, there's no question about that," said Mr. Hollis. India will be another big draw for funds and developers, Jones Lang LaSalle predicts. During the past year, the government has relaxed regulations to allow foreign property investment -- previously confined to hotels, large industrial parks and integrated townships more than 40 hectares in size -- in projects as small as 10 hectares. Japan's sustained economic recovery, meanwhile, has also given rise to a real-estate boom that is likely to continue. There is, however, a shortage of buying opportunities: Local real-estate investment trusts and developers aggressively bought whatever they could last year, leaving slim pickings for foreign buyers. China offers more opportunities this year, according to Margaret Ng, director of Asia research at CB Richard Ellis. "The country is bigger, and there's just more to buy," she said. "It's also easier to get into China now because of credit control -- a lot of developers need funds to build projects, so it's easy to get a local partner." CB Richard Ellis estimates the price of prime office space in Tokyo will rise 8% to 10% in 2006 and that prices in Shanghai will rise 6% to 8%.[TOP]
Hillary Forecast Update
EWT has been forecasting that the Democrats will win the presidential election in 2008, probably
by a landslide. While the specific person is less predictable at this time, I still expect Hillary Clinton to
be the next U.S. president. A recent CNN-Gallup poll makes such an event seem all but impossible:
CNN-Gallup Shock Poll: Only 16% Firm on Hillary for President
Most voters now say there’s no way they’d vote for Sen. Hillary Rodham Clinton if she runs for
president in 2008 - while just 16 percent are firmly in her camp, a stunning new poll shows. CNNGALLUP
found that 51 percent say they definitely won’t vote for Clinton (D-N.Y.) in 2008, another 32 percent
might consider it, and only 16 percent vow to back her. That means committed anti-Hillary voters outnumber
pro-Hillary voters by 3-1. The poll suggests she can forget about crossover votes - 90 percent of Republicans
and 75 percent of conservatives say there’s no way they’d back her.
8
The Elliott Wave Theorist -- March 21, 2006
That’s strong language, and maybe she can’t overcome these sentiments. But a socionomic
perspective takes into account probable future trends in social mood. It was therefore intriguing to
find this article, from February 5:
GOP Chairman: Hillary Shows Lot of Anger
Democratic Sen. Hillary Rodham Clinton, a potential presidential contender in 2008, “seems to have
a lot of anger” and voters usually do not send angry candidates to the White House, the Republican Party
chairman said Sunday. “When you think of the level of anger, I’m not sure it’s what Americans want,” said
Ken Mehlman, head of the Republican National Committee. Mehlman cited the New York senator’s remarks
on Martin Luther King Day in which she called the Bush administration “one of the worst” in history and
compared the Republican-controlled House to a plantation where opposing voices are silenced. “I don’t
think the American people, if you look historically, elect angry candidates. And whether it’s the comments
about the plantation or the worst administration in history, Hillary Clinton seems to have a lot of anger,”
Mehlman told ABC’s “This Week.”
It is surely correct that the public is not traditionally attracted to angry candidates. But when
times are bad, angry candidates win. Huey Long thrived during the Depression. Adolph Hitler took
power in a depression. Anger sells in a bear market, and anger is rampant now. The New York Times
reports (see below), “Hair-Trigger Tempers Spur Crime Surge,” and describes a rise in homicides
committed in U.S. cities out of anger. Says the Milwaukee police chief, “We’re seeing a very angry
population.” If stocks turn down hard, anger will be the perfect campaign strategy, and Hillary’s
natural disposition will be an asset.
Hair-Trigger tempers spur crime surge
Sunday, Feb. 12, 2006
By KATE ZERNIKE
Milwaukee—One woman here killed a friend after they argued over a brown silk dress. A man killed
a neighbor whose 10-year-old son had, mistakenly used his dish soap. Two men arguing over a cellphone
pulled out their guns, police say, and a 13-year-old girl was killed in the crossfire.
While violent crime has been at historic lows nationwide and in cities like New York, Miami and Los
Angeles, it is rising sharply here and in many other places across the country.
And while such crime in the 1990s was characterized by battles over gang and drug turf, police say the
current rise in homicides has been set off by something more bewildering: petty disputes that hardly seem
the stuff of fistfights, much less gunfire or stabbings.
Suspects tell police they killed someone who “disrespected” them or a family member, or who was
“mean-mugging” them, which police translate as giving a dirty look. And there are more weapons on the
streets, giving people a way to act on their anger.
Police Chief Nannette Hegerty of Milwaukee calls it “the rage thing”.
“We’re seeing a very angry population, and they don’t go to fists anymore, they go right to guns,” she
said. “A police department can have an effect on drugs or gangs. But two people arguing in a home, how
does the police department go in and stop that?”
In Milwaukee, where homicides jumped from 88 in 2004 to 122 last year, the number classified as
arguments rose to 45 from 17, making up by far the largest category of killings as gang and drug murders
declined.
In Houston, where homicides rose 24 percent last year, disputes were by far the largest category, 113
out of 336 killings. Officials were alarmed by the increase in murders well before Hurricane Katrina
swelled the city’s population by 150,000 people in September; police say 18 homicides were related to
evacuees.
In Philadelphia, where 380 homicides made 2005 the deadliest year since 1997, 208 were sparked by
disputes. Drug-related killings, which accounted for about 40 percent of homicides during the high-crime
period of the early 1990s, accounted for just 13 percent.
9
The Elliott Wave Theorist -- March 21, 2006
“When we ask, ‘Why did you shoot this guy?’ it’s ‘He bumped into me; ‘He looked at my girl the
wrong way;” said Police Commissioner Sylvester Johnson of Philadelphia. “It’s not like they’re riding
around doing drive-by shootings. It’s arguments—stupid arguments over stupid things.”
Police say the suspects and the victims tend to be black, young—midteens to mid-20s—and have
previous criminal records. They tend to know each other.
While arguments have always sparked a large number of homicides, police say the trigger point now
comes sooner.
“Traditionally, you could see the beef growing and maybe hitting the volatile point,” said Daniel
Coleman, commander of the homicide unit in Boston. “Now we see these things, they’re flashes, they’re
very unpredictable. Even five years ago, in what started as a fight or dispute, maybe you’d have a knife
shown. Now it’s an automatic default to a firearm.”
The neighborhoods with the most murders tend to be the poorest.
Police Chief Jim Corwin of Kansas City said that in the hardest-hit neighborhoods, people had explained
the motivation as a “lack of hope.”
Meanwhile, Hillary’s profile has gone up a notch. Madame
Tussaud’s in New York has just recognized her as a public persona
alongside Elvis, Einstein and Bill Gates. Look carefully and see if you
can read the sign behind her head.
Although the vast "space markets" out there are performing a lot better (occupancy rates continue to rise and many real estate owners are now enjoying a bit of pricing power), REIT share prices are being driven this year not by fundamental factors but by the voracious appetites of institutional investors, often manifested in the form of buy-out offers even for REITs holding middling assets. The prices being offered in these deals are demonstrating that sell-side (and perhaps even buy-side) NAV estimates remain too low.2 All right, let’s assume that REIT stocks have been "too cheap" compared with commercial real estate, and that the market is now adjusting to this reality. But let's step back for a moment and consider whether there may nevertheless be a few near-term danger signs lurking out there. On purely a valuation basis, I can justify today's private market real estate pricing, where the buyer of a quality real estate asset can realistically expect an unlevered internal rate of return (IRR) of about 7%, based on a nominal cap rate of something like 6%, modest increases in net operating income, and after incurring normal recurring capital expenditures which never show up in nominal market cap rates. This is a much more modest return than has been the case for many years, but compares reasonably well with a realistic return expectation on equities of about 7-9% annually, particularly when adjusted for risk, and vs. the returns on intermediate-grade long-term bonds (about 6.25%), with less risk but no upside. Accordingly, I don't think that commercial real estate is valued too richly today and, as REIT stocks now trade at an average NAV premium of about 8% (pretty much in line with the average over the past dozen years), REIT stocks aren't terribly "expensive" vs. commercial real estate. But I am concerned about a few incipient signs of investor giddiness that have surfaced recently. Consider: a. Jim Cramer is a bright – and colorful – guy, and certainly boasts a legion of fans. But because he is just plain wrong on many of his calls (and is no REIT expert), it was a bit unnerving that his recent “buy” recommendation on Education Realty Trust (EDR) caused the stock to rocket 8.1% on the date of his recommendation. That’s close to the return that most investor in EDR expected for the entire year. Do I detect a whiff of irrational exuberance? b. There is speculation in Reitdom of a type we haven't seen in quite some time. Buy-out candidates such as Associated and Aimco have outperformed most of their more widely-respected brethren, e.g., Archstone and Equity Residential, even though there is no solid information that would point to the former being acquired. When Felcor announced that it wouldn't be attending the Solomon Smith Barney CEO's conference two weeks ago, its stock shot up almost 5% -- purely on speculation that it was negotiating some kind of deal. If this isn't a sign of froth, then Pat Buchanan isn’t a social conservative. c. Where are all the articles in Barron's, Forbes, Money, Kiplinger's, et al., which claim that REITs are overvalued and that investors should bail? Where are all the "sell" or "underweight" recommendations from the sell-siders? We have been bombarded with these poorly-reasoned screeds throughout 2004 and 2005, but the present environment is notable by their absence. Have the bears capitulated? Has the “wall of worry” been surmounted? Overconfidence and complacency are tricky elves that enjoy tripping up bull markets.
continued:
d. How much of the institutional capital that's been given to middlemen such as Morgan Stanley et al with orders to "go out and buy us a REIT" derives from long-term strategic objectives, and how much is due to the fear of being the last kid on the block to be fully invested in commercial real estate? These money flows, as we know, can dissipate at any time, particularly when, as now, capital is being flung all over the globe in search of the highest returns – often based upon very short-term time horizons. e. In case nobody has noticed, interest rates have been moving up on the long end of the yield curve, not just the short end. The yield on the 10-year T-note recently hit its highest level since about 20 months ago, before pulling back a bit in recent days. Some REITs are seeing their bottom lines shrink with higher interest rates, and the value of commercial real estate as an asset class is at some risk when rates (particularly on the long end of the yield curve) rise significantly. So far, we've not seen any firming of cap rates in the private markets, but it
2 The offer for Carr America, however, was only 4% above Green Street's NAV estimate. 2
stretches the imagination to think that caps won't be negatively affected if long-term rates continue to grind higher and move above 5%. The bottom line, for me, is that I see increasing short-term risk in the REIT market, and wouldn't at all be surprised to see a correction of 5-8% or so begin at any time.3 Longer-term, I am as bullish as ever on REIT stocks, and believe that we are just in the 3rd inning of a new ballgame which is transforming the way in which investors – both institutional and individual – view commercial real estate (and REITs) as investments. So the wind is still at our backs. However, in case any of you long-term investors care, I think the risk of a short-term pricing squall is higher now than it's been in quite some time – perhaps we are in the midst of one as I put the finishing touches on this issue of the newsletter. But let’s keep our perspective. Some uncomfortable near-term stock price performance, perhaps shaking out the traders, momentum investors and hedgies, will be a significant positive for REIT investors, as it would kill off the modest amount of speculative fervor I observe at the present time, and would remind all of us that there is market risk in any asset class other than 3-month T-bills. And, of course, it would provide the REIT Faithful with better returns on our new investment dollars. Indeed, I would be more concerned should REIT prices spiral higher over the next few weeks in the absence of any fundamental change in the prospects for commercial real estate or changes in interest rates.
The psychology of the times is always interesting. I happen to think that the US is in an all-around gambling mode. We're gambling in our "great empire" mode, we're gambling in Iraq and Afghanistan, We're gambling with our outlandish negative current account balance, we're gambling with our stupifyingly expensive military, we're gambling with our increase in liquidity. And on the consumer front, Americans are gambling with the greatest real estate bubble in history.
So it's not surprising to see that Americans are also gambling with the growth of gambling. The the Dow Jones US Gambling Index shown below attests to what I've just written. Below we see the Gambling Index on its rise to its current overbought level. The fastest growing large city in the US is now Las Vegas, America's "gaming" center. Here in California the landscape is dotted with what I call "the Indians' revenge," Indian-owned gambling casinos. The American urge to get rich without working has overtaken the nation.
What ever happened to the old American habit of growing wealth through thrift, saving and compounding? Say what?
Money Central reports: In case you've been hiding under a rock, or they cut the power to your double-wide last night, we just thought you guys should know that Warren Buffett, the world's second richest person, is making a long-term bet on global stock markets – which could cost him up to $14bn. Berkshire Hathaway, the insurance and investment giant run by Mr Buffett, has sold clients insurance protection against a drop in four equity indices.
If the indices, three of which are non-US, fall by 30 per cent over the 15-20-year life of the contracts, Berkshire would incur a pre-tax loss of about $900m. It has a maximum exposure of $14bn. The contracts, revealed in a regulatory filing, are unusual not just for their size, but also their duration.
Buffett is known for taking a long view and for using Berkshire Hathaway's huge balance sheet to offer insurance against large – but very unlikely – risks.
Analysts said the purchasers of the index contracts were probably pension funds that wanted to increase their potential long-term returns by holding more equities but needed protection in case of a stock market meltdown.
In the filing, Berkshire Hathaway did not disclose any more detail about the contracts, including the premiums it would receive or the level the indices must fall below before it made a pay-out.
Alpha Dreaming: Hedge funds eye property investments
posted by holdenr on Thursday 6 Apr 2006 07:12 BST
From Reuters - see full story
Did someone say less liquid? Hedge funds are beginning to invest in property as part of a move into new assets, Nils Tuchschmid, head of multi-manager portfolios at Credit Suisse, said yesterday.
Speaking at the Reuters Hedge Funds and Private Equity Summit in London, Tuchschmid said some hedge funds, looking for assets uncorrelated to those already in their portfolios, favour property for the security it can offer.
"Hedge funds are looking for new alphas (returns irrespective of the effects of market movements) ... In the U.S. you're starting to see hedge funds finance the development of a property," he said.
"If anything goes wrong, they can get the property, no question. But there is an issue of whether they are becoming a real estate boutique ... There aren't so many real estate hedge fund managers in the industry, but it will come."
The hedge fund industry has seen opportunities for investment returns in some asset markets, for instance convertible bonds, eroded as new players and new money entered the sector. This has persuaded some hedge funds to invest more in assets such as property, which has been a strong performer in recent years and which can offer a high yield.
A better return than our Chateau de Lewisham - Blanc? This we have to see...
5. Panel “Investor Roundtable”, including several buy-side equity portfolio managers
The majority of the panel members expressed optimism on the direction of REIT
equity pricing over the next twelve months. The lone dissenter agreed that real estate
fundamentals will likely improve over the next twelve months, but he believes the
valuation is too rich. Another portfolio manager noted that while valuation of REIT
equities may seem high, he does not see any reason for weakness given the
accelerating fundamentals of the REIT business, which is a recipe for multiple
expansion.
Other reasons for the optimism regarding REIT equity pricing include the “wall of
money” currently thrown at REITs as well as the advent of exchange-traded funds
“ETFs”. The development of ETFs has given hedge funds the opportunity to make
Mark Streeter, CFA (1-212) 834-5086
mark.streeter@jpmorgan.com
Tarek Hamid (1-212) 834-5468
tarek.x.hamid@jpmorgan.com
Joel Hawkins (1-212) 834-9324
joel.r.hawkins@jpmorgan.com
North American Credit Research
REITs
Apr 7, 2006
6
plays on the sector without having to get into the details of specific companies’
stories.
Several panel members discussed a secular change in real estate pricing due to lower
return requirements among the investing community. One portfolio manager stated
that REITs will continue to attract capital as long as REITs offer total returns that are
fair relative to fixed income and other corporate equity returns. Others stated that
private equity capital entering the market has been driving REIT returns and that this
form of capital will cease to enter the market when private equity players no longer
meet their return thresholds in order to earn their promote.
Several panelists expect the amount of information available today versus fifteen
years ago to help mute the peaks and troughs of real estate cycles by controlling the
supply side of real estate economics. Another panelist disagreed with this
assessment, stating the only reason we have not had a problem with oversupply thus
far in this cycle has been rents have not been strong enough to encourage
development. We agree with the former, not latter, comments here.
6. Panel “The View from 10,000 Feet”, including Samuel Zell, Steven Roth, and
William Mack
Mr. Mack expressed cautious optimism regarding the current cap rate environment
while Mr. Zell and Mr. Roth both expressed confidence in the sustainability of lower
cap rates. Mr. Zell specifically stated that one reason he sees continued strength in
cap rates is the demand for investment-grade real estate assets and their associated
stable cash flow streams continues to outpace the supply of such assets. In response
to Mr. Mack’s comments regarding concern over the negative spread between cap
rates and debt financing, Mr. Zell pointed to 1981 when cap rates were in the 4%
range while interest rates were in the 21% range and real estate asset values
experienced strong growth for several years afterwards.
Mr. Roth stated that the real estate bull market has been ongoing since the mid-
1990’s, and he pointed to several factors to a continuing bull market. First, the
market is telling us that a rise in interest rates is not a significant danger. Second, the
improvement in real estate fundamentals is still in front of us, not behind us. Market
rents are expected to rise materially in the United States. Third, the global real estate
markets are coming into sync with U.S. real estate trading closer to peers. Fourth, the
immense liquidity throughout the world is driving more allocations to real estate.
Lastly, buildings continue to sell for significant discounts to replacement cost.
On that last point, Mr. Zell added that the best metric for predicting real estate values
in his forty years of experience in the real estate markets has been replacement cost,
not cap rates. As long as buildings continue to trade for less than replacement cost,
real estate values will continue to rise.
Mr. Mack laid out his concerns for real estate values: first, an extraneous event that
throws economies of the world off-kilter; second, a failure in the derivates market
that triggers a financial crisis; third, foreign governments allocating money
elsewhere; and fourth, changing perceptions of long-term inflation.
On the subject of globalization of REITs, all three agreed that the advantages of
operating under a REIT structure disappears when companies go outside the United
States given the differences in tax laws and that tax treaties are needed for consistent
tax treatment before large-scale globalization can occur. In addition, Mr. Zell stated
Mark Streeter, CFA (1-212) 834-5086
mark.streeter@jpmorgan.com
Tarek Hamid (1-212) 834-5468
tarek.x.hamid@jpmorgan.com
Joel Hawkins (1-212) 834-9324
joel.r.hawkins@jpmorgan.com
North American Credit Research
REITs
Apr 7, 2006
7
that the real estate business is much different outside the United States and that it
takes much longer to close deals. Mr. Zell stated however that he expects to see
global real estate companies with assets in the hundreds of billions of dollar range
within the next ten to twenty years.
The panel members cited the following as reasons for the recent privatization trend in
the REIT sector: first, a changing of the guard from the early 1990’s in management
teams of top REIT companies; second, a desire to go private; third, the continued
disconnect between public/private valuations; and fourth, the ability to leverage the
assets to 80% in the private market versus just 50% in the public market.
"To trace something unknown back to something known is alleviating, soothing, gratifying and gives moreover a feeling of power. Danger, disquiet, anxiety attend the unknown - the first instinct is to eliminate these distressing states. First principle: any explanation is better than none... The cause-creating drive is thus conditioned and excited by the feeling of fear ...." Friedrich Nietzsche
"Any explanation is better than none." And the simpler, it seems in the investment game, the better. "The markets went up because oil went down," we are told, except when it went up there was another reason for the movement of the markets. But we all intuitively know that things are far more complicated than that. But as Nietzsche noted, dealing with the unknown can be disturbing, so we look for the simple explanation.
"Ah," we tell ourselves, "I know why that happened." With an explanation firmly in hand, we now feel we know something. And the behavioral psychologists note that this state actually releases chemicals in our brain which make us feel good. We become literally addicted to the simple explanation. The fact that what we "know" (the explanation for the unknowable) is irrelevant or even wrong is not important to the chemical release. And thus we look for reasons.
The NASDAQ bubble happened because of Greenspan. Or a collective mania. Or any number of things. Just like the proverbial butterfly flapping its wings in the Amazon that triggers a storm in Europe, maybe an investor in St. Louis triggered the NASDAQ crash. Crazy? Maybe not. Today we will look at what complexity theory tells us about the reasons for earthquakes, disasters and the movement of markets. Then we look at how New Zealand, Fed policy, gold, oil and that investor in St. Louis are all tied together in a critical state. Of course, how critical and what state are the issues. It should make for a fun letter, so let's jump in.
Dubai Creates Global Property Investment Unit (Bloomberg), Gulf News Says 2006-04-11 02:13 (New York) By Will McSheehy April 11 (Bloomberg) -- Dubai Holding, a government-owned investment group, has set up a new unit to buy and develop international property, Gulf News reported, citing group Executive Chairman Mohammed al-Gergawi. Called Sama Dubai, the new company will take over the assets of Dubai International Properties, a state-owned property company that has announced $21 billion-worth of Middle East and North Africa projects since it was founded in 2004, the United Arab Emirates newspaper said. Whereas Dubai International Properties focused on property development, Sama Dubai will also seek strategic acquisitions, al- Gergawi said, according to the report. The new company plans to enter U.S. and European markets, Gulf News said, and will consider joint ventures. Sama Dubai officials would not give details of the company's financial resources. Oil prices have more than tripled from less than $20 a barrel over the last four years, fuelling an economic boom across the Persian Gulf, a region that pumps about a quarter of the world's oil. Flush with record oil revenue, Persian Gulf emirates such as Dubai and Kuwait are seeking to invest in strategic overseas assets.
Business property investors 'on a high'
06 Apr 2006
Inet Bridge -
The prospects for South African commercial property investors over the next two years seem positive
The prospects for South African commercial property investors over the next two years seem positive, with steady confidence levels from major players in this asset class.
According to the latest commercial property confidence index released by online business property portal eProp, market confidence in "business property" is stronger than ever, suggesting that the property cycle is in an upward phase.
Marc Schneider, research director at eProp, says in a survey where more than 40 property players with assets in the region of R50bn were questioned, the index was at an "extremely positive" level 75, with 50 being neutral. The index is out of 100.
"The index is strongly positive and it has been positive since the beginning of last year." The index, which was started in February last year, is also at the same level as the prior six months.
Confidence in industrial property was the highest, with a net balance of 53% of respondents positive about the sector, based on the assessment of 10 criteria. Among the criteria were the number of leases the property players expected to sign, the expected net operating income from properties and expected vacancy levels.
"Retail (property) has picked up since August last year. It's standing at a level of 46% of respondents (being positive about retail property) as opposed to 39% six months ago. It's possibly a reassessment of retail and there has been a slightly more positive outlook for retail whereas previously there may have been an expectation of a downward trend."
Schneider says that by the same token confidence in offices is also quite high at 49%, but this is down from the 58% of six months ago.
Catalyst Fund Managers says the expectation of distribution growth is still driving performance in the listed commercial property sector.
"In February about 50% of the sector declared results and the weighted average distribution growth was 8,9%.
"Based on the strong and improving property fundamentals, the listed property sector should deliver a 9% distribution growth over next two years," says Catalyst.
The group says that, provided there are no external shocks which could cause an interest rate hike, the outlook for commercial property in general is still favourable over the next two years.
Business Day
Grosvenor warns of an 'unsustainable' market (FT) By Jim Pickard, Property Correspondent Published: April 11 2006 03:00 | Last updated: April 11 2006 09:12 The Duke of Westminster, Britain's biggest private landlord, warned yesterday that the commercial property market had moved towards "unsustainable territory". The Duke, unveiling the annual results of Grosvenor, his property company that manages more than £9bn of assets, said "this will not continue indefinitely". He said he did not predict an "abrupt" change to the current boom, given that the comparative position of property against bonds and equities was still sound. Instead, he added that the "inevitable crisis of confidence" would come some time after 2006. The warning is in a similar vein to those of a few prominent property executives. Gerald Ronson, the veteran developer, said last month at his annual Savoy lunch: "Any risk premium over cash seems to have disappeared [for property] and it only makes me wonder if some people fully understand what they are investing in or are they just following the herd." Grosvenor said total assets under management rose to £9.1bn (£7.7bn), of which £4.7bn were wholly owned. Revenue profit rose from £43.5m to £46.6m for the year to December 31. The company reaffirmed its commitment to "complex" urban mixed-use projects. The most high-profile of these is Paradise Project in Liverpool. Elsewhere, Grosvenor won planning consent for an eight-acre residential development for Fountain North in Edinburgh. It was also selected as the developer for Crawley town centre. The company, which has a growing presence overseas, said it was considering "a number of opportunities" in Shanghai, China. The group has just increased its interest in Sonae Sierra, a European shopping centre specialist, from 17 per cent to 50 per cent at a cost of €228m (£159m). Grosvenor's separate fund management business saw the launch of three new funds during 2005. It has since bought Legg Mason Real Estate Services, a Philadelphia business that manages $1.7bn on behalf of 15 clients. Stephen Musgrave, UK chief executive, will leave at the end of June, while Jonathan Hagger, the finance director, is retiring in May. They will be replaced by Mark Preston and Nick Scarles. [TOP
Listed property investment
TIME TO ACCUMULATE
14 April 2006
By Ian Fife
Money for nothing from capital growth is over. But the best is yet to come
The growth of the listed property sector from R8bn to R63bn in six years has been spectacular, rewarding investors with returns that nobody predicted.
Yields have fallen from 16% to about 7% in that time and values have risen accordingly.
The show isn't over yet either - but it has changed. There will still be capital growth coming from further re-rating of SA property as it converges with international listed funds. Corovest's Ciref fund, for instance, is launching on the London Stock Exchange at an initial 4,5% yield. SA-listed property could be around that level in the next decade.
However, the change is likely to be slow, and this will disappoint the many investors who've been getting money for nothing from rapid capital growth.
But surely real wealth comes from income, not the capital growth, and here is where investors have yet to score.
It's time to accumulate listed fund shares to build solid income over decades, rather than years. This is property at its best, with its steady rents compounding into substantial payouts over many years. Albert Einstein called compound interest "the eighth wonder of the world," and property income is another form of interest.
We're not used to this steady income and conservative growth from SA property but that's because our investment environment in the past 35 years has been abnormal.
For instance, Stanlib Asset Management head of property funds Mariette Warner has detected a new resilience in the listed property sector.
Reserve Bank governor Tito Mboweni warned parliament of inflation and hinted at higher interest rates. "A year ago, this would have had a significant effect on listed property. This time our Stanlib property income fund hit a record high of 257c/ unit while the JSE sector ticked higher by about 2%.
"This is a strong signal that some very positive changes have taken place within listed property. The sector is not immune to adverse commentary, but its resilience and ability to bounce back are there for all to see."
Better-quality portfolios at listed property companies along with overall category growth contributed to this resilience, she adds.
"Years ago, there was a market suspicion that the average property company portfolio was a dumping ground for buildings the major institutions didn't want," says Warner. "That's changed. Stronger players are highly selective.
"Good properties plus good management create an expectation of earnings growth and solid rental flows - helping top performers and listed property unit trusts with a quality bias to withstand negative speculation."
The real opportunity comes from growing income. Warner says the sector offers high earning with expectations of more to come.
Funds have been reporting payout increases of anything from 10% to 18% more than a year ago. But SA rents are still among the lowest in the world, with top office rents - at about R100/m² - a third of international norms. So you can expect double-digit growth in office rent for quite a few years.
Calculate a R1m investment at a current 7% initial yield but compounding at 10%/year for 10 years. And at - say - 8% for another 10 years. It can get quite exciting as time goes on. Initial income of R70 000 will grow to R165 000 in 10 years and R428 000 in 20 years. The value will grow at the same rate, too, to R2,4m in 10 years and R6,1m in 20 years.
Madison director Marc Wainer predicts that the sector will grow from its current R63bn to R100bn within the next few years and R500bn within a decade. Much of this will come from new development. The size of the sector will start attracting international investors, who will push the yields down further, adding more value to your own investment.
But what should you buy with a 20-year view? You need to concentrate on quality portfolios and outstanding management, says Warner and Catalyst analyst Andre Stadler.
"For instance, Growthpoint at a forward yield of about 6,5% is managed by Investec's very capable property team," says Stadler. "Redefine is managed by equally competent Madison, and because it invests in other listed funds, gives you entry to Hyprop as well. Des de Beer's listed portfolio of Capital, Diversified and Resilient funds can be captured together by buying Resilient shares.
"I would also buy Hospitality A, managed by Grapnel, and perhaps CBS and Freestone to give a short-term kicker, as the funds have still to prove themselves."
But Warner says the long-term investors must home in on management companies that have blue-chip shareholders to ensure consistency over the decades: "I would buy Hyprop, which has Standard Bank, Corovest and Madison jointly managing it, and Grayprop, run by Allan Gray."
But she'd prefer you to buy into her high-performing unit trusts that invest in property funds. "If you buy directly into the listed funds, you will have to hold for a long time to avoid capital gains tax," she says. "But if you buy into the unit trusts that buy into the fund, their management can move you freely from one fund to the other as the circumstance change over the decades."
International Interest in Property May Cool in 2007 (Bloomberg), RICS Says 2006-04-20 10:46 (New York) By Peter Woodifield April 20 (Bloomberg) -- International investor interest in real estate may diminish after interest rates in the U.S., Japan and countries using the euro rise in unison later this year for the first time in almost two decades, according to the Royal Institution of Chartered Surveyors. ``With global bond yields already on the rise for these three economic blocs, some of the impetus will come out of the property market next year as foreign investor interest cools,'' Milan Khatri, chief economist of the London-based RICS, said today in an e-mailed report. Returns investors have made in recent years are unlikely to be sustained in more mature property markets, said Khatri. Investment in commercial real estate worldwide is currently rising at its fastest pace in 18 months, he said. Investors have been turning to real estate to diversify their assets away from stocks and bonds. Global investment in commercial property rose 21 percent last year to a record $475 billion, brokerage Jones Lang LaSalle Inc. said last month. European real estate is ``shaking off'' the pressures of high oil prices and renewed competition from strengthening stock markets, the RICS said in the latest edition of its twice-yearly survey of global real estate. The RICS is the world's largest organization for property professionals. ``Investors are piling into European commercial property regardless of sluggish, static or even negative rental trends,'' the report said. Demand for commercial space from businesses was strongest in emerging markets in Asia and Europe, while investment activity was strongest in emerging economies, it said. Investments in the first half of 2006 were likely to rise at a similar or faster pace than in the second half of 2005, except in the U.S. where the market is expected to level out, according to the report. [TOP]
SA Property yields now following global trend
19 Apr 2006
Spearhead -
Increased investment, smaller yields and higher property values auger well for SA economy.
Mike Flax
South African property and, in particular, property loan stock companies, are now being swept into the global trend which in recent years has seen yields on commercial property moving down and converging in a lower narrow range – because continued buying has pushed prices up.
This analysis of the current situation was made recently by Mike Flax, Chief Executive of Spearhead Property Holdings.
“For several years,” said Flax, “I and others have been telling our overseas colleagues that SA commercial property offers incredible value: our yields have stood out from the rest of the world by a huge margin. Now, however, international and local investors are far more alive to the opportunities here and are buying heavily into SA property and SA listed property company stocks. This is having the same result as has been seen worldwide – prices are up, yields are down.”
Average historical yields of listed SA property companies, said Flax, are in the 5 to 7% range – and Spearhead itself, one of the top twelve performers on the JSE Securities Exchange, is trading at around 6%.
In the USA, said Flax, due to uncertainties in the general economy, there has been an even wider swing to property with the result that average yields have moved down from 5% at the start of this year to 4,2% in April. Yields in the UK and Western Europe are also down, to around 5%, while in Germany and Eastern Europe, which two years ago had yields of 7 to 10%, the trend is much the same.
“Everywhere one looks,” said Flax, “one sees the same pattern: yield hungry investment institutions are sending prices up and yields down.”
The fact that investors are now targeting SA, said Flax, bodes well for the local property sector and for the economy generally.
“The inflow of capital we can expect from now on,” he said, “will lead to further development which, in turn, means more jobs and a decrease in unemployment. For this reason those misguided government spokesmen who see foreign property involvement as likely to diminish opportunities for South Africans must change their attitude while SARS, if it is going to err, should do so on the side of undertaxing not overtaxing real estate enterprises.
“Right now, the property sector is proving an efficient driver of the economy. Let us hope that it will be allowed to continue to do this through to and beyond 2010.”
For further information contact Mike Flax on 021 425 1000.
Perhaps South Africa is next:
China's Property Market Faces Trouble Amid High Vacancy Rates (ASSOCIATED PRESS) April 26, 2006; Page B3C SHANGHAI, China -- A surge in the number of vacant, newly built apartments suggests China's real-estate market may be facing a financial fallout, reports said. China had 123 million square meters (1.3 billion square feet) of unsold and unleased space in new buildings at the end of March, a rise of about 24% from a year earlier, the Shanghai Daily and other state-run newspapers reported yesterday. That figure doesn't include property purchased for speculative reasons, much of which also remains unoccupied, the reports said, citing figures released by the National Bureau of Statistics. "Last year's figures in Shanghai showed that up to half of the new housing sold was not used," the China Daily cited Yin Zhongli, a real-estate specialist with the government-run Chinese Academy of Social Sciences, as saying. Beijing, Shanghai and other major Chinese cities are evicting millions of residents as they raze older housing in the city centers to make way for urban renewal, luxury housing and commercial projects. Meanwhile, low- and middle-income families are increasingly priced out of the market, despite government pledges to make more affordable housing available for ordinary families. The China Daily cited a report by Beijing Normal University's Finance Research Center showing that at least 70% of city dwellers can't afford to purchase new apartments. Investment in apartments meant for low- and medium-income families rose by less than 3%, compared with a 23% rise in total spending on residential property, it said. Almost 60% of the unrented and unsold property is in the residential sector, it said, meaning an estimated 700,000 apartments are unoccupied. The government began cracking down on speculative real-estate purchases last year, ordering local governments to take action to prevent prices from spiraling out of control. Shanghai boosted taxes on real-estate transactions and ordered banks to limit credit for property deals, among other measures. But prices have continued to surge, with housing prices in China's 70 largest cities rising an average of 5.5% in the first quarter of this year compared with a year earlier. Total investment in property surged about 25% from a year earlier in the first quarter, to 564 billion yuan ($70.4 billion), the National Bureau of Statistics said. The government has warned that heavy investment in property and other construction, as well as some industries, is keeping China's economic growth at unsustainably high levels and raising risks for banks that are financing the spending. The rush by foreign investors into the property sector, however, appears to have slowed. Investment in real estate fell 4% in the first quarter, the bureau reported. [TOP]
CHINA PROPERTY: THE CORRECTION WE HAD TO HAVE –
Stretched valuation the real reason for recent volatility: The 19% average pullback in stocks from the recent peak was badly needed following unprecedented interest for these stocks since late 2005. Chinese property names, as a group, have risen from a 45% discount to NAV or 7x forward earnings, at the trough last July, to a recent peak of 5% premium to NAV or 17x forward earnings - an average 90% in nine months reflecting what we call a 'stampede on a waterhole'. As valuations enter uncharted territory, investor sentiment becomes fragile and vulnerable to any sort of less-positive news flow. Share volatility continues to be part and parcel of the risk in investing in this sector.
Valuations returning to more rational level: The pullback in the past few sessions has seen the group retreat to an 18% discount to NAV and 14x forward earnings. Although this is still higher than the long-term average of 40% discount and 10x forward P/E, we consider a 15-25% discount to NAV the rational range. Better quality companies, superior growth prospects (40% CAGR in 2006/07E), decent earnings visibility, better understanding of government policy and stronger interest in these stocks (thanks to growing market capitalization and improved management quality) suggest to us that the sector should trade at a premium to long-term average.
April and May good time for homework: In the past two years, April and May have proved to be difficult months for the group as this is the 'high season' for policy measures, which usually means volatility. This year seems to be no different. Stocks cannot simply 'go vertical' forever as fundamental improvements need time to filter through. Any near-term concern about property policy could present an ideal opportunity for investors to revisit fundamentals. Stock picking should resume importance once the exuberance pauses.
Raven Russia Raises 310 Million Pounds to Buy More Real Estate (Bloomberg) 2006-04-26 12:03 (New York) By Peter Woodifield April 26 (Bloomberg) -- Raven Russia Ltd. raised 310 million pounds ($555 million) in a share sale to buy more real estate in Moscow and St. Petersburg. Shareholders of Raven Russia, which raised 153 million pounds in an initial public offering in July, today approved the sale of 269.6 million new shares at 115 pence each in a placing with institutional investors, the company said in a Regulatory News Service statement. The new shares will start trading on London's Alternative Investment Market tomorrow. Investors are seeking access to Russian property because the yields there surpass those in western Europe. Russia's eight-year economic boom is attracting international companies, boosting demand for property including warehouses and office space. Raven Russia is funding and developing a 128,000 square- meter (1.4 million square feet) warehouse for Avalon Logistics, one of the top five Russian logistics operators, in its first project in St. Petersburg, the company said on March 23. It will be worth an estimated $113 million when it is completed in late 2007 or early 2008, Raven Russia said. The shares closed up 0.25 pence, or 0.2 percent, at 121 pence, 21 percent above the IPO price. (TBC) [TOP]
European Property Investors, Managers Are Divided on Strategies (Bloomberg) 2006-04-27 04:09 (New York) By Peter Woodifield April 27 (Bloomberg) -- Europe's real estate fund managers and institutional investors are split over where they'll get the best returns as they spend record amounts on commercial property, an industry group said today. Managers prefer shops and malls and favor Germany, while investors would rather put their money into industrial warehouses and back central and eastern Europe, according to a survey by the European Association for Investors in Non-Listed Real Estate Vehicles, which is holding its annual conference in Rome. ``Demand for property investment vehicles has reached an all- time high,'' group Chairman Michiel Olland said in the report. Investment in real estate in Europe and worldwide rose to their highest level last year as investors sought to diversify from stocks and bonds. European commercial property investment was a record 156 billion euros ($194 billion), according to brokerage Jones Lang LaSalle Inc. Managers and investors are also at odds over investing style. Investors prefer to focus on individual countries, while managers favor spreading money over a number of countries. Collectively, Germany ranks as their most preferred investment location, having ranked fifth last year behind France, central and eastern Europe, the U.K. and Spain. The U.K., which has the world's most expensive offices in London's West End and also the most expensive industrial properties around London's Heathrow airport, has dropped out of favor with investors and managers this year. Only 5 percent of those taking part in the survey ranked it as the best place to invest this year, ahead of only Portugal, and the Benelux countries. The non-listed vehicles, which account for about 45 percent of European real estate investment, raised as much as 51.5 billion euros of capital last year as they spent around 70 billion euros, according to the association. Virtually all the investors in the survey plan to allocate more to real estate over the next two years, with all putting more money into non-listed vehicles, said the association. Most of the extra money in real estate will be through so- called indirect investment such as property companies, real estate investment trusts and non-listed vehicles, rather than buying property directly, said the association. Association members oversaw 297 billion euros of assets at the end of last year, more than double the combined capitalization of about 120 billion euros of all publicly traded European real-estate companies. [TOP]
Goldman's consortium makes a record investment
posted by holdenr on Tuesday 2 May 2006 07:36 BST
From Times Online - see full story
Nevermind what every headache prone wife knows, every alpha male can recite it in his sleep: bigger is better, right? A consortium led by Goldman Sachs has taken a big step into China by buying a 9% stake in Industrial and Commercial Bank of China (ICBC), the country’s largest lender. ICBC announced the sale yesterday, saying the Goldman team, which includes American Express and Allianz, had paid $3.8 billion for the holding.
The deal represents the largest single investment in a Chinese company by a foreign investor to date, ICBC said.
The sale of the stake comes ahead of a float by ICBC, which is expected later this year.
Foreign investors are barred from buying more than a 25% stake in Chinese banks. Earlier sales of shares to foreign banks have provoked a nationalist backlash in China, with accusations that stakes are being sold too cheaply.
ICBC said: “This transaction helps lay a sound foundation for ICBC to diversify its ownership structure, expand strategic co-operation and improve corporate governance.”
Mideast property investors look to the UK (FT) By Jim Pickard and Lina Saigol in London Published: May 1 2006 19:08 | Last updated: May 1 2006 19:08 Middle East investors spent £1.3bn ($2.4bn, €1.9bn) on the UK commercial property market last year – twice the amount they invested in 2004 – as they continue to redirect funds away from the US. A Middle Eastern consortium is poised to spend £540m on one of London’s most prominent buildings this week. The group is expected to obtain preferred status to buy Shell-Mex House on the Strand, an office block owned by a consortium of brothers Robert and Vincent Tchenguiz, Jack Dellal and brothers Vincent and Simon Reuben. Middle Eastern money accounted for 11 per cent of the total foreign investment in UK commercial property, compared with just 4 per cent in 2004, according to research by DTZ, the property agents. Many Arab investors are feeling flush after a surge in oil prices and they see London property, in particular, as a safe haven for their money. As a result, their investment in the sector almost doubled from £720m in 2004 to £1.3bn last year. Some experts believe recent political resistance in the US to Dubai-based DB Ports’ bid for P&O may also push more Middle Eastern money towards the UK. “Clearly there are psychological barriers in some parts of the world about Arab states owning strategic assets, which may benefit the London property market,” said Alastair Hughes, European chief executive of Jones Lang LaSalle, the global property advisers. The Abu Dhabi royal family proved the most voracious buyer last year, spending nearly £1bn on West End property, including 33 Cavendish Square for an estimated £445m. Nick Edmondes of law firm Trowers & Hamlins said the UK had been one of the main beneficiaries of Middle Eastern investment flows since the redirection of Gulf funds from the US after the post-September 11 freezing of Saudi bank accounts. “There are very low political risks, the market is liquid and UK commercial property can be easily structured into Sharia-compliant investments,” Mr Edmondes said. The largest proportion of foreign money coming into UK commercial property last year was from Irish buyers, according to the DTZ figures. The Irish spent £2.69bn on a host of buildings, including trophy assets such as the £540m Knightsbridge Estate, bought by Derek Quinlan. US buyers, while still big players at £2.62bn, were more subdued than in 2004, when they spent a record £7.4bn. German investors spent more than £2bn on UK commercial property last year. [TOP]
Trump reveals Dubai tower joint venture (FT) By Matthew Garrahan in London Published: May 2 2006 18:08 | Last updated: May 2 2006 18:08 After building skyscrapers, hotels and casinos in the US, the Trump Organisation on Tuesday switched its focus to Dubai when it announced plans for a $600m tower that will become the centrepiece of the Palm, the largest man-made island in the world. The tower, which will be built by Trump and Nakheel, the Middle Eastern real estate developer, will be a 48-storey mixed-use hotel and residential building. The property is the first product of a Trump-Nakheel joint venture formed to develop real estate. Donald J. Trump Jr, executive vice-president of development and acquisitions and son of the group’s founder, said the group planned to develop property in other parts of Dubai. “The great thing about Dubai, what makes it different from other emerging real estate markets, is that there is so much going on there with tourism and other opportunities . . . it is becoming the financial epicentre of the Middle East,” he said. He added that the company was keen to create a “magnet for tourists and residents and a landmark icon on the Dubai skyline”. The Palm is the first of three man-made islands to be built off the coast of Dubai. The development will have a range of hotels, residences, retail outlets and leisure facilities. The Trump-Nakheel development comes as Kerzner International, the gaming company founded by Sol Kerzner, the South African casino magnate, has begun work on a $1.2bn leisure and tourism development on the Palm. The group has formed a joint venture with Istithmar, an investment company owned by the Dubai government, to build “Atlantis”, a 125-acre water park, marina and hotel development on the apex of the Palm. About 5.5m tourists visit Dubai each year. The emirate expects this to rise to 15m by 2010. [TOP]
Trump Joins Venture to Build 48-Storey Tower in Dubai (Bloomberg), FT Says 2006-05-02 17:18 (New York) By Aisha Phoenix May 2 (Bloomberg) -- The Trump Organization Inc. plans to build a $600 million tower on Dubai's Palm, the world's biggest man-made island, the Financial Times said, citing Donald Trump Jr., executive vice-president of development and acquisitions. The 48-storey tower, which is the first project from a joint deal between Trump and real estate developer Nakheel, will be a mixed-use hotel and residential building, the FT said. The group also intends to develop property in other locations in Dubai, which is becoming the ``financial epicenter of the Middle East,'' the FT cited Trump Jr. as saying. [TOP]
Property – Global
Kerry Expects HK$1 Bln Gain From REIT IPO (Bloomberg), Morning Post Says 2006-05-03 19:31 (New York) By Joshua Fellman May 4 (Bloomberg) -- Kerry Properties Ltd. expects to book a one-time gain of HK$1 billion ($129 million) from the listing of the Champion Real Estate Investment Trust, the South China Morning Post said, citing Executive Director Steven Ho. Kerry's 7.6 percent stake in the REIT will drop to 4.2 percent after the trust's Hong Kong initial public offering, the Hong Kong-based newspaper said. Great Eagle Holdings Ltd.'s stake will fall to 49 percent from 90 percent, it said. Champion, which will have 91.5 percent of Citibank Plaza in Hong Kong's Central district as its sole asset, will raise as much as HK$7.1 billion in the share sale. Kerry will retain 50,000 square feet of space in the building outside of the trust, the Hong Kong-based, English-language newspaper said. The REIT expects net income of HK$18 million this year, it said, citing a preliminary offering circular. The trust will include a five-year interest swap which means investors will get more cash in its early years compared with later, the Post said. [TOP]
IL&FS Investment Raises $502 Million in Property Fund (Bloomberg)2006-05-03 09:45 (New York) (Adds official's comment in fourth paragraph.) By Sumit Sharma May 3 (Bloomberg) -- IL&FS Investment Managers Ltd., the private equity unit of an Indian lender to ports and roads, said its India Realty Fund raised $502 million, more than its target of $300 million. The fund will invest in developing townships, commercial complexes, apartments and special economic zones, IL&FS said in an e-mailed statement. India needs to develop urban infrastructure to sustain its 8 percent annual growth rate. Overseas investment in real estate may supplement funds needed for property development. India has a shortage of 20 million housing units, according to Housing Development Finance Corp., India's biggest mortgage lender. ``Opening up of the real estate sector provides enormous positive growth implications for the Indian economy,'' IL&FS Vice Chairman and Managing Director Shahzaad Dalal said in the e-mailed statement. Overseas and domestic pension funds, endowments, financial institutions and insurance companies have invested in the India Realty Fund, the statement said. [TOP
Arab Group to Buy London Landmark for $993 Mln (Bloomberg), Gulf News Says 2006-05-04 01:04 (New York) By James Cordahi May 4 (Bloomberg) -- A group of Arab investors will buy Shell Mex House in central London for 540 million pounds ($993 million) as Middle East investment in U.K. property soars, spurred by an oil revenue windfall, the Gulf News said. The building on London's Strand street is owned by brothers Robert and Vincent Tchenguiz, Jack Dellal and brothers Vincent and Simon Reuben, the Dubai, United Arab Emirates-based newspaper reported, without saying how it got the information. Arabs spent a record 1.3 billion pounds on U.K. commercial property last year, 80 percent more than the year before, according to London-based property consultant, DTZ Holdings Plc, the Gulf News said. Built in 1931, Shell Mex House is a 12-story building overlooking London's River Thames that for many years was the headquarters of a joint-venture of Shell-Mex and British Petroleum. During World War II, it served as the headquarters of the Ministry of Supply. [TOP]
Metrovacesa's Rivero to Bid EU2 Bln for Stake (Bloomberg), Expansion Says 2006-05-05 01:31 (New York) By Joao Lima May 5 (Bloomberg) -- Metrovacesa SA Chairman Joaquin Rivero and Juan Bautista Soler plan to jointly bid about 2.2 billion euros ($2.8 billion) for a 26 percent stake in the real estate company, Expansion reported, citing unidentified people close to the transaction. Rivero and Soler, who respectively own about 7 percent and 5.4 percent of Metrovacesa, will offer 80 euros a share, according to Expansion. The stock closed yesterday at 74.65 euros, giving the company a 7.6 billion euro market value. Rivero's offer would be higher than a March 1 bid of 78.10 euros made by Barcelona-based Grupo Sacresa for a 20 percent stake in Metrovacesa. Sacresa, controlled by the family of Metrovacesa board member Roman Sanahuja Pons, wants to boost its Metrovacesa holding to 44 percent. Both Rivero and Soler are considering reducing their enlarged stakes over the medium term to about 10 percent, the Spanish newspaper said. [TOP]
Trump Loses Bragging Rights as Chicago Tower Grabs Design Buzz (Bloomberg) 2006-05-05 00:01 (New York) By Kevin Orland May 5 (Bloomberg) -- Chicago's edifice complex is back. Real estate magnate Donald Trump's 92-story hotel and condominium tower in Chicago, a plan that had grabbed headlines, is losing the spotlight to a project by local developer Fordham Co. that Trump dismisses as unworkable. The planned 124-story Fordham Spire, which will start selling condominium units in the next month, boasts a design by Spanish architect Santiago Calatrava, bragging rights as North America's tallest building and a site closer to Lake Michigan. That may let prices challenge the city's record $965 a square foot at the $800 million Trump International Hotel & Tower. Trump took a swipe at the Spire in an interview, saying he doubts the $550 million project will be built. Fordham is underestimating the construction costs by at least $400 million, Trump says. ``I don't look at it as a competition because I think it's a pipe dream,'' says Trump, 59, whose projects in his hometown of New York include Trump Park Avenue condominiums. ``I don't think there's any institution stupid enough to finance it.'' Fordham Chairman Christopher Carley says his estimated construction costs are accurate and that Calatrava, who holds a doctorate in engineering, designed the building to be simple and affordable to create. ``The genius of Santiago Calatrava is not only in the look of the building but also the way it is designed,'' says Carley, 63, adding that he will announce the financing arrangement ``shortly,'' without being more specific. The Spire gains added attention because it would make Chicago home to North America's two tallest towers, which local historians and architects have said may return some swagger the city had when the Sears Tower was the world's tallest building from 1974 until 1998. `Everyone's Talking' Competition also fuels the debate. Trump's project leverages his name recognition, while the Spire stole some Trump thunder by showcasing its architect and a design that resembles a soaring drill bit topped by a spire, real estate brokers say. ``Everyone's talking about it,'' says JoAnn Sworan, a real estate broker with Baird & Warner who sells in downtown Chicago, including units in Trump's building. ``Developers and sales agents are saying it's going to be so cool.'' Construction of the Spire, overlooking the junction of the Chicago River and Lake Michigan, is scheduled to begin this year. It will be the first skyscraper for Calatrava, known for designing the Milwaukee Art Museum, the City of Arts and Sciences in Valencia, Spain, and the Sondica Airport in Bilbao, Spain. $20 Million Penthouse When completed in 2009, the Spire will have about 300 condominiums, 150 hotel rooms, and stores and restaurants. Prices range from about $900,000 for the smallest units to $20 million for the penthouse. A half mile west, about 75 percent of Trump's 758 units have sold for a total of $729 million, bringing him within striking distance of covering the $800 million in costs. Upon completion in 2008, the building will have 472 residential condominiums and 286 hotel condominiums, which offer amenities such as room and maid service. Prices for Trump's remaining residences average more than $900 a square foot, a record for a Chicago building with more than 100 units, says Gail Lissner, vice president at Appraisal Research Counselors, a Chicago real estate consulting firm. Carley says his condos may sell for more than $1,000 a square foot, based on receiving 30 reservations and registrations from about 1,500 potential Spire buyers. `Piece of Art' ``Fordham might end up as a more prestigious place to live because of the architect, location and a design that is really unique,'' says Millie Rosenbloom, chief executive of Chicago real estate brokerage Habitat Co. ``It's a piece of art.'' Chicago's focus on the Spire takes the spotlight off Trump, who has generated his own positive buzz in the past. Bill Rancic went to work for the Chicago tower group after winning the first season of Trump's NBC television show, ``The Apprentice,'' in 2004. On the show, Trump hires or fires apprentices competing for assignments in his organization. Trump says his building has a better location, will be more profitable than the Spire and will include amenities such as bigger windows, Brazilian hardwood floors and granite countertops. The tower was designed by architecture firm Skidmore, Owings & Merrill LLP, creators of Chicago's Sears Tower and John Hancock building. Carley says the Spire's design will make it an icon like New York's Chrysler and Empire State buildings and the Sydney Opera House. At 1,458 feet (444 meters), the Fordham project would eclipse the 1,451-foot Sears Tower as the continent's tallest building and dwarf the 1,360-foot Trump tower. The next biggest in North America would be New York's planned 1,368-foot Freedom Tower at the site of the destroyed World Trade Center. Carley credits some of his success to Trump's tower, which made super-luxury developments attractive to lenders. ``It was definitely nice not to be the first girl on the dance floor,'' he says. ``I was happy to see Trump come to town.'' [TOP]
Richard Russell comments below, I think this one is going to hurt him, he got off the fence and swung for the big one.
What we're seeing now in gold and silver is the biggest story of the year and probably the biggest story since the great bull market since stocks topped out in 1980. Only the public, the crowd, the masses, don't see the story yet. But the markets see it. And I see it, which is why I keep writing about it. I've been on this story for about five years -- pushing, urging, cajoling my subscribers to "get with the story," and, of course, the story is the coming inflation and the revival of gold.
What Bubble? Morgan Stanley's Bohart doesn't see any hedge fund bubble...
posted by holdenr on Tuesday 9 May 2006 07:03 BST
From Wall Street Folly - see full story (subscription required)
The Financial Times writes that according to Stu Bohart, Morgan Stanley's new head of Alternative Investments, and before that the head of its prime brokerage, "The notion of a hedge fund bubble is very much off base,"..."We are in the early stages of a major evolution in asset management and how people invest their money."...
The outlook for Mr Bohart and Morgan Stanley's hedge fund business - not to mention its prime brokerage business - then, is no doubt bright. In his new post, Mr Bohart will oversee Morgan's efforts to build hedge funds internally, take strategic stakes in hedge funds externally and explore other alternative investment opportunities. Among the investment banks, Morgan Stanley has been slow to profit from managing hedge fund money, and Mr Bohart plans to change that. One area where Morgan Stanley has had unsurpassed success with hedge funds is Mr Bohart's recent home in prime brokerage. That success, and the unparalleled exposure to the industry, should help him in his new job.
Prime brokers - who provide services to hedge funds and other managers ranging from stock lending and leverage to advisory services and capital introduction - have a better window into the industry than just about anyone, including individual hedge funds themselves. They see everything hedge funds do, all the positions held and the leverage taken.
Since Morgan Stanley is the world's largest prime broker - estimates of market share range from 30 per cent to 40 per cent - Mr Bohart has become familiar with the big hedge fund firms in the US and the UK, a familiarity that should help drive the firm's investment in internal and external hedge funds.
The shareholder's meeting at Berkshire Hathaway always draws a crowd and a collection of reporters. The piece below is from the latest meeting that took place over the weekend.
On the real estate bubble
Buffett: "What we see in our residential brokerage business [HomeServices of America, the nation's second-largest realtor] is a slowdown everyplace, most dramatically in the formerly hottest markets. [Buffett singled out Dade and Broward counties in Florida as an area that has experienced a rise in unsold inventory and a stagnation in price.] The day traders of the Internet moved into trading condos, and that kind of speculation can produce a market that can move in a big way. You can get real discontinuities. We've had a real bubble to some degree. I would be surprised if there aren't some significant downward adjustments, especially in the higher end of the housing market."
On mortgage financing
Munger (Buffett's partner): "There is a lot of ridiculous credit being extended in the U.S. housing sector."
Buffett: "Dumb lending always has its consequences. It's like a disease that doesn't manifest itself for a few weeks, like an epidemic that doesn't show up until it's too late to stop it Any developer will build anything he can borrow against. If you look at the 10Ks that are getting filed [by banks] and compare them just against last year's 10Ks, and look at their balances of 'interest accrued but not paid,' you'll see some very interesting statistics [implying that many homeowners are no longer able to service their current debt]."
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Richard Russell again, I think he will be right in the long run but is too emotional now that his call of 4 years is coming through BIG.
Gold -- I know, the rise in gold is beginning to look rather surreal. I hate to use the phrase, "this time it's different," but when was the last time you heard G-7 saying that it wanted the dollar down by 25 percent? Furthermore, you now have an unprecedented situation of nations fighting a war of competitive devaluations. Nobody wants a strong currency, because a strong currency kills your exports.
Then there's another "exotic situation." Gold, as a percentage of total world reserves is at its lowest percentage in history. Here are some interesting statistics
JPMorgan, Lehman Say U.K. Property Stocks to Top FTSE (Bloomberg)2006-05-12 12:01 (New York) By Peter Woodifield May 12 (Bloomberg) -- Shares of U.K. property companies such as Land Securities Group Plc and Slough Estates Plc may outperform the benchmark FTSE 100 Index in the next year as they benefit from the introduction of low-tax real estate investment trusts, according to JPMorgan Chase & Co. and Lehman Brothers Holdings Inc. U.K. real estate stocks may surge 13 percent in the next 12 months as they convert to REITs next year, while the FTSE 100 may fall 3.3 percent, JPMorgan said in a report today. Lehman is forecasting a 12 percent gain for the stocks compared with a 7.1 percent increase in the FTSE 100. ``We see real estate shares set to become intrinsically more valuable,'' Lehman property analysts Mike Prew and Chet Riley, who both quit Citigroup Inc. this year, said today in a report initiating coverage of U.K. companies. ``Real estate only appears expensive relative to the inflationary 1970s and 1980s cycles.'' JPMorgan's and Lehman's views contrast with Morgan Stanley, which said yesterday that European real estate share prices may fall 10 percent by the end of 2007. Morgan Stanley lowered its recommendation of Land Securities shares. British real estate companies have outpaced benchmark U.K. stock indexes for the past six years as investors spent record amounts on commercial property, pushing up prices as they sought alternatives to stocks and bonds. Real Estate Yield The yield on commercial real estate, calculated by dividing the value of a property by its rental income, has fallen 225 basis points to 5 percent in the past five years, said Lehman. The 150 basis-point gap between the yield of real estate and U.K. government bonds, known as gilts, was three times greater than the average 50 basis-point gap since 1920, it said. ``Yield compression may slow, but we believe there are still six drivers left for European real estate stocks, in particular for the U.K. companies,'' JPMorgan analysts Harm Meijer and Tim Leckie said in their report. The introduction of REITs in January, higher economic growth, better-than-expected results, the hidden value of developments, conservatively financed companies, and the potential for mergers and acquisitions or the return of capital to shareholders would all help boost U.K. real estate stocks, said Meijer and Leckie. Land Securities, Europe's largest real estate company, and Slough Estates, which owns six of the 10 largest industrial parks in the U.K., together with Derwent Valley Holdings Plc and Great Portland Estates Plc, are its four top picks, said JPMorgan. French Example The introduction of REITs would eliminate the 25 percent discount to net asset value that U.K. property companies traditionally trade at, said Lehman. That had happened in France, which introduced similar structures, it said. French real estate companies had later moved to trading at a premium to net asset value, said Lehman. Under the U.K.'s proposed REIT structure, companies that qualify will pay little or no corporation tax or capital gains tax in return for distributing at least 90 percent of taxable profit in dividends to shareholders. JPMorgan upgraded Derwent Valley and Great Portland, which both focus on offices in London's West End, which charges the world's highest office rents, to ``overweight'' from ``neutral.'' Share Downgrades It downgraded Fonciere des Regions, Pirelli & C. Real Estate SpA, Vastned Retail NV and Vastned Offices/Industrial NV to ``neutral'' from ``overweight,'' on the grounds that all four companies had already reached JPMorgan's price targets. Land Securities, British Land Co., Hammerson Plc, Slough Estates Plc and Brixton Plc have all been rated ``overweight'' by Lehman. It rated Derwent Valley and Great Portland ``equal weight'' together with Liberty International Plc. Morgan Stanley yesterday cut Land Securities to ``underweight'' from ``equal-weight.'' JPMorgan's price target of 2,350 pence for Land Securities in 12 months time is 36 percent higher than Morgan Stanley's target of 1,730 pence at the end of 2007. Lehman has set a target price of 2,280 pence. Shares of Land Securities, which on May 17 reports its results for the year to March 31, closed down 41 pence, or 2.1 percent, at 1,871 pence in London. [TOP]
A survey of 292 surveyors and real-estate agents in the
three months through April found those reporting higher home
values outnumbered those reporting declines by 15 percentage
points, up from a revised 12 points in March, RICS said in
London today. The measure is adjusted for seasonal swings.
Prices have gained in almost every month since August, when
the Bank of England cut its benchmark interest rate to 4.5
percent. The central bank predicts rising home values will spur
consumer spending, driving faster growth in Europe's second-
largest economy.
``The rise of house prices suggests a return of confidence
to the market boosted by a healthy economic climate,'' said
Jeremy Leaf, a spokesman for London-based RICS. ``Greater
economic wealth has boosted prices for larger properties as
buyers remain content to invest for the long term.''
Bigger homes such as houses with three or four bedrooms
outpaced smaller properties such as apartments, RICS said. Price
gains were led by Scotland, where a balance of 57 percent of
respondents reported higher home values, and London, where the
balance was 55 percent.
``The market has continued to be buoyant particularly
within the family house and country house market,'' RICS cited
Donald Wooley, an estate agent in Argyll, western Scotland, as
saying. ``Building plots are showing exceptional growth due to a
lack of supply. Values over the last three years have increased
by over 100 percent.''
Housing Revival
The report adds to evidence of a pickup in the $6 trillion
housing market as economic growth accelerates.
Home prices jumped by 2 percent in April, the biggest gain
in 2 years, HBOS Plc, the country's biggest mortgage lender,
said May 4. A survey published by property Web site Rightmove
May 15 showed a 2 percent gain in prices in the four weeks to
May 6.
A resurgent property market led Bank of England Governor
Mervyn King to note that prices have picked up more than the
central bank had expected to a level that ``still seems
remarkably high.''
Consumer confidence the secret ingredient - economists
May 17, 2006
By Ethel Hazelhurst
Johannesburg - Investec economists Brian Kantor and Carmen Marchetti have a subversive view on two topics close to the heart of economists and official policy makers. In a strategy report released yesterday, they argue that neither the current account deficit nor the level of household debt is cause for concern.
South Africa's current account deficit, the gap between export revenues and the import bill, is 4.2 percent of gross domestic product, which is much higher than the international benchmark of 3 percent. And the ratio of household debt to disposable income is 65.5 percent, up from 49.1 percent in the last quarter of 2002.
These numbers are normally used to illustrate the risks facing the economy and the constraints on South Africa's ability to grow. But Kantor and Marchetti see them as indicators of confidence - a positive not a negative. And the Investec strategy report predicts that the household debt-to-income ratio will rise to above 70 percent over the next two years. In view of this, it favours the South African economy as a long-term buy and remains positive on companies exposed to the local business cycle.
While many economists fear that consumer spending will turn into a bubble, divorced from household fundamentals, Kantor and Marchetti have a different take: if debt is seen in the context of the household balance sheet, a different picture emerges. Net wealth as a percentage of disposable income has risen from 256 percent in 2002 to 374 percent in 2005.
They argue that confidence is a vital strategic asset and a lack of it has held back growth in many economies in recent years, including Japan's and several in Europe. It is a resource that has conferred enormous benefits on the local economy since 2003 and it should not be eroded by misguided concerns about the size of the deficit.
"The deficit will take care of itself," said Kantor, who is not concerned about its potential to weaken the rand. "The currency is there to serve as a shock absorber against external events. If it falls, let it go. It will right itself provided the internal fundamentals are sound. It may push up inflation but that will be temporary, as long as inflation expectations don't rise."
What policy makers should not do in response to a falling currency is raise interest rates, according to Kantor. "Stable rates are driving consumer and business confidence," he said.
"Faster growth led by household spending will continue to lead capital inflows that will help finance growth and support the rand. We see this process as an integral part of the structural change under way in South Africa of the kind that occurred previously in the US, Australia and the UK when they brought inflation under control."
He described the process as "a virtuous cycle of growth".
Shell-Mex House finds buyer for £540m (FT) by Jim Pickard, Property Correspondent Published: May 16 2006 20:48 | Last updated: May 16 2006 20:48 An Indian real estate company is close to buying Shell-Mex House on the Strand in what would be the biggest single property deal ever seen in London. The Financial Times has learned that a private company called the Kandahari Group is in pole position to secure the £540m office building, which was put on the market two months ago by a high-profile consortium of investors. The current owners, Robert and Vincent Tchenguiz, David and Simon Reuben and Jack Dellal, are among the most prominent property traders in the UK. Kandahari has not yet secured the deal but is understood to have preferred status, ahead of three or four other bidders on the property. Its interest in the property is significant because it would be one of only a handful of purchases of commercial property in the UK by Indians – although the Reuben brothers were both born in India. Many experts are predicting a flood of investment from India and China into the London real estate market as these two economies expand. London residential property, in particular, is already a magnet for Middle Eastern and Russian money. Shell-Mex House, an art-deco building visible from the Thames, is let to several blue-chip companies including Pearson, the owner of the FT. The price represents an initial yield below 5 per cent. The consortium selling the building has been advised by CB Richard Ellis and DTZ, the property agents. It is understood that several potential buyers fell out of the bidding battle because rising bond yields have made it harder to borrow in the last couple of months. [TOP]
Global View Focuses On Hot European Markets In the Office Sector, Lancer Lifts London, Stockholm Is Sweet (WSJ) By SARA SEDDON KILBINGER SPECIAL TO THE WALL STREET JOURNAL May 17, 2006 The globalization of real estate has prompted more investors to chase opportunities in Europe. Here's a look at some of the hot spots where investors are channeling their money: London offices Strong demand for London office space and rising prices create one of the best investments in Europe, says Simon Marx, head of international property forecasting at Experian in London. While offices in the U.K. last year gained 11% in price, prices in London rose 13%. The biggest rise was 14% in the West End, home of the U.K. Parliament, foreign embassies and Soho media groups. "It's the Lancer effect," says Catherine Jones, who researches West End offices for advisory firm King Sturge, referring to the investment vehicle for the oil-rich Abu Dhabi royal family. Lancer acquired almost £1 billion ($1.88 billion) of West End property last year, or 20% of the total invested. "Middle Eastern investors have more money to spend because of rising oil prices, so they are putting it into assets such as trophy buildings in the West End." Growth is driven by a strong economic market and a turnaround in merger-and-acquisition activity, especially in the banking sector, says Paul Kennedy, head of European research at Invesco Real Estate in London. Many tenants, conscious of rising rents, are leasing additional space before prices go higher, he says. Cross-border investment in London offices last year accounted for €9.6 billion ($12.27 billion) -- or 48% -- of the total investment made in London offices, according to advisory firm CB Richard Ellis in London. In February, American Express Co. leased four floors of Belgrave House, or 13,140 square meters, on London's Buckingham Palace Road. However, prime office yields are only around 3.75% to 4% in the West End and 4.5% to 4.75% in the City of London financial district, according to King Sturge. Investors are counting on stable rental income and the promise of strong rental value growth over the next three to five years, Ms. Jones says. (The yield is the annual percentage return, expressed as the ratio of annual net income to the capital value of a property.) Stockholm offices Sweden's economic strength -- an estimated 3.6% growth in gross domestic product this year and 3% seen for in 2007 -- should cause office vacancy rates to fall to 12% by the end of this year from around 15% over the last two years, says Magnus Lange, head of the capital markets group at advisory firm Cushman & Wakefield in Stockholm. "We've been waiting for this for a long time," says Mr. Lange. "The market is improving as more office tenants look to move into new premises...sometimes with the aim of consolidating several offices into one location." One example: Last month law firm Mannheimer & Swartling signed a lease in the central business district of Stockholm for 12,260 square meters, to accommodate a staff of up to 400 people. About 75% of €3.5 billion in office deals in Stockholm last year involved international investors from countries including Germany and the U.K., Mr. Lange says. One limitation: a shortage of high-quality office buildings in Stockholm. Istanbul retail With homogenization of shopping districts world-wide, international retailers such as Spanish Inditex Group's Zara fashion chain are expanding into Turkey, which has opened talks for eventual membership in the European Union. Foreign investors typically prefer to acquire properties leased to international retailers that are familiar names and more likely to attract bank financing, says Ali Pamir, managing director of advisory firm DTZ Pamir & Soyuer in Istanbul. "As yields in Turkey fall, as the market matures, getting good rates of finance is critical for investors if they are to get good returns," Mr. Pamir says. German and Dutch investors, in particular, have been quick to appreciate that Turkey's retail sector is ripe for development: Turkey has just 30.4 square meters of retail space per 1,000 people, a fraction of the European Union average of 171.1 square meters, according to advisory firm Cushman & Wakefield Healey & Baker. In addition, EU accession talks have boosted the country's credibility. Still, Turkey has its risks, such as a less transparent market than in Western Europe, which is reflected in higher yields. Prime shopping centers offer yields of around 8% to 9%. Investors buying shopping centers before they are completed hope for yields of 10% to 11%, Mr. Pamir says. [TOP]
Russell Notes -- I note a remarkable split between the psychology and sentiment of the nation and what I see in the stock market. People, in general, seem to be content. Everybody's drinking four dollar Starbucks coffee. Kids coming out of college can get jobs (not necessarily good jobs, but jobs). Every other goofball walking the streets is glued to a cell phone. The malls are jumping, and the art auctions are going nuts.
China Seeks to Damp Real-Estate Prices With Taxes on Profits (WSJ) By ANDREW BROWNE May 19, 2006; Page A6 HONG KONG -- A new crackdown on property speculation signaled by Chinese Premier Wen Jiabao reflects growing concern among China's top officials that surging prices in major cities threaten to create economic overheating and social unrest. Since authorities took steps to cool Shanghai's real-estate market last year, speculators have piled into other cities, creating new property bubbles. In northeastern Dalian, prices for new property in the first three months of this year jumped 15% from a year earlier, according to the National Development and Reform Commission, the former state planning agency. Prices in the southern boomtown of Shenzhen gained 10% in the same period while Beijing prices were up 7% amid euphoria over the 2008 Olympics in the Chinese capital. And those figures may understate the problem. Other government agencies, using different calculations, put the price increases far higher. In Beijing, for instance, the city statistics bureau reported that prices of property sold off the drawing boards rose 17% in the first two months of the year. Chinese economists say that owning an apartment is now an unrealistic dream for large numbers of urban residents who are falling further behind as home prices surge. Zhong Wei, an economist at Beijing Normal University, said the price of the average apartment in Beijing is 13 times the annual average salary. He estimated that 70% of the Chinese capital's population can't afford to buy. "Everybody has a desire to own an apartment," said Mr. Zhong. "But this is not possible." Property is a big driver of Chinese economic growth, and runaway investment in the sector has contributed to signs of a broader overheating. The economy grew by a red-hot 10.2% in the first quarter of the year from a year earlier. Concern about too-rapid growth prompted the government to raise bank lending rates by 0.27 percentage point last month to discourage borrowing and reduce investment. Officials fear overheating could lead to a sudden economic crash. Mr. Wen has fired a warning salvo at city governments and the real-estate developers who have become their chief source of funding. After a meeting of the State Council on Wednesday, the Chinese cabinet announced a series of policy measures to rein in prices, according to state media reports. The announcement included few concrete details but indicated the government would seek to cool prices by levying profit taxes on real estate. These taxes are similar to those that helped deflate the Shanghai market last year by scaring off speculators who "flipped" property -- sometimes just days after buying it. The cabinet also suggested curbs on bank loans to the sector, and it called on local governments to focus new development on smaller and more affordable homes for lower-income families. The measures took aim at property developers who hoard land and buildings, a practice that creates artificial shortages and drives up prices. At the same time, the cabinet urged local governments to offer more price information. In the absence of transaction data, Chinese buyers often are at the mercy of developers with an interest in inflating prices. Since the government clamped controls on the runaway property sector last year, the cabinet noted that prices had softened "a little," according to the official Xinhua news agency. "However, some problems have not been solved including rapid price rises in a few big cities, bad supply structure and messy market rules," Xinhua quoted the cabinet as saying. Economists are split about whether China faces a risky property bubble. While urban property prices are rising fast, so are incomes. For that reason, some economists argue that even in Shanghai, the most expensive market in China, property is generally affordable. Still, at the top end of the market, Shanghai remains stunningly expensive. Even the smallest apartment in the building next to Citigroup Inc.'s skyscraper on Shanghai's waterfront costs at least $6 million. The development, Tomson Riviera, boasts all-copper doors and Swarovski crystal lights in its apartments, priced around $13,750 per square meter. Morgan Stanley economist Andy Xie is one who worries that the real-estate boom is unsustainable. He noted that even according to official figures, property investment in China is extremely high. Real-estate investment last year accounted for 8.6% of China's gross domestic product, he said, and that figure is on track to rise to 9.3% this year. That compares with 4.9% in 2000. The official data also show that the total value of property under construction at the end of last year stood at 5.1 trillion yuan ($637.42 billion), equal to 28% of China's GDP. And those figures could be grossly understated, Mr. Xie said, noting that property data in China are so unreliable that "whatever you want to believe you can."
Market is fairly valued, says Merrill Lynch survey
May 23, 2006
By Tonny Mafu
Johannesburg - Despite the significant gains in the equity market since the beginning of the year, fund managers still believed share valuations were within reasonable levels, a Merrill Lynch survey showed.
The Merrill Lynch fund manager survey found that 60 percent of the fund managers surveyed felt that the market was fairly valued. The fund managers considered 13.4 to be an appropriate average price:earnings (p:e) ratio for the all share index over the next five years. These ratios reflect company revenue prospects.
The bullish response has, however, slackened below the long-term average. The survey, which was carried out between May 5 and May 10, showed that 71 percent of managers were equity bulls on a 12-month view, compared with 81 percent last month.
Franco Barnard, an investment specialist at Momentum, said financials were relatively cheaper than resources, even after the correction last week. Last week saw a slide in commodity prices, which led to losses in resources shares.
Craig Pheiffer, the chief investment strategist at Sasfin, said the equity market was within acceptable valuations.
He said last week's market correction had made equities more attractive and was in line with the movements in global markets. Gold mining companies still had an upside potential if good news was factored in. Pheiffer said, however, that resources shares would still depend on commodity prices, where there was huge amount of speculation.
Home-Value Futures May Prove to Be a Difficult Sell (Bloomberg) 006-05-22 15:43 (New York) By Darrell Hassler May 22 (Bloomberg) -- Investors who say U.S. home prices have peaked may now have a way to hedge against a decline in residential real estate. The Chicago Mercantile Exchange is rolling out a new derivative today: futures contracts based on indexes that track house prices. The contracts are designed to let pension-fund managers bet on housing and builders hedge losses. They may be a tough sell. Twice the exchange delayed the debut to fine-tune indexes that potential buyers say fail to reflect a market where the underlying properties aren't uniform. ``Houses are not the same,'' says Sam Zell, chairman of Chicago-based Equity Office Properties Trust and Equity Residential, the biggest U.S. apartment owner. ``It's very hard to come up with a kind of trading instrument that would truly reflect the risk and the reward when in fact the basic asset is not the same.'' The total value of U.S. homes rose an average of 11 percent a year from 1997 to 2005, according to the U.S. Federal Reserve. That was more than twice the average 4.7 percent return for the Standard & Poor's 500 Index. The exchange is attempting to lure investors who haven't considered housing as a way to boost returns, says Fritz Siebel, a derivatives broker for Tradition Financial Services in Stamford, Connecticut, a unit of Cie. Financiere Tradition in Lausanne, Switzerland. ``These people have to make sure that they are moving with the economy,'' says Siebel. ``This is a way for them to be in it.'' He says he expects the contracts to take at least two years to catch on with investor [TOP]
Popular property falls but future looks solid
22 May 2006
Inet Bridge -
The real danger for listed property's fortunes is a blow-out in bond yields
Listed property - one of the most popular sectors among investors over the past few years - had a bumpy ride this week along with all the other asset classes when markets sold off around the world.
The listed property sector fell 5% from its peaks earlier this week but remains nearly 17% ahead in the year-to-date.
Len van Niekerk, joint portfolio manager of the Old Mutual SA Quoted Property fund, warns that investors in listed property should expect short-term volatility, but adds they can take comfort from the fact that property's solid fundamentals will still translate into attractive returns for the next few years.
The man in the street who invests in unit trusts poured R775.7-million into the sector during the first three months of 2006 alone after the sector delivered an impressive 61.34% return for the year to the end of March.
But Van Niekerk warns that investors must stop expecting the 40%-plus annual returns they have enjoyed since 2003; they can now expect a total return (before tax) of about 16% over the next 12 months - of which 7% is from income and 9% from expected capital growth.
Van Niekerk says growth in listed property companies has been strong this year and is likely to be sustained.
"We are seeing lower vacancies, rising rentals and improved cost controls. We expect economic growth to support even greater demand for space," he says.
Cheaper funding costs - thanks to the drop in interest rates - have been flowing through to the companies' bottom lines for the past few years, and Van Niekerk says this benefit will continue to feed through to property companies for the next two or even three years.
The real danger for listed property's fortunes is a blow-out in bond yields, but Van Niekerk says this is unlikely.
Evan Robins, head of fixed income at BoE Private Clients, says the sell-off in the listed property index this week is a good opportunity for those investors with long-term income needs to buy into property stocks.
Robins also believes that current holders of these stocks should not take fright, and recommends that investors in the sector sit tight despite the current volatility in the market.
However, for those interested in buying cheaper shares in listed property counters, "some investors may prefer to wait for confirmation that the selling pressure has abated before buying".
Robins adds: "Investors shouldn't buy listed property simply on the basis of possible capital gains.
"However, for those with a long-term view we suggest those who are underweight property use further weakness to pick up stock, as the distribution growth fundamentals for listed property companies remain very favourable." - Chris Needham
Listed Property: medium term prospects still solid
The South African Listed Property Index has come down 9% since May 11 (two weeks ago) as the property sector, along with other asset classes, weakened following higher interest rates in the US, changing sentiment towards emerging markets and other factors. Despite this listed property pundits remain confident that property fundamentals are strong and improving. Analysts maintain that the earnings growth surprises more on the upside than downside and as such the sector is not expected to weaken for long. Naturally, listed property is more of an equity and long bond yield play, than is direct property. Fortunately inflation measures are still supportive of the current interest rate regime
City Developments to Buy Downtown Apartment Site for S$383 Mln (Bloomberg) 2006-05-29 21:20 (New York) By Linus Chua May 30 (Bloomberg) -- City Developments Ltd., Singapore's second-largest developer, said it's buying a downtown apartment complex for S$383 million ($242 million), one of the highest ever prices for an existing development. City Developments, which is controlled by billionaire Kwek Leng Beng, said in an e-mailed statement late yesterday that it plans to redevelop the property, called ``Lucky Tower,'' into a 24-story apartment project on the 169,189 square-foot site. The project may help the company take advantage of a rebound in Singapore's housing market. Home prices rose for an eighth straight quarter in the first three months of the year, to the highest since September 2001, after the economy expanded and restrictions for buyers were eased, according to government data. The purchase will help City Developments ``remain the proxy to the Singapore property market,'' Chia Ngiang Hong, the company's general manager, said in the statement. City Developments plans to build apartments targeting the so-called high-end market, though it declined to comment on the price it plans to charge for the homes. The property is about a 10-minute walk from Singapore's Orchard Road shopping belt. City Developments shares rose 5 cents, or 0.5 percent, to S$9.80 at 9:02 a.m. Singapore time. The stock has gained 13 percent this year, compared with a 12 percent gain for the Singapore property index. Some analysts said recent gains in property values have pushed prices to a point that may limit the profit growth for developers. ``The margins could be very thin, but at the end of the day, it depends on how much they can price it at,'' said Winston Liew, an analyst at OCBC Investment Research Pte, who has a ``hold'' recommendation on City Developments shares. ``The market appears fairly robust, but whether this is sustainable is anybody's guess.'' [TOP]
China moves again to cool overheated property sector (Press) Next month China will increase down the amount needed for payments on home loans and broaden the capital gains tax, moves analysts said should help cool the overheated real estate sector in the short term. A statement posted on the central government's website said the downpayment on homes above 90 square meters (968 square feet) would be raised to 30 percent from 20 percent, as authorities target the high-end of the property market. "To control the overly fast rise in property prices, from the first of June this year, the downpayments on personal home mortgages must not be lower than 30 percent," the government said on www.gov.cn late Monday. From June 1, the sale price of homes sold within five years of purchase will be taxed at 5.5 percent, extending the timeframe from two years. After five years, the 5.5 percent tax rate will only apply to the capital gains on the property. Again, the capital gains tax had previously applied to the sale of properties within two years. China will also introduce tougher criteria for lending to property developers, requiring them to fund at least 35 percent of their projects from their own capital or else forgo all bank financing, the statement said. The new regulations are aimed at forcing builders to construct more affordable housing for the average Chinese while controlling speculative investment, analysts said. "The policy is aimed at adjusting the supply structure," said Zhao Qiang, a real estate analyst with Everbright Securities in Shanghai. "Developers will now focus more on building lower-class housing even though they will yield less profits. "For investors it will be harder for them to sell the property they already bought." But Ha Jimin, chief economist with China International Capital Corporation in Hong Kong, said that while laying out more specific measures was an improvement over past policies, the adjustments may not be strict enough. "I think it will work this time, at least in the short term but a 5.5 percent tax is not a big deal for speculative investors. For example, if the property price rises 100 percent, the 5.5 percent (capital gains tax) doesn't mean anything." Nevetherless, the new orders are part of wider government measures that reflect the increasing concern that a speculative property bubble needs to be brought under control before it bursts. Such a crash would cause losses of billions of dollars and add to the Chinese banks' debt-ridden portfolio of bad assets. In response to the overheating, China's central bank on April 28 raised interest rates for the first time in 18 months when it hiked the one-year benchmark lending rate by 27 basis points to 5.85 percent. The China Banking Regulatory Commission also last week proposed stricter controls of new loans, curbing financing to property developers and stemming the granting of credit lines to local governments. Reducing banks' non-performing loans and optimizing the lending structure, while increasing credit to small- and medium-sized enterprises, were also called for. Premier Wen Jiabao made a similar statement two weeks ago, calling on regulators to use tax, credit and land polices to bring high city property prices under control to address the "imbalanced" structure of the real estate sector. In another measure, a number of key state agencies last month ordered commercial banks to curb credit lines to local governments, warning that they could translate into higher and unsustainable rates of fixed-asset investment. [TOP]
Dubai World Plans $10 Bln Karachi Real Estate Project (Bloomberg)2006-06-01 11:48 (New York) By Will McSheehy and Khalid Qayum June 1 (Bloomberg) -- Dubai World, a group that manages state assets for the Persian Gulf emirate, will spend $10 billion to develop waterfront homes and hotels in Karachi, Pakistan's commercial capital, as it seeks to tap growth in the nation of 160 million. ``We've agreed with the Pakistan government to build residences and hotels at a prime location on Karachi's waterfront,'' Sultan bin Sulayem, Dubai World's chairman, said in a telephone interview today. ``We're also planning industrial tax-free zones and are identifying locations now.'' As the Persian Gulf's economies boom on record oil prices, governments and companies are buying and developing assets in emerging markets such as Pakistan to diversify their sources of future income. United Arab Emirates-based companies were the biggest foreign investors in Pakistan in the 10 months to April 30, with $1.2 billion, more than a third of the total. ``Pakistan is benefiting from the flush liquidity in the Middle East because of cultural, religious and social ties,'' said Muzzammil Aslam, an economist at KASB Securities Ltd. in Karachi. ``Pakistan offers better returns on equity and assets compared with regional countries, and it is aiming to build infrastructure to sustain economic growth.'' Pakistan's $118 billion economy will probably grow at an annual pace of as much as 8 percent over the next five years, matching neighboring India, Prime Minister Shaukat Aziz said in a May 22 interview. The economy expanded 8.4 percent in fiscal year that ended June 30, 2005, the fastest pace in two decades. The government projects 6.6 percent growth this fiscal year. Emaar, Dubai Islamic Shared religious and social bonds between the U.A.E. and Pakistan also have spurred investment. Both have predominantly Sunni Muslim populations. About 500,000 Pakistanis work in the U.A.E., according to Pakistan's labor ministry. The Dubai World announcement comes one day after real estate developer Emaar Properties PJSC, which is 30 percent owned by Dubai's ruling al-Maktoum family, said it will spend $20.4 billion to build homes, shops and offices in Karachi and Islamabad, Pakistan's capital. Dubai Islamic Bank today said it will open more than 70 branches in Pakistan by 2008 to tap demand for Islamic financial services. Sheikh Mohammed al-Maktoum, Dubai's ruler and also the vice president of the U.A.E., has been on an official visit to Pakistan this week. He's met President Pervez Musharraf and Prime Minister Aziz. Telecommunications The U.A.E. already has an investment presence in Pakistan. Emirates Telecommunications Corp., a phone company owned by the federal U.A.E. government, won management control of Pakistan Telecommunication Co., the nation's largest phone company, on April 12 after buying a 26 percent stake for $2.59 billion. In 2004, Warid Telecom, a unit of Abu Dhabi Group owned by that emirate's royal family, won a license for $291 million to start cellular phone services in Pakistan. Bin Sulayem said it was too early to tell how much Dubai would spend on the tax-free industrial zones, or when they will be built. DP World will manage the zones and also Pakistani port projects, he said. In April the company said it had been selected to operate the port of Gwadar after offering the best price. Limitless LLC, an international real estate company formed by Dubai World in April, will execute the group's Pakistan property development projects, it said in a statement. Dubai World controls Nakheel, the property developer behind Dubai's three man-made Palm islands, and DP World, the container ports company that acquired the U.K.'s Peninsular & Oriental Steam Navigation Co. for $6.8 billion on March 2. Karachi, located on the Arabian Sea, is Pakistan's largest port. The city has a population of about 14 million. [TOP]
A KEY CULTURAL CLUE?
Pardon the social trend cut away, but this item cannot wait for the next issue of The Elliott Wave Financial Forecast. The timing may be significant as page 4 of this month’s issue reveals that a duplication of “the collective social experience of 1968” is not to be taken lightly: “The extra-market phenomena are not the basis of our forecast, but they provide powerful confirmation that our wave interpretation is correct.” With this in mind, the following story about the hedge fund community’s harmonic convergence with “peace” and “love” sentiments of Woodstock could be very significant:
“HEDGE FUNDS JUMP ON HIPPIE BANDWAGON
This is the dawning of the age of hedge funds, and, at last, they are about to have their Woodstock. Even The Who are showing up.
It may not quite be three days of peace and music, but next Wednesday and Thursday, thousands of hedge fund managers, investors and employees will make the pilgrimage half an hour north of London to attend Hedgestock, the ‘new-age networking event for the hedge fund community.’
The festival features not only Roger Daltrey and Pete Townshend headlining what the organisers have dubbed a ‘kick-asset’ concert, but also polo and poker tournaments, and ranks of retro-hippie VW Camper Vans, customised and sold starting at £10,000 a time.
The idea of them joining a love-in with deliberate echoes of the seminal event of the 1960s counter-culture might seem curious, if not downright comical.”
Financial Times
Curious is not the right word for it as it implies there is something novel about hedge fund managers’ dressing up like hippies and traveling in VW buses en masse to a revival of the great musical love-in that took place in Woodstock, New York in the aftermath of the Dow’s December 1968 peak. At this point, we have seen so many striking parallels to 1968 that it’s not strange; it’s perfect. It means hedge funds managers who have themselves been carried aloft by the liquidity bubble of the mid-2000s (see panel in the bottom left hand corner of the all-the-same-markets chart on page 2 of this month’s issue) may well be away from their desks pretending to be hippies when the front edge of the most serious financial storm of their investment careers blows in. With the anticipation of all the drinking, card playing and assorted other debaucheries so thick, hedge fund managers probably didn’t even notice that we had several more 3% down days today (in Turkey, Taiwan, Brazil, the Russell 2000, the SOX, the Dow Transports and the U.S. oil service stocks).
As many as 4500 will pay $500 each to attend. The Who is the perfect band for the occasion because some of the hits the group will play are the same ones that launched them to stardom around a similar secondary peak in 1968. Late 1968/1969 is when The Who completed its transition from a “bubblegum” to a “more complex and provocative” sound. The play list may well includes “Dr. Jekyll and Mister Hyde,” which came out in September 1968, a few weeks before the Dow Industrials, and went on to become one of the band's “most-often performed songs. One can almost see the assembled fund managers mouthing the lyrics:
“The money I earn I never see
In all things I do he interferes
All I know is trouble as soon as he appears
Mister Hyde, Mister Hyde, Mister Hyde
Mister Hy-y-y-y-yde, Hy-y-y-y-yde
When I drink my potion my character changes
My whole mind and body rearranges
This strange transformation takes place in me”
Another sign of the “transformation” is that the same tension between the communal sentiments of Woodstock, or in this case “Hedgestock,” and the negative mood manifestations of an powerful and still emerging bear market in social mood are evident in the simultaneous return of another cultural lightning rod from 1968/1969, the My Lai massacre. Fierce echoes of that event exploded in the headlines over the weekend as the media suddenly latched on to a similar incident in Haditha, Iraq. Like My Lai, Haditha took place on the rising side of the trend, but it is only falling under the cultural microscope now. For more on the event that is so plainly the same as My Lai at the last turn of similar degree that it was was labeled “eerily similar” by the media, see the discussion at Sociotimes.com.
Next Update: Wednesday, June 7, 2006
—Peter Kendall, Co-editor, The Elliott Wave Financial Forecast.
Hong Kong Firms Hesitate on REITs (WSJ) By JONATHAN LI and SAI MAN June 10, 2006; Page A14 HONG KONG -- Two of Hong Kong's biggest property developers have delayed their real estate investment trust listings as a result of cooling investor interest, people familiar with the deals said. The delays highlight the struggle REITs face in Hong Kong in attracting investors at a time when local interest rates are rising. Three of the four REITs already listed locally are trading below their initial public offering prices, making it difficult for bankers to persuade investors that coming REITs offer yields attractive enough to offset the risk of volatility. Sun Hung Kai Properties Ltd., Hong Kong's biggest property developer by market value, had planned to list a REIT, but the adverse market conditions prompted it to revise its plans, a person familiar with the situation said Friday. "It's been put on hold," said the person. It wasn't clear when Sun Hung Kai would revive the deal. The developer planned to spin off some of its commercial properties through a REIT in June. Hong Kong's stock market has fallen around 10% in the past month on concerns over rising U.S. interest rates. Sun Hung Kai planned to raise about three billion Hong Kong dollars, or about $385 million, by putting 10 local office and industrial buildings into the trust, called Sun Millennium. It filed its listing application to Hong Kong's Securities and Futures Commission last month. The application is still pending approval, people familiar with matter said. Henderson Land Development Ltd., also one of Hong Kong's biggest developers by revenue, has also delayed a planned REIT, people familiar with that deal said. Henderson Land's deal was further advanced than Sun Hung Kai's. Preliminary talks with large investors took place in recent weeks to gauge interest in Henderson Land's HK$3.8 billion offering, called Sunlight REIT. However, a roadshow for the offering that was scheduled to begin the week of June 5, didn't occur, people familiar with the matter said. Henderson Land's property trust, comprising 20 commercial properties valued at HK$9.2 billion as of March 31, was tentatively scheduled to list on the Hong Kong stock exchange June 21, they said. Officials for the Sun Hung Kai and Henderson Land offerings said Friday no firm listing timetable for either IPO had been set. "We never set a timetable and the progress of the listing will depend on the application process," a spokesman for Sun Hung Kai's listing said. A spokeswoman for Sunlight REIT said preparations for Henderson Land's deal remain under way, but no date has been fixed for starting the IPO's roadshow. [TOP]
Daewoo to Build $820 Mln Dubai Real Estate Project (Bloomberg) 2006-06-12 08:37 (New York) By Andy Critchlow June 11 (Bloomberg) -- Daewoo Corp.'s construction unit and its partners won a contract to build an $820 million real-estate project in Dubai, United Arab Emirates, where Persian Gulf investors are spending billions of dollars building property to sell to foreigners. The company and its South Korean partner Sunjin Civil and Architecture Co. will start building the project, known as Dubai Lagoon, in August, the venture's owner, Dubai's privately owned NASA Group, said in an e-mailed statement. Dubai is undergoing a $200 billion building boom to attract tourists and property investors, according to figures published by Middle East Economic Digest. Ventures including construction of three palm-shaped islands and the dredging of an artificial archipelago shaped like the world have attracted buyers including David Beckham, England's soccer captain. [TOP]
U.K. Housing Market Unlikely to Crash (Bloomberg), Daily Telegraph Says 2006-06-19 02:15 (New York) By Toby Anderson June 19 (Bloomberg) -- The U.K. housing market has a less than one in 20 chance of collapsing even if the Bank of England raises interest rates by one percentage point, the Daily Telegraph reported, citing data collated by the Organization for Economic Co-operation and Development. The chance of a collapse in housing prices in the U.K. is 5.4 percent, one of the lowest rates in the West, the newspaper said. In Germany and Japan, there is no likelihood of a collapse if rates were raised 1 percent, while in Denmark there is 95.1 percent probability. House prices, which account for 60 percent of U.K. wealth, have risen in almost every month since the Bank of England cut its interest rate to 4.5 percent in August, where it has remained ever since. Investors are expecting the bank's next rate move to be an increase, before the end of this year.
DLF to Meet Investors Before Proceeding With IPO (Bloomberg), Bankers Say 2006-06-16 03:43 (New York) By Netty Ismail and Subramaniam Sharma June 16 (Bloomberg) -- DLF Universal Ltd., the real estate developer that planned to raise as much as $3 billion in India's biggest share sale, will meet select overseas investors starting next week to gauge demand for the offering, bankers involved in the transaction said. The company will decide on the size and timing of the initial public offering after the meetings in Asia, Europe and the U.S., the three bankers said, asking not to be identified before an announcement. DLF may cut the size of the sale from the $2.5 billion to $3 billion it earlier sought, they said. India's benchmark stock index has declined 20 percent after peaking at a record high on May 10, prompting companies such as DLF to weigh investor appetite before going ahead with share sales. Deccan Aviation Ltd., India's biggest low-fare carrier, raised 16 percent less money than sought in its IPO last month. ``Risk appetite has declined so it's not a conducive environment to be doing IPOs generally,'' said Chris Reilly, who helps manage $450 million of Asian property stocks at Henderson Global Investors in Singapore. DLF, owned by Indian billionaire K.P. Singh, plans to price the shares after June 30, the bankers said. The New Delhi-based developer had earlier planned to announce the price range as early as June 19. At least seven planned share sales have been scrapped in Asia this month, including a $1 billion initial public offering by Hong Kong billionaire Vincent Lo's Shui On Land Ltd. DLF plans to raise more than $2 billion, a company executive, who asked not to be named because he didn't want to jeopardize regulatory approval for the sale, said on June 13. [TOP]
Israel's Aloni Hetz Increases Its Stake in PSP Swiss Property (Bloomberg) 2006-06-18 05:26 (New York) By Alisa Odenheimer June 18 (Bloomberg) -- Aloni Hetz Properties & Investments Ltd., an Israeli real-estate investor that buys property overseas, increased its stake in PSP Swiss Property AG to 5.64 percent and plans to buy more. The company has spent 160 million Swiss francs ($130 million) on shares of PSP so far, Aloni Hetz said in a regulatory filing to the Tel Aviv Stock Exchange today, without giving its previous stake. This is the first time Aloni Hertz has disclosed its holding in the Swiss company, after it breached a 5 percent ceiling that requires investors to announce their stake. Aloni Hetz may spend as much as another 300 million Swiss francs, it said in the statement, adding that a foreign bank agreed to finance as much as 60 percent of that. PSP owns commercial property in Switzerland's five largest cities, including Zurich, Geneva and Basel, worth about 4.6 billion francs. The company's tenants are mostly banks and other financial companies and it also manages buildings it doesn't own. There is no certainty that Aloni Hetz, the only shareholder holding more than 5 percent of PSP, will be able to buy more shares or that it will be able to reach ``a position of influence in the company,'' it said. Aloni Hetz was chosen by analysts last year as the best company listed on the Tel Aviv Stock Exchange's benchmark TA-100 index for execution, transparency and investor relations, according to a report in the daily Yediot Aharonot. Shares of Aloni Hetz rose as much as 0.68 shekel, or 4 percent, to 17.84 shekels, and traded at 17.68 shekels at 11:30 a.m. in Tel Aviv. [TOP
Listed property - 'as good as it gets'
The listed property sector has been the best performing asset for six of the last seven years but this kind of performance only happens a few times in a lifetime.
'This is about as good as it gets,' says Leon Allison, an analyst at First South Securities.
Allison said listed property returns would be lower in the next few years.
On average, listed property has provided returns of 34% per year for the last seven years. Allison forecasts returns of 15-20% per year for this year and next year.
Mike Flax, Spearhead CEO said listed property had gone from a discarded asset class to the darling of the market but doesn't expect as much capital growth in as before. He says rental growth should sustain the sector for another five years.
"Some property assets look expensive, but the cycle could run for longer than expected as markets tend to overshoot at extremes," reckons Allison. He maintains that all investment portfolios should include property and advises investors to diversify across asset classes.
"No matter how good an investment looks, do not have all your eggs in one basket," warns Allison.
Mike Flax and Leon Allison will be speaking at Real Estate Investment World Africa 2006 from 18-21 July 2006, at the Hilton, Sandton, Johannesburg. Visit www.terrapinn.com/2006/reiwza for more information about the event
Mike Flax will be speaking on 'Boosting portfolio returns through property funds' and Leon Allison on 'Real Estate as an Asset Class'.
ANGELIQUE DE RAUVILLE: We are sticking fairly close to the retailers - they aren’t expecting the 50 basis point hike in the repo rate to have any significant adverse effect on consumer spending - so we think retail is alright. With the weaker rand industrials could even benefit - so from a property fundamentals point of view, nothing has changed on the back of this 50 basis points increase. We are still very bullish on industrial - with low vacancies driving demand for space - and retail is still fine, our third choice being office.
James Templeton, spokesperson for the Association of Property Unit Trusts, believes the market reaction may have been overdone.
“Despite the rise in interest rates, the fundamentals for the property market remain robust,” says Templeton. “Whereas the bond income is static, the PUTs are in a strong growth phase with distributions expected to grow by around 7,5% annually over the next two years,” he adds.
Growth fundamentals aside, the market perception holds that higher interest rates are bad for property investors, but this may vary from fund to fund. Distinct from many other property investment structures, PUTs employ very little gearing. “This means,“ says Templeton, “that the rate hike will not affect profitability to the extent of some of the other more leveraged property instruments, or equities in general.”
Mariette Warner, head of property funds at Stanlib Asset Management, said yesterday the South African Listed Property Index had now come down 14% since its high on May 11.
Warner said it was "relatively" much cheaper to invest in listed property but there were still risks in the system because of emerging market issues.
"So, although I do think there is value in listed property there still could be some volatility," she said.
Warner said the interest rate hike by the monetary policy committee was "largely not expected by the listed property sector because inflation remains under control".
"However, we are a global player, and with interest rates moving up in first-world countries and emerging market spread at an all-time low, the relative real interest rate of SA compared with first world countries is looking very tight," she said. The spread referred to the risk premium demanded by foreigners for emerging market assets.
First South Securities property analyst Leon Allison said investors could now buy on the same "positive fundamentals in the property sector as four weeks ago" but at prices about 11% cheaper.
Allison said that this was positive for investment in the listed property sector.
"I agree there is still going to be volatility in the listed property sector just like with general equities in SA and globally."
Catalyst Fund Managers MD Andre Stadler said the key issue now was uncertainty in the market "fuelled by a much more hawkish stance by the US in terms of interest rate increases and the prospects for them".
"With that uncertainty it makes people more comfortable to move to lower-risk investments, the lowest being cash," said Stadler. He said that as soon as investors moved from investing in cash they assumed risk.
Because of this, their return requirements for the risk they were taking in uncertain times was higher. "As a result more prices come down in order to justify a higher prospect of return," he said.
Stadler said that as far as property was concerned, the fundamentals had not changed in the past month. He said the movement in pricing meant an investor buying would be likely to receive a higher income return than he would have a month ago.
"The forward income yield on the sector was sitting at around 7,1% a month ago and today it is around 8,04%.
"For investors who are able to take a longer-term view and stomach the short-term volatility, the yield is more attractive than it was a month ago."
Euroshop, IVG Say German Real Estate Market Poised to Rebound (Bloomberg) 2006-06-22 06:32 (New York) By Andreas Scholz and Benedikt Kammel June 22 (Bloomberg) -- Deutsche Euroshop AG and IVG Immobilien AG, two German commercial real-estate companies, forecast the domestic market will rebound as consumer confidence improves and companies seek more office space. ``The situation in Germany is bottoming out,'' IVG Chief Financial Officer Dirk Matthey said in an interview. ``We've started investing in Germany again.'' Matthey also reiterated a forecast of about 135 million euros ($171 million) in net income at his company this year, and said the second quarter is going ``according to plan.'' Claus-Matthias Boege, who heads the management board of Deutsche Euroshop, in a separate interview said he's hopeful that consumer confidence will rise on the back of the World Cup, the football tournament Germany is hosting this month. ``An improved sentiment in Germany will also have an effect on sales'' at shopping centers that Deutsche Euroshop manages, Boege said. ``If Germany wins the Cup, then we'll benefit, too.'' The two executives' optimism is reflected in a German construction industry that is set to grow for the first time in 12 years, bolstered by an accelerating German economy and higher demand for buildings and roads. Boege said his company is seeking to expand in Germany, Poland, Hungary and Austria. Prices for new projects are ``still close to the pain threshold,'' making it harder to complete purchases. Boege also reiterated plans to have between 37 million euros and 40 million euros in pretax profit this year. [TOP]
China May Restrain Foreign Investment in Real Estate (Bloomberg) 2006-06-22 02:09 (New York) By Nerys Avery and Irene Shen June 22 (Bloomberg) -- China plans to restrict purchases of real estate by foreign investors to reduce speculation and prevent a property bubble, a government official said. New rules defining what type of overseas investor can buy property may be announced this month, Lin Zheying, deputy director general of the commerce ministry's Foreign Investment Administration, told reporters in Beijing today. The regulations may threaten plans by investors including Citigroup Inc. and Morgan Stanley to increase holdings of Chinese real estate after prices rose 7.1 percent in Beijing through May. Premier Wen Jiabao has curbed lending to cool an economy that grew 10.3 percent in the first quarter and to prevent a drop in land prices from causing loan defaults. ``The government is worried that overseas investment is bringing too much foreign currency into China and that it will cause property bubbles,'' said Liu Yang, who helps manage $1.8 billion of Asian assets at Atlantis Investment Management Ltd. in Hong Kong. ``But people are buying because they see real growth prospects and real returns from Chinese real estate.'' Policies to cool foreign property investment come amid a raft of other measures Wen is implementing to cool a credit-fueled investment boom driven by swelling inflows of foreign capital. China's reserves of foreign currency have doubled over the past two years to $875 billion as the trade surplus widened, leaving the financial system awash with cash. The government's policy of controlling the yuan's gains against the dollar forces the central bank to issue treasury bills to soak up surplus funds. Technical Restrictions? The International Finance News, a publication owned by the ruling Communist Party's official newspaper, the People's Daily, June 2 said the State Administration of Foreign Exchange may use ``technical'' restrictions such as tightening transaction settlement procedures and strengthening supervision of real estate companies receiving foreign funds or listing overseas. With foreign investors poised to pour billions of dollars into Chinese real estate, restricting investment from overseas could help slow growth in foreign exchange reserves and ease pressure on property prices. ``Funds from all over the world are trying to get into Asia Pacific and on top of their list is China,'' Guy Hollis, head of U.S. real estate consultant Jones Lang LaSalle Inc.'s investment arm. ``About $30 billion overseas funds and also money from the Mideast want to find a home in China.'' Yuan Speculation Speculation that China will let its currency gain at a faster pace increases the lure of property. China revalued the yuan almost a year ago and abandoned a peg to the dollar. The currency has climbed 1.4 percent against the dollar since then. ``One way that you can bet on an appreciation in the currency is to own assets in China, and real estate has been the favorite one with capital gains being pretty good,'' said John Kyriakopoulos, a currency strategist at National Australia Bank Ltd. in Sydney. Overseas institutions bought property worth of $3.4 billion in China last year, the SAFE said in a report on April 28. That didn't include ``lots'' of transactions that can't be tracked and confirmed, said Remy Chan, Shanghai-based head of markets at Jones Lang LaSalle. Foreign investors are entering China's property market by investing in Chinese developers or forming a locally registered entity such as a private equity fund to acquire existing properties. In some cases, foreign lenders are involved in financing such operations, said Jun Ma, head of China research at Deutsche Bank AG in Hong Kong. [TOP]
Abu Dhabi royals chase London sale (FT) By Jim Pickard,Property Correspondent Published: June 27 2006 03:00 | Last updated: June 27 2006 03:00 The Abu Dhabi royal family has emerged as the most likely candidate to buy Devonshire House, the 1920s Mayfair office block being sold by Land Securities. The property, which overlooks Green Park, was put on the market for £245m last month through agents Knight Frank and is expected to fetch an even higher price. ADVERTISEMENT It is understood that Lancer Asset Management, the company representing the Abu Dhabi royal family, is considered the favourite to win the property with bidding already in the second round. Another private Middle Eastern group is also understood to be in the running. The Abu Dhabi royal family emerged as last year's biggest spenders in London, investing more than £1bn in buildings including 33 Cavendish Square and 72 Welbeck Street. They also considered a move into the City with tentative - but aborted - approaches on British Land's £520m Plantation Place and 35 Basinghall Street. Devonshire House has been in Land Securities' hands since 1955. It sits on the corner of Piccadilly and Mayfair Place and has 190,000 sq ft of space occupied by AllianceBernstein Services, Boston Consulting and Bain Capital, with a Volkswagen showroom and Marks and Spencer below. Land Securities is selling some of its legacy London properties as it ploughs millions of pounds into its huge development pipeline. This includes One New Change, next to St Paul's Cathedral, where the group is understood to be seeking a partner to put up £200m for a 50 per cent stake. If it achieves £245m for Devonshire House it will represent a net initial yield of 4.27 per cent, reflecting the ever higher prices being paid in the sector. In the City, entrepreneurs Sir Tom Hunter and Nick Leslau recently placed the London head office of HBOS on the market. It is understood that Evans Randall, a private investment group, is the preferred bidder for the building with an offer of £200m. The Financial Times revealed last week that ING, the Dutch financial services group, was in pole position to buy Covent Garden from Scottish Widows and Henderson for more than £400m.
London Office Prices Hit the Stratosphere (FT) June 28, 2006; Page B10 In a city where both real and proposed skyscrapers have nicknames like "the gherkin" and "the walkie-talkie" because of their unusual shapes, it is easy to see why newcomers might wonder if London's sky-high office prices are some kind of a practical joke. London's West End submarket boasts the world's priciest office real estate, based on a first-quarter ranking of 50 global markets surveyed by real-estate brokerage firm CB Richard Ellis. The West End, also home to many of the city's theaters and Leicester Square, offers low-lying Victorian buildings that have become coveted addresses for media firms and hedge-fund managers. A number of taller buildings are on tap in London, including Land Securities' proposed 45-story tower at 20 Fenchurch St., dubbed 'the walkie-talkie.' The cost of occupying those offices -- including rent, taxes and service costs -- was estimated at $185.60 a square foot annually, according to CB Richard Ellis calculations. The West End topped No. 2 Tokyo's Inner Central submarket, with an estimated cost of $130.05 a square foot. The City of London, the financial district that includes the 40-story tower often called the "the gherkin" because of its suggestive rocket-ship shape, was ranked third at $127.49 a square foot. More skyscrapers are on tap that will add significant height to the skyline, including the proposed 60-story Bishopsgate Tower, which is being developed by the German capital-investment firm known as Difa. Meanwhile, the City's appeal to financial firms remains strong. J.P. Morgan Chase & Co. is in the early stages of identifying space for equity and fixed-income trading floors that would require some 150,000 square feet. A J.P. Morgan spokesman says the new space will replace several existing trading floors, but the firm will remain in multiple buildings. How much higher can London office rents go? Some market watchers say relief for tenants may be on the way as developers ratchet up construction plans. But others note that London's cachet as one of the world's most venerable financial capitals -- and a location that allows companies to do business with the U.S. and Asia in the same day -- remains strong despite the sticker shock. "It's a bit like tasting whiskey for the first time," Matthew Purser, managing director in the London office of Studley Ltd., a real-estate brokerage company that represents tenants, writes in an email. "You know it's a strong flavor, but it's still an acquired taste." The potential for higher rents and the large sums of institutional money chasing real estate world-wide also have helped drive a record volume of office property sales. Some £15.4 billion ($28.1 billion) in office transactions was completed last year in the central London area, according to real-estate services firm Jones Lang LaSalle. The top prices fetched for offices in the second quarter rose to £2,000 a square foot in London's West End and £1,200 in the City. The average price in midtown Manhattan was $650 a square foot through June 1, though some properties have fetched about $1,000 a square foot, according to Dan Fasulo, director of market analysis at Real Capital Analytics Inc., a real-estate research firm in New York. Some areas of London are less expensive, such as the Docklands, which includes Canary Wharf, or the suburbs. CB Richard Ellis estimates prime annual rents for suburban high-end buildings are between £25 and £30 a square foot, compared with £48 in the City and £85 in the West End. The Greater London area, home to about 7.5 million people, saw employment increase about 0.9% in June 2005 from the year earlier, just above the 0.8% growth for the United Kingdom, and economics forecaster Cambridge Econometrics predicts Greater London employment growth will have jumped 1.1% this month from a year earlier. Developers are expected to deliver about 12 million square feet of new office space from 2006 through 2008. That is about 6% of the just over 200 million square feet of office space in London as of the first quarter, according to CB Richard Ellis. Mike Hussey, managing director of the London portfolio for Land Securities, says the company has about two million square feet of office space under development or just completed in London. But he says Land Securities, one of the U.K.'s largest property firms, is wary of the market and will insist on preleasing space before proceeding on more projects. Mr. Hussey says no decision has been made on the timing of a 45-story financial-district tower in the planning stage -- dubbed "the walkie-talkie" by some because its curved design is reminiscent of earlier-era mobile phones. Says Mr. Hussey, "Demand may well increase, but because there's so many more developments, we're worried." [TOP]
Property peak called by DTZ (FT)
By Jim Pickard
DTZ, the property agents, called the top of the property market after net capital flows into UK commercial property reached a record £70bn for last year.
Joe Valente, the group’s head of research, said the peak of the boom had probably been reached and the typical number of buyers chasing each building had fallen in recent months.
“At the moment, we all believe investing in property is risk-free,” he said. “We believe this every time in every cycle – but every time before there has been a correction in price.” Mr Valente’s comments came as DTZ unveiled a 44 per cent rise in pre-tax profit to £29.7m (£20.6m) for the year to April 30. The real estate advisory group, which has offices around the world, said there had been “particularly strong profit growth” in continental Europe.
Turnover was up 19 per cent to £232.1m (£194.4m). Earnings per share rose 53 per cent to 37.9p (24.8p). The final dividend will be 7p (5p), making a total dividend for the year of 9.75p (7.5p). During the year, the group opened new Indian and Chinese offices. It also bought a majority interest in its south-east Asian business, based in Singapore. The Asia-Pacific wing of DTZ broke even for the first time with a small profit of £217,000 (£1.2m losses).
Since the year-end, the group has paid $45m (£24.4m) for a 50 per cent interest in Rockwood Realty, an adviser on North American capital markets. The group’s shares, which have climbed from 200p at the start of last year, shed 9.5p – or 1.3 per cent – to close at 694p yesterday.
Berkeley, the housebuilder, has set up a joint venture with Prudential, the insurance group, to build residential and mixed-use developments across the UK. The new business, which will trade as St Edward Homes Limited, will start with three schemes in the south-east with the potential for 2,500 homes. The arrangement is conditional on the joint venture buying Prudential’s land at Green Park in Reading and a building in Kensington.
[TOP]
Are you a rational investor?
Julius Cobbett
Posted: Tue, 04 Jul 2006 14:00 | © Moneyweb Holdings Limited, 1997-2006
Click here!
People are frequently irrational when making investment decisions, says behavioural finance expert Werner de Bondt.
One of the worst pitfalls when making investment decisions is a fascination with the recent past, noted de Bondt at a recent conference.
Although this pitfall is well identified, it still occurs with great frequency. People tend to invest in assets that have performed well recently and avoid those that have done badly. To make matters worse, says De Bondt, the financial services industry exploits this human weakness by marketing products that have recently performed well.
For example, there were countless financial advisers who put their clients into offshore funds when the rand was at an all-time low against most major currencies in December 2001.
The slide in the local currency meant that offshore investments had performed excellently in rand terms. Brokers were able to use those returns as a marketing tool to sell offshore funds to investors. The subsequent four-year appreciation of the rand, combined with the collapse of the IT bubble meant that investors achieved disappointing returns.
According to De Bondt, portfolios that sell shares that have recently surged and buy shares that have done badly tend to perform well. The principle of buying shares at low prices and selling high may seem obvious, but it is one often ignored by investors.
Another common behavioural mistake made by investors is herding. “Investors love being wrong in a bunch,” says Mark Breedon, an asset manager at Investec. Evidence of herding can be found in various stock market bubbles, from the 17th century Dutch tulip bubble to the IT stock implosion, which is still fresh in some investors’ minds.
It is a common saying that the emotions fear and greed drive markets. Bubbles create greed as investors make fantastic returns on their investments. When the bubble pops, greed turns to fear and the herd stampedes in the other direction.
Shrewd investors use these routs as buying opportunities. For example, some commentators think that the past month’s sell-off in property shares was irrational. Blue chip property shares like Growthpoint, Hyprop, ApexHi and Redefine, had all fallen by between 23% and 29% off their six-month highs by Tuesday last week.
Directors of a number of property companies used the slump in property stock prices to stock up in shares for their personal accounts. Directors of ApexHi, Octodec, Resilient, Martprop and Sycom all bought shares.
The iconic investor Warren Buffett has avoided bubbles. Buffett was widely criticised as having “lost it” when he refused to buy any technology shares during the bubble. Even though he missed out on that boom (and subsequent bust) his long-term track record speaks for itself: Buffett’s company Berkshire Hathaway has beaten the US stock market for all but six of the past 41 years.
It is often tempting to succumb to regret and envy when investing. For example, if you initially scorned an investment you might be enticed to change your mind after your neighbours make fantastic returns. However, this thinking may be irrational: if you thought an investment was bad at one price, chances are it’s even worse once it’s gone up 50%.
Betting against “irrational” markets can be frustrating though, as discovered by renowned economist and investor John Maynard Keynes. Keynes, whose investments were nearly wiped out during the stock market crash of 1929, is quoted as saying: “The market can stay irrational longer than you can stay solvent.”
De Bondt’s advice to investors wishing to overcome human emotion when making investment decisions is to choose a system and stick to it. Good systems can be developed over centuries, whereas the average human life is much shorter. “An imperfect system is better than no process at all,” says De Bondt.
Another important sign that the market thinks this is a buying opportunity.
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Watch the dollar run - Mike
Russians Bet Ruble Will Rise To Status of Dollar, Euro, Yen
By Peter Finn
Washington Post Foreign Service
Thursday, June 29, 2006; A24
MOSCOW, June 28 -- Long shunned by Russians who preferred dollars in their mattresses, the ruble is suddenly cock of the walk.
The Central Bank is planning to create a universal symbol for the ruble akin to the "$" denoting the dollar. A new 5,000-ruble note ($188) is about to enter circulation to reduce the bulge in the wallets of the country's growing class of tycoons. And parliament, in a fit of patriotic fervor, is mandating some ruble respect by banning public officials from counting in dollars.
The country's leaders are even eyeing the day -- still a long way off -- when the ruble will be traded around the world and earn the ultimate moniker: hard currency. At a economic forum in St. Petersburg this month, Deputy Prime Minister Dmitry Medvedev said he foresaw the time when the ruble would become an international reserve currency equal in prestige to the dollar, euro, yen and pound.
"The ruble is on the move," said Vladimir Zhirinovsky, the flamboyant ultranationalist legislator, invoking World War II to capture the country's newfound pride in the 800-year-old currency. "The next stop is Berlin."
For now, the value of the ruble is managed by Russia's Central Bank. As the dollar has slumped on world markets, the ruble has strengthened, rising to its highest level since early 2000. One dollar now buys about 27 rubles, a 5 percent slide this year.
The ruble's standing also has been helped by rising oil prices and Russia's position as the world's second-largest exporter of oil after Saudi Arabia.
A flood of cash is swelling state coffers; foreign reserves now stand at about $230 billion and the government is wiping clean its foreign debt. Russia announced this month that it will pay off its entire $22 billion debt to the Paris Club of creditor nations by August and agreed to an early repayment fee of $1 billion.
The Russian public's old view of the ruble was reinforced by the financial crisis of 1998, when the country defaulted on foreign debt and devalued the currency.
Now people are showing new respect for the home currency. Nina Segalova, a 50-year-old accountant in Moscow, used to convert part of her salary into dollars, but has stopped and now saves exclusively in rubles. "I think people like me have new confidence in the ruble because it's getting stronger and it's safe," she said.
In the past three years, the foreign cash held by Russians has fallen by $10 billion in dollars, according to Anton Struchenevsky, an economist at Troika Dialog, a Moscow investment company. Savings held in rubles in banks has jumped more than five times to $50 billion since the 1998 default, according to official statistics. Russian banks offer customers both ruble and dollar accounts.
In his state of the nation address this year, President Vladimir Putin said he wanted to lift currency restrictions on international capital transactions by July 1. He also proposed creating a ruble-denominated international oil exchange in Moscow to stimulate demand for the currency.
As the ruble edges its way onto the international stage, the Central Bank is deciding on a symbol for the currency. A state-run polling agency recently held four focus groups in Moscow to test 13 symbols, including one that received preliminary approval from the Central Bank -- PP, the Cyrillic letters for RR, for Russian Ruble.
Muscovites, however, preferred a simple roman R with two strokes across the upper part of the R, according to Valery Fedorov, director general of the All-Russian Public Opinion Research Center. "PP may arouse different associations," Fedorov said, "and the focus groups thought the symbol should be easily understandable for foreigners as well as Russians."
He said that the focus group participants thought that "a ruble symbol is as important as the national anthem." The newest part of the ruble family, the 5,000 note, will be released in July -- bills for billionaires, some Russians are joking. .
Nikolai Fedotov, head of quality control at the state's printing facility, told the Moscow News that "U.S. dollars with their uneven edges and other defects would never make it past our quality-control section."
What Russians have not been able to control is their penchant to price things in dollars or euros, whether restaurant meals or new apartments or government spending.
In May, the State Duma, or lower house of parliament, gave initial approval to a bill that would require all commercial establishments to express their prices in rubles. It promised to fine officials who dare use the word dollar.
Putin may not have gotten the word yet. Speaking last week about Russia's decision to pay off its foreign debt, he said that "the total amount of saving on these interest payments will exceed $7 billion."
This is Brian talking absolute baloney.
Azizollahoff explains that income from property funds is not highly sensitive to interest rate fluctuations as a consequence of lease income being determined by leases and borrowings being subject to fixed rates. “Consequentially the value offered by listed property in the current market is excellent. Yields have soared since income has not declined and yields remain well above cash and bonds,” explains Azizollahoff. By way of example, at the end of June 2006, Redefine’s forward yield had moved from around 7,25% to 8,95%.
However, Azizollhaoff stresses that the cyclical opportunities presented by this market will only continue for a limited period. “Once the market stabilizes, firstly overseas investors who have divested from emerging markets due to the inherent higher risks will return and secondly, flows of retail investments that have been withdrawn from the unit trust funds offering property related investment products will flow back and yields in the listed property sector will again rerate,” says Azizollahoff.
July 10, 2006 -- "Housing Boom Cooling, Not Crashing" is the headline in Friday's International Herald Tribune. And that seems to be the widespread opinion regarding the US economy for the rest of the year. A gentle slowdown, with very little pain. Bill Gross announces that the bear market in bonds is over, meaning that interest rates have hit their peak and are probably headed down. The consensus is that corporate earnings will rise by about 10% during the rest of the year. The most "popular" forecast -- stagflation.
And that really is the way the stock market is acting as it moves generally sideways. That's the way gold is acting as it rallies to the 630s, then backs off just under its 50-day moving average. And that's the way the bonds are acting as they turn up from a low recorded on June 28. The two unknowns are probably oil, still holding above 70, and the dollar, which continues to hold above its May-June lows.
In the meantime, the VIX has sunk back to the 13 area, meaning that volatility has calmed down from its wild ride of a few months ago. So calm seems to have returned to the markets, even though the Financial Times of July 9 headlines it, "Triple Whammy Leaves Equities Struggling." Writes the FT, "World stock markets struggled to make progress against a background of uncertainty about global interest rates, record oil prices, and heightened geopolitical concerns."
Collapsed fund's founder returns to fray
posted on Wednesday 12 Jul 2006 06:09 BST
From Times Online - see full story
The Times Online reports that the Nobel Prize-winning founder of Long Term Capital Management (LTCM), the hedge fund whose implosion brought financial markets to the brink of collapse in 1998, is back in the world of hedge funds, The Times has learnt.
The article reports that, Robert Merton said that a new fund focused on emerging markets had been created under the umbrella of Integrated Finance, the boutique investment bank that he set up in 2003 with Roberto Mendoza, the former vice-chairman of JPMorgan and ex-chairman of Egg, the internet bank. Peter Hancock, the former chief financial officer of JPMorgan, is also a founding partner of the bank, whose backers include BNP Paribas and ACE, the Bermuda insurer. Mr Merton, who won the Nobel Prize for Economics in 1997 for his work on options pricing, told The Times at the GAIM hedge fund conference in Cannes that the new fund had been set up late last year.
Tishman Speyer and Apollo to spend nearly $3B in India: Apollo Real
Estate Advisors and Tishman Speyer of the US (which is the manager of TSO –
Tishman Speyer Trust in Australia) plan to pour a total of $2.5bn in Indian real
estate over the next five years. John Jacobsson, managing partner of Apollo, told
the Reuters Real Estate Summit that his firm was looking to raise $500m from
investors and an additional $1bn through loans to invest in the sub-continent.
The company will be targeting office and residential properties.
At the same conference, Robert Speyer, senior managing director of Tishman
Speyer, said the company is moving aggressively to invest in India and has
similar plans to be a player in China. In January, the company announced a joint
venture to invest more than $1bn in India over the next three to five years. The
investments in India will focus on both office and residential properties, he
reported. The Tishman Speyer venture is looking at Bombay as well as its home
base of Bangalore, but deals in half a dozen other major Indian cities are being
scouted as well, Speyer said. (Source: GlobeSt)
Higher Rents ``Investors are anticipating we are in the early stages of a rental growth cycle'' in central London, said Damesick. Rents in the West End are the highest in the world, with some offices leasing for almost 100 pounds ($184) per square foot. Companies are seeking more space in prime buildings at a faster rate than developers are completing them. That is forecast to continue this year and next. U.K. offices returned 2.3 percent last month and almost 24 percent in the year to June 30. Shops and malls returned 19 percent in the period, the same as industrial properties. Leveraged investors weren't as prevalent as buyers of commercial real estate as they had been and were being replaced by international buyers, U.K. retail property funds and small pension funds. They weren't using debt to finance their purchases, said Damesick, who plans shortly to revise up his previous estimated return for the year of 16 percent. ``There is still a significant head of steam and that is pressing down on yields,'' he said
China's Largest Developer Poly Plans $261 Million IPO(Bloomberg)
Poly Real Estate Group Co., a developer formerly owned by China's army, said it's aiming to sell new shares at the top of a price range, in a plan that shows how it benefits from close government ties. Poly plans to raise 2.09 billion yuan ($261 million) in Shanghai by selling 150 million shares at 13.95 yuan each, valuing the 27 percent stake at almost 19 times 2005 earnings, the company said in a statement today. Poly's price-to-earnings ratio, the highest among Chinese
builders, shows how its 75 percent shareholder China Poly Group Corp., a former People's Liberation Army unit now owned by the country's Cabinet, may help it survive the government's curbs in real estate investments. Poly has 8.77 million square meters of land in reserve, making it China's largest state-owned developer. ``No other developer can compete with Poly in bids for land and projects, given its close links to policy makers,'' said Zhang Luan, an analyst at Haitong Securities Co., China's fourth- largest brokerage by assets. Poly's President He Ping is the son- in-law of China's former leader Deng Xiaoping and the Cabinet-run
Poly Group will own 55 percent of Poly after the stock sale. Poly Real Estate's 2005 net income more than doubled to
406.8 million yuan, it said in a July 5 statement. Demand for apartments, offices and shopping malls is increasing in China, driven by rising incomes and economic growth that reached 10.3 percent in the first quarter. China Vanke Co.'s shares, currently the largest publicly traded Chinese developer by value, trade at almost 16 times last year's earnings.
Easier Land, Loans
Poly, based in southern China's Guangzhou city, acquired 2 million square meters of land in the first quarter, Zhou Jun, a company spokesman said in a telephone interview yesterday. ``The parent company's prestige does make it easier to get land and bank loans,'' Zhou said. ``With our fast growing profit, that enables us to sell the shares at higher prices than our competitors,'' he said. Poly will use the proceeds to fund projects in Guangzhou, including the 80-storey Guangzhou Citic Square, Zhou said. ``It will also improve company management and further expand our financing channels,'' he said.
Poly's real estate projects include a 1.4 billion yuan museum-shopping mall in Beijing, a 150 million yuan four-star hotel in central China's Wuhan city, a 1.5 billion yuan office in Beijing and management of the Shanghai Stock Exchange building. The company's 2006 earnings may rise 33 percent to 0.99 yuan per share, higher than the 2006 industry average of 0.23 yuan per share, according to Haitong Securities' estimate.
Cooling measures
China's government has been increasing the down payments needed on properties and restricting bank lending to cool its
property market, on concern that prices are rising too rapidly. ``The measures curb consumers' interest and capability to buy apartments and will curb sales,'' Poly said July 5. China's banking regulator on May 25 ordered commercial
lenders to assign higher risk weightings to real estate loans.The outstanding amount of loans to property developers rose 17 percent last year to 914.1 billion yuan, while mortgage lending expanded 15.8 percent to 1.8 trillion yuan, according to the China Banking Regulatory Commission.
Poly's return on equity is 42.81 percent, nearly six times the average 7.83 percent of the 50 listed developers which gained last year, according to Haitong's report. Its gross profit margin is 35.97 percent, compared with 25.25 percent for all the 61 property companies listed in Shanghai and Shenzhen, Haitong said.
$8 Million Antique Jar
Poly Group is today one of China's largest buyers of antiques and cultural relics. The company paid $8 million for an
antique bronze jar used in the imperial Chinese court at a 2005 New York auction by Christie's International.
Poly's President He carries a military rank of major general. He's the former head of Zong Chan Second Division, an elite unit within the People's Liberation Army's joint chief of staff that's responsible for handling global military intelligence. He handles Poly's daily businesses as well as the company's purchases of artifacts through Poly Culture & Arts Co.
Poly's 2004 annual report features photos of cannons and tanks with pictures of the company's assets in real estate,
telecommunications and artworks that represent only a portion of its 1,000-piece collection. Gisele Croes, a Belgian art broker and antiques appraiser, estimated Poly's vaults to contain at least $100 million of art collected and underwritten by the Chinese government in less than10 years.
[TOP]
Morgan Stanley Invests $64 Mln in Indian Real Estate Firm Alpha (Bloomberg)
Morgan Stanley, the world's biggest securities firm by market value, said it invested about 3 billion rupees ($64 million) in Alpha G:Corp Development Pte, an Indian real estate company. Alpha, an affiliate of the G:Corp Group based in New Delhi, develops, manages and markets real estate projects, according to the statement. Rising demand for homes, offices and shopping malls is attracting banks such as New York-based Morgan Stanley and Goldman Sachs Group Inc. into India's real estate market, as the government eases rules on investment from overseas. Morgan Stanley Real Estate, which manages about $51 billion in property assets for its clients, said in March it invested 3 billion rupees in Mantri Developers Pvt., a Bangalore-based developer. ``We continue to believe India represents a compelling real estate investment opportunity and this investment is a continuation of our Indian strategy,'' said Zain Fancy, head of Morgan Stanley Real Estate in the Asia-Pacific region. Commercial and residential construction in India will surge to $50 billion by 2010 from $12 billion in 2005, a Merrill Lynch & Co. report said last year.
Goldman said in March it would focus on real estate investments as it seeks to expand in India, after ending a 10-
year alliance with billionaire Uday Kotak. Alpha, founded in 2003, has projects in Gurgaon, Amritsar, Jaipur, Ahmedabad and other Indian cities, according to the statement. ``We plan to utilize our partner's relationships and global platform to strategically expand our business,'' said Ghanshyam Sheth, chairman of Alpha and G:Corp Group.
Art, Wine & Horses
One of the recurrent themes of our research has been that it has "never been so expensive to be rich" and that this situation will only likely deteriorate. But even with that in mind, we have to admit that we have been floored by the recent activity at the high end of the market. Take wine, art & horses as examples. As most of our readers will know, modern art, fine wines, & horses, are assets that tend to peak just before the start of a pronounced downturn of the economic cycle. And interestingly, over the past couple of months, these assets have really been shooting up, breaking several records on the way:
* The US$16 million horse. A few months ago, a two-year-old colt who has yet to run a race drew a world record sale price of US$16 million at an auction in Florida, after a furious bidding war between Englishman Michael Tabor and Sheikh Mohammed bin Rashid al Maktoum of Dubai (could he be thinking that horses will run better than Dubai stocks?). The sale broke the previous record of US$13.1 million paid in the mid-1980s for Seattle Dancer. Considering that very few horses ever reach winnings of US$1 million and that the all-time leading earner, Cigar, took home close to US$ 10 million, this is a truly mind-boggling price to pay for a horse that has yet to race a single race (incidentally, Seattle Dancer, the previous record holder, went on to win a paltry US$150,000, racing only five times in his short career).
* The unbottled 2005 Bordeaux. In the world of wine investments, Bordeaux is king, with up to US$3.7 billion worth of wines changing hands every year. Over the past twelve months, much to Charles' chagrin (who likes to say that he is now too old to drink cheap wines), the price of top vintages have surged more than +45%. Much of this latest rally can be attributed to the - yet to be bottled - 2005 vintage. The 2005 vintage from some of the top chateaux are reportedly selling for around US$9,000 per case; as a comparison, in 2003, the same wines went for about US$3,800 per case... While investing in wine can be a very risky business, there is one undeniable advantage: if all else fails, it is a liquid asset...
* The US$135 million portrait. A few weeks ago, Robert Lauder bought a portrait by Gustav Klimt for a staggering US$135 million, the highest sum ever paid for a painting, eclipsing a Picasso sold for US$104 million in 2004. While we (by no means) would pass for art connoisseurs, prices do seem to have reached stratospheric heights. In his latest Gloom Boom Doom report, our good friend Marc Faber, describes his visit to the June Basel Art Fair, where one pure black canvas had a price tag of US$1.5 million...
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Now interestingly, while the price of the finer things in life has skyrocketed, the company that handles their sales appears to have rolled over. Since its highs in early May, Sotheby's has lost a cool -25%. Is this the shape of things to come? Is the recent frenzy in the world of "finer things" another indication that we are at the top of the cycle. Usually, the last thing to go up in prices are rare automobiles. But then again, as George Best once said: "I spent all my money on cars and women. The rest, I just wasted".
Sharpe ratio, key hedge fund risk gauge `flawed'
Publish Date: Sunday,23 July, 2006, at 01:11 PM Doha Time
LONDON: The Sharpe ratio, a key measure of performance used by hedge funds to
sell themselves, is flawed and tells investors nothing about the risks they are
taking, an investor said.
The Sharpe ratio is a measure of risk-adjusted return. It is the difference
between returns and a risk-free interest rate - often the yield on US Treasury
bills - divided by the volatility or range of possible returns.
It has been used in recent years to persuade investors such as pension funds
that it is less risky to invest in hedge funds than equities.
"It's used for marketing. It looks sophisticated, but the volatility part is not
a good measure of risk," said Nassim Nicholas Taleb, a hedge fund investor and
a professor in the sciences of uncertainty at the University of Massachusetts
Amherst.
"The Sharpe ratio is like a horoscope ... A startlingly high number of people
rely on this bogus theory ... It's a big scam by finance professors ... Finance
is a craft not a science," he said in an interview earlier this week.
At the root of the problem is the assumption that economics and finance are
solid sciences, which allows the use of statistical tools such as the law of
averages and the normal distribution to model returns.
Being normally distributed means that most outcomes will fall within a narrow
range either side of the mean.
But the idea can only be applied to things like weight or height, where an
extreme reading will not distort the mean if the sample of people is large and
representative.
It cannot be applied to exceptional extreme events in finance such as large
losses or gains that will continue to dominate the picture no matter how large
the sample gets.
"If the exception doesn't matter in the long-run, then the law of averages
applies ... If the exception continues to dominate the sample even if the sample
becomes very large, you can't use the normal distribution," Taleb said.
"It can't be applied to socio-economic variables ... An example is stock market
returns ... In the last 50 years, 10 days represented more than half of stock
market returns."
Hedge fund returns are another example. US-based Long Term Capital Management
(LTCM) collapsed in 1998 in the wake of the emerging market crisis as liquidity
dried up because of large trading losses using a model based on the law of
averages.
"LTCM had lots of small up months and a few large down months," Taleb said.
"This is not detected by the Sharpe ratio as it assumes a symmetry in the
distribution of returns." - Reuters
China limits foreign property investment (FT) By Geoff Dyer in Shanghai Published: July 24 2006 12:54 | Last updated: July 25 2006 05:23 China’s efforts to damp speculation in its property market took aim at a new target on Monday when the State Council approved a series of measures to restrict foreign investment in the sector. The new package of rules – the latest in series of moves undertaken by Beijing in recent months to curb a surge in investment – is designed to make it harder for both foreign companies and individuals to acquire property. Analysts said the measures would have only a modest impact on most foreign investment in the property sector, but they could create uncertainty among those overseas funds which were just beginning to feel comfortable about investing in China. The measures follow indications of a backlash against foreign investment in other sectors. “For some time the property market has been expecting measures to restrict foreign capital that would have a significant impact,” said Duan Hairui, analyst at CITIC Securities. “However under this new policy, foreign capital will still maintain an important role in the overall market.” Foreign investment in China’s property sector has increased in recent years as developers have become more confident about property rights and have looked for ways to tap the growing demand for office and retail space in the main cities. The expectation of further appreciation in the value of the renminbi has also fuelled property transactions. According to the State Council, funds invested in the property sector by foreign companies increased by 28 per cent in the first half of the year. Chinese media have published occasional comments from officials and academics blaming foreign speculation for creating a property bubble. The overseas investors range from developers such as CapitaLand of Singapore and property funds run by Goldman Sachs and Morgan Stanley to families in Taiwan and Hong Kong looking to make a profit on buying a second home on the mainland. However, even though the real extent of foreign investments could be considerably larger than official numbers suggest, it pales in comparison to the overall investment in the property sector, which reached Rmb769bn ($96bn) in the first half of the year, an increase of 24 per cent. Facing mounting social concern about rising house prices as well as the rapid increase in investment, the government has unveiled a series of policy announcements to try to restrain the market. The policy measures have included instructions to banks to make fewer loans in the property sector and planning rules that oblige developers to construct more housing for low-income families. Under the measures approved yesterday, foreign individuals and companies could only buy residential properties if they were for their “own use or own habitation”. Foreign individuals also had to use their real names when acquiring property, the rules said. Foreign companies making investments of more than $10m would need to have registered equity capital of at least 50 per cent of the value of the investment. The real impact of the measures remains uncertain. One executive at a foreign developer said the new rule changed little as overseas companies were unable to borrow more than 50 per cent of the funds from local banks for an investment in China, which meant they were already providing half off the funds from other sources. However, Chen Yuxin, analyst of Shenyin Wanguo Securities, said the rule change could hurt some planned investments: “The developers could find their operations limited in terms of the leverage they can gain and the overall return rate,” he said. In a bid to quell public unrest about the property and construction sectors, the government has also detained several senior party members in corruption probes about land sales, including the vice-mayor of Beijing who was in charge of land and construction for the Olympics. Last week, the Shanghai government confirmed that Zhu Junyi, the senior official in charge of the city’s social security bureau, was under investigation over his links to a company involved in road and bridge construction. [TOP]
Spain To Up Growth Forecast As Boom Continues (DOW JONES NEWSWIRES) July 28, 2006 1:46 a.m. Of DOW JONES NEWSWIRES MADRID (Dow Jones)--A surge in housing and industrial investment will allow the Spanish government Friday to defy doomsday skeptics and raise its official projection for economic growth this year. Spain's gross domestic product expanded 3.4% in 2005, by far the most of any large euro-zone nation, but looks set to at least match that pace in 2006, maintaining the longest-running boom in its recent history. Higheroil prices and interest rates didn't take any of the shine off growth as house prices continued to rise, immigrants continued to be absorbed into jobs and exports surged during the first six months of the year. While the government may gloat and Spain's trading partners marvel, some economists worry that the growth is exacerbating debt levels and price stability, augmenting imbalances that threaten to undermine future prosperity. "The paradox is that the better the current situation gets, that is, the longer growth continues to rise above potential... the greater the risk that the mid-term correction will be traumatic," said Spanish savings bank Caja Madrid in a recent report. Most observers thought the 3.5% annual rate of GDP growth reached in the last three months of 2005 marked the peak of a cycle in which Spain has made the bulk of contributions to euro-zone GDP and employment growth. But the pace was maintained in the first quarter and growth may even have quickened since. The INE statistics institute will release its first estimate for the second quarter on Aug. 14. The Spanish government is currently forecasting 3.3% annual GDP growth for the whole of 2006. But ministers will raise that number Friday when they approve the outlines of the government's 2007 budget and updated economic forecasts. Given a raft of positive economic data earlier in the year, an increase in the growth projection was coming "soon," Miguel Sebastian, economic adviser to Prime Minister Jose Luis Rodriguez Zapatero, has said. Finance Minister Pedro Solbes recently said he sees "upside risks" to the current target but declined to say more. After nearly four years in the doldrums, Spain's industrial sector is reviving. Industrial output rose 2.2% in the first quarter, fueled by resurgent demand for capital goods from companies in Spain as well as in other European countries. INE's industrial production index pointed to a 6% jump in May, suggesting continued robust growth. Cement consumption grew more than 15% on an annual basis in March, setting a new five-year high, while investment in housing construction grew by 7.4%, an acceleration from the nearly 6% pace posted in 2005, Banco Bilbao Vizcaya Argentaria (BBV) pointed out last week in a report highlighting a pickup in building activity. Building Boom Construction has been the mainstay of the economy for several years, spawning hundreds of thousands of new jobs as demand for housing soared on low borrowing costs, strong population growth and demand for vacation properties. That boom has given Spanish construction and property companies such as Ferrovial SA (FER.MC) and Metrovacesa SA (MVC.MC) extra firepower to seek out foreign acquisitions. Ferrovial earlier this year agreed to buy the U.K.'s BAA PLC (BAA.LN), the world's largest airport operator, for GBP10.3 billion, while Metrovacesa last year bought France's Gecina to become the euro-zone's largest real estate company by assets. While those deals clearly offered greater diversification, they were also made possible by euro-zone interest rates that, while arguably too high for Germany, were effectively negative for fast-growing Spain. Those low rates also fueled Spanish home prices, which have more than tripled over the last 10 years. While houses are widely judged as overvalued now, that hasn't swayed buyers, and housing prices are still rising at annual rates in the low double digits. The trend has some economists alarmed that conditions for a bust are ripening. Even BBVA, Spain's second-largest lender, acknowledges that the chances of a sharp drop in housing investment and prices increase the longer the expansionary cycle continues. Mortgage payments for an average house in 2006 will consume 23% of an average salary, up from 20% the year before, the most rapid deterioration of this so-called affordability ratio in more than 10 years, according to BBVA. More to the point, new purchases will require even larger amounts of debt finance, and Spanish households already are indebted to the tune of more than 120% of their disposable income, compared to a euro-zone average of around 100%. "Our central case continues to be one of a gradual slowdown for the housing market," said BBVA Chief Economist Jose Luis Escriva. "Recent data, however, have shown surprising strength, creating a small possibility of a sharp correction." A sharp correction, in his view, could bring a 6% fall in housing investment in 2009 and a nearly 10% fall in housing prices, with negative knock-on effects on consumer spending and overall economic growth. Mortgage loan collateral held on banks' balance sheets would shrink and widespread defaults could even result if housing values were to fall below outstanding mortgage debt. Even as Spanish GDP grows and exports now pick up, imports are rising even faster, growing 20% in the first quarter. The gap is fueling a current account deficit that is already larger than the U.S. deficit in percentage terms and is expected to reach almost 9% of GDP later this year. Because Spain is signed up to European Monetary Union, financing this deficit has been relatively painless while interest rates remain low. The currency umbrella, however, may have obscured the declining competitiveness of Spanish products as labor and other costs rise quickly. Consumer price inflation running at around 4%, currently 1.6 percentage points over the euro-zone average, translates into more expensive products and losses of market share at home and abroad. Declining competitiveness is likely to make it difficult for other sectors of the economy to provide sustained growth when construction activity inevitably runs out of steam. Should troubles emerge, Spain has a solid fiscal position, having run a budget surplus last year. The only other euro-zone country to do so was Finland. However, with tax revenue buoyant, the government has pledged to increase spending by 6.7% to EUR142.93 billion next year, offering yet more stimulus. Trying to convince the public that booms can lead to busts has proven quixotic. "Through economic risks are increasing, what I call the confidence factor, the temptation to believe this situation will last forever, is also increasing," said Fernando Fernandez Mendez de los Andes, rector of Madrid's Universidad Antonio de Nebrija. "It is hard to come up with good public policy in these circumstances." [TOP]
Eurocastle Field Trip - Very Confident
Frankfurt assets are very impressive and well located. The story here is not about increasing occupancy, which is in excess of 90%, but more about extending the existing leases to primarily Dresdner Bank, with the potential to increase rents.
Regional property tour of Deutsche Bank and Dresdner Bank branches highlights that the ECT's assets are all on well located high streets in the city centre. Here the the focus is on increasing occupancy.
At a portfolio level the goal is to increase occupancy on the Deutsche Bank portfolio to 80% from 77% by year-end, and on Dresdner Bank to 90% from 80% by 2H07.
Based on meeting the local people on the ground and understanding the leasing strategy, we are confident ECT can achieve its occupancy goals.
The group is also expecting to reduce operating expenses across the Dresdner Bank portfolio. To-date have reduced the facility management costs by 20%.
Together the increased occupancy combined with reducing the operating expenses is expected to add €17mn or €0.32 per share to FFO, annualised (already in our estimates).
Martprop - Press release
Martprop Property Fund
("Martprop" or "the Fund")
A Collective Investment Scheme in property registered in terms of the Collective
Investment Schemes Control Act, No. 45 of 2002 and managed by Marriott Property
Fund Managers Limited (Registration number 1994/009895/06)
JSE Share code: MTP & ISIN: ZAE000037271
PRESS RELEASE - MARTPROP INITIATES CHANGES
Old Mutual Property Group"s acquisition of the Marriott interest in Martprop"s
management company has brought about a number of changes to the profile and
strategy of the Fund.
"With the support of Old Mutual Property Group and the access to a number of
significant property investment opportunities that this relationship now brings,
we aim to increase the portfolio aggressively over the next three years. It is
our intention to position the Fund amongst the three biggest counters in the
listed sector in that period" says Roger Perkin, Martprop MD. To do so
management intends positioning the Fund to attract both domestic and foreign
equity capital.
Management has focussed on improving the Fund"s distribution growth and
investment rating and we are now well placed to achieve both" says Perkin. "The
earnings for the twelve months to July 2006 have been impacted by a few
significant rental reversions which the market is aware of. But looking at the
next twelve months and beyond, there is every likelihood that distributions will
grow in line with the sector."
The Martprop portfolio"s performance, as measured by IPD, reflects the strong
potential for improved earnings. The Fund delivered a total return of 34,4% in
2005 against the benchmark of 28,8%, placing it sixth out of the seventeen
participating listed funds. This performance was achieved despite Martprop"s
significant underweight position in large retail property. "Our industrial
portfolio delivered a 40,5% total return against the benchmark of 32.4% and this
speaks to the quality of the bulk of Martprop"s properties. The vacancy level
in the entire portfolio is 1%, with no vacancies currently in the industrial
portfolio" says Perkin.
Subject to the final approval of the JSE Limited, the Fund will change its name
to S A Corporate Real Estate Fund. This will convey to the market that it is a
South African fund, positioned for international investment with globally
accepted terminology, and which invests in commercial property assets that are
leased to major corporates in the local economy.
Furthermore, the Fund has changed its year end to December, which is in line
with international practice and aligns reporting periods with the calendar year
and the IPD results. A second interim distribution will be made to unitholders
for the six months ended 31 July 2006 with a final distribution to be paid for
the period ended 31 December 2006.
Ben Kodisang has joined the Board as Chairman, together with other Old Mutual
Property executives, Colin Young and Michael Anderson.
For further queries contact Roger Perkin (031) 366 1111
Date: 31/07/2006 05:31:08 PM Supplied by www.sharenet.co.za
Produced by the JSE SENS Department
Pools, vacations are new lures for homebuyers
Fri Jul 28, 2006 4:08 PM ET
By Julie Haviv
NEW YORK (Reuters) - On the fence about whether this is the house for you? Maybe
a free swimming pool will convince you. Or perhaps a free vacation.
Such is the state of U.S. housing, as home builders pull out all the stops to
keep business booming -- a sure sign the once red-hot market has turned in favor
of the buyer.
Nearly all measures of housing activity have pointed not just to a slowdown but
to a sector that is struggling. Sales are sliding, supply is swelling and price
appreciation is abating. Now, home builders are going beyond offering free
washers and dryers, refrigerators and microwaves, ponying up more expensive
perks and luxury items to lure buyers.
Las Vegas-based Wagner Homes is giving away swimming pools said to be worth
$30,000 on some of its projects.
"We had three homes sitting on the block for six months without a buyer," said
LaRae Obenauf, office manager at Wagner. "Within the past two months we threw in
the pool, and we saw a big increase in interest."
The result: All three homes are now sold.
Some incentives -- occasionally in the form of cash via bonuses, refunds or fee
waivers -- are worth as much as $100,000, said Larry Murphy, president of
SalesTraq, which monitors real-estate trends in the Las Vegas area.
"Swimming pools, gold club memberships, home landscaping ... all of them are
being offered," Murphy said. "Home builders lower prices only as a last resort,
so prior to that they prefer to give incentives, which are masked within the
sales price. They don't want to reduce prices, not only for the peace of mind of
having to deal with the homeowners who have already bought but because it would
cause problems with appraisals."
Extravagant incentives are most prevalent in states such as Florida, California
and Nevada, where home prices had risen the most but are now seeing the sharpest
softening, analysts say.
Prices in Las Vegas surged by nearly 16 percent last year but added only
slightly more than 3 percent in the first quarter of 2006, according to data
from the Office of Federal Housing Enterprise Oversight.
NICE TO MEET YOU, MR. CLOONEY
And if that new plasma-screen television is not enticing enough, how about the
opportunity to rub elbows with a Hollywood celebrity?
A bevy of builders in New York City are paying top dollar to entertainers just
to show up for viewings, according to Diane Saatchi, senior vice president with
the Corcoran Group, a residential real estate firm in New York.
"Celebrity open houses are definitely popping up," she said. "Particularly in
the new developments, which is proof they are doing all types of things to
attract buyers."
The celebrities showing up for open houses are not exactly what many would deem
"A-listers," but they are drawing crowds.
"Put it this way: If George Clooney was served up instead of a free lunch,
attendance would skyrocket," said Saatchi.
TAKE A VACATION
All that house hunting got you feeling tired? Take a free vacation courtesy of
your mortgage lender.
"One of the gimmicks right now for closing a mortgage loan is a free vacation to
Hawaii," said Anthony Hsieh, president of LendingTree.com, on online
facilitator that matches consumers to lenders competing for their business.
But buyer beware: The vacation voucher usually carries a number of stipulations,
and consumers often pay for freebies with higher interest rates and closing
costs, he said.
The Mortgage Bankers Association's latest seasonally adjusted purchase index
showed loan volume down 20 percent year-over-year during the week ended July 21.
The downturn was even more pronounced in the loan refinancing index, which
showed a more than 40 percent drop.
To attract business, some lenders are offering two free airline tickets to
borrowers who refinance their home loans.
"Any time there is increased competition in a shrinking market there are free
toasters everywhere," said Hsieh, who is based in Irvine, California.
AGENTS ALSO SEE INCENTIVES
After historically low mortgage rates fueled a five-year housing boom, the
sector is feeling the heat as rates hover near four-year highs. Some home
builders, looking to unload a property, have been cozying up to real-estate
agents, offering sales commissions of up to 10 percent.
"In this environment you are always looking to think outside of the box," said
Ellen Bitton, president and chief executive officer of Park Avenue Mortgage
Group, Inc. based in New York, who added that her firm sometimes offers lunch to
potential customers. "Obviously, we'll have a better lunch layout for a $3
million dollar house than a $300,000 studio."
Signs of a cooling market have been more evident in the past few weeks as a
deluge of data showed an excessive supply of homes, declining sales and falling
prices.
Scott J. Cooper, president of Old Merchants Mortgage Bankers in Lake Success,
New York, said his firm is offering refunds on home appraisals, which can range
from $300 to $800.
"The market certainly got tougher and it's more competitive, so one thing we are
doing is we're closing loans a lot faster," he said. "Lowering rates, lowering
points. We are doing just about anything we can to make the consumer happy."
Rich pickings in listed property
Gaylyn Wingate-Pearse
Posted: Tue, 01 Aug 2006 18:00 | © Moneyweb Holdings Limited, 1997-2006
Listed property stocks have plummeted since the market peak and more than half have lost a fifth of their value.
Property analysts reckon market sentiment and panic over interest rate hikes have caused distress selling and advise investors not to worry.
The market peaked on May 11, the day the JSE All-Share hit an all-time high of 22 094 points and analysts and investors use the date as a reference point. The interest rate hike of June 8 aggravated the slump. While share prices have fallen, rentals and income of property companies are hardly affected.
It is good to anticipate that the market can soften, says Ndabe Mkhize, analyst at Coronation.
“If the market becomes oversold, resulting in spot prices being lower than fair property values, then astute long-term investors will have rich pickings.”
The property fundamentals haven’t changed, maintains Mkhize.
Given the current fundamentals and factoring in fair bond yields when valuing listed property, I believe the market has over-reacted to the expected interest rate hikes, he explains.
“To be fair, listed property was looking a bit expensive and prices needed to come down, but perhaps it was a bit overdone.”
Rental growth is strong and demand for space is pushing vacancies down, says Mkhize.
He explained to Moneyweb the fundamentals that are putting upward pressure on rentals:
* Escalating building costs. Breakeven rentals (the rent the owner of the building must charge in order to make the investment breakeven) are higher than market rentals. This could provide an upward pressure on rentals upon renewal, especially in the office sector.
* Falling vacancies, particularly evident in the office sector.
* Scarcity of industrial land. There is practically no space available in Cape Town, Durban and Gauteng.
* Zoned and serviced industrial space is scare.
* Growth of retail spend. Retail spend is not growing as fast as before but it is still growing. Besides, turnover rentals tend to account for only 3-5% of rental income.
At one stage in recent weeks, 22% was knocked off values in the listed property market, but those who took the full impact have more to gain by sitting tight than moving out, says Mariette Warner, head of property funds at Stanlib.
She explains: “Sitting tight is a smart move when a sell-off has been overdone. It’s too late now to head for the exits. The major damage started after May 10 when the flight from the category began.
“When a market loses a fifth of its value in a few days, there are usually bargain opportunities in the immediate aftermath.”
Mkhize reckons there has been a fair amount of distress selling by lay investors and such a precipitous sell-off is a signals a buying opportunity.
According to Stanlib’s listed property specialist, the suspicion that good value now exists in listed property was confirmed in early July when signs of institutional buying became apparent
Negative returns for listed properties
Gaylyn Wingate-Pearse
Posted: Wed, 02 Aug 2006 07:23 | © Moneyweb Holdings Limited, 1997-2006
PROPERTY unit trusts continue to experience good rental income but the units have been sold in distress and led to poor performance for investors in the year to June.
Never mind healthy income from property - only one fund achieved a positive return.
Oasis Property Equity Fund, the best performing fund, holds more than 97% of its portfolio in property but does not reveal the individual properties in which it is invested. The balance of the portfolio is invested in the money market.
The second best performing fund was Marriott Property Equity Fund, followed by Investec Property Equity Fund. Both produced negative returns of just under 2% for the year to June.
Marriott Property Equity Fund hardly deserves the appellation property trust. It had no less than 45,75% of its fund in bonds and 11,9% in cash and a meagre 43% balance in property.
Its biggest property holdings included SA Retail Properties, Emira Property Fund and Growthpoint Properties.
Simon Pearse, fund manager of Marriott Property Equity Fund explained that, at the end of 2005, the fund dramatically decreased its exposure to property.
“Contrary to popular opinion, we predicted interest rate hikes in 2006 and decided to reduce the fund’s property exposure to protect our investors from an expected decline in property prices.”
The fund holdings at the end of December 2005 included less than 10% in bonds.
ApexHi Properties and Growthpoint Properties each held a 20% share of the Investec Property Equity Fund portfolio, and Redefine and Resilient held 10% each.
Speaking on Moneyweb Radio, Oasis fund manager, Adam Ebrahim explained the portfolio is extremely well diversified with a focus on low volatility returns.
“We do best when markets are volatile,” he explained.
Ebrahim said listed property’s solid performance over the last ten years has been led by certain factors that have been positive: decreasing capitalisation rates, solid merger activity, flow of funds into the property sector and fantastic earnings from a rental and refinancing point of view.
He warned that currently, only two positives remain the market – rental growth and reduced vacancies.
Leon Allison, analyst at First South Securities, said after strong performance of the listed property sector in the first four months of the year, listed properties are coming under significant pressure in the last few months.
“In early May, the sector was looking expensive and is now representing value,” he added.
Allison warns investors that the extremely high returns over the last few years are not likely to be repeated. He maintains that in the medium term, listed properties will achieve solid returns but selling pressures could continue in the short term.
A further interest rate hike expected tomorrow may potentially add further panic to the market but there is no need for concern, he said.
“One could suggest the current decline in property prices has already discounted a further interest rate hike,” reckoned Pearse.
He added that sentiment plays a powerful role and if enough investors decide to sell, property prices would be pushed down even further.
Ndabe Mkhize, analyst at Coronation, believes the market has over-reacted to the expected interest rate hikes.
There is a fair amount of panic selling from lay investors and institutional investors are starting to reduce their exposure to property from the first quarter of the year, he explains.
“We believe this presents lucrative buying opportunities to a long-term investor.”
Allison forecasts a 50 basis points increase tomorrow and maintains the hike will have little initial impact on the underlying income stream of the listed property portfolios.
“I’ll be concerned if there is another 150 basis point increase further down the line.”
Fortress May Sell 25% German Real-Estate Stake in IPO(Bloomberg), BZ Says 2006-08-03 15:12 (New York) By Chris Fournier Aug. 3 (Bloomberg) -- Fortress Investment Group LLC may raise between 1 billion euros ($1.28 billion) and 1.5 billion euros from the sale of a 25 percent stake in its German real estate holdings in an initial public offering, Boersen-Zeitung said, citing unidentified people familiar with the situation. The IPO, which would take place in October, would be the largest this year in Germany, the newspaper said. The property holding consists of Fortress's real estate units Gagfah, Nileg and Woba, which together own 150,000 properties, BZ reported. [TOP]
London's Notting Hill Area Leads Record Gains for Pricey Homes (Bloomberg) 2006-08-03 19:02 (New York) By Peter Woodifield Aug. 4 (Bloomberg) -- London's most expensive houses and apartments rose in value at a record pace last month, led by the Notting Hill district, as rising oil prices prompted Middle East buyers to buy property in the U.K. capital. Prime London properties rose 2.5 percent in July, the sixth straight monthly gain of at least 2 percent, international real estate advisers Knight Frank LLC said today in a statement. Prices in Notting Hill, made famous by Julia Roberts and Hugh Grant in the film of the same name, rose 3.7 percent, said Knight Frank. ``Prices are continuing to increase as a result of the serious shortage of available stock in prime areas of central London,'' Liam Bailey, Knight Frank's head of residential research, said in the e-mailed statement. ``The big news in recent months has been the return of the Middle Eastern investor and occupier, helped by rapidly growing oil prices.'' Prices of the most expensive properties in London have jumped 21 percent over the past year, the fastest rate of increase for six years, as bankers, traders and fund managers spend record bonuses, according to Knight Frank. Knight Frank's survey covers apartments that cost an average of 1.5 million pounds ($2.8 million) and houses valued at an average of about 3 million pounds in seven central London postal districts. July was the 19th consecutive month of gains, said Knight Frank. The biggest increase was in apartments costing less than 1 million pounds. That showed that the strong performance of prime properties was filtering into the mainstream market. International Buyers International buyers, led by Europeans and Asians, account for 42 percent of all prime properties and more than half of the homes costing more than 2 million pounds. Middle Eastern buyers represent 4.5 percent of purchasers. Among international buyers, their share of the market, by value, is second to continental Europeans, who account for more than 12 percent of the market. A London property that cost 100,000 pounds in 1976, the year Knight Frank's survey started, gained 80,000 pounds in value in July to 3.29 million pounds. That 32-fold gain over the past three decades outpaced am 18-fold increase in the benchmark FTSE All- Share Index in the same period. July's gains were equivalent to a daily increase of $4,873, or almost 10 times the average daily gain of $500 over the 30 years Knight Frank has been monitoring the market. Prices may start slowing after the school holidays and more properties come onto the market than in the first half, said Bailey. The value of prime central London apartments and houses will rise by at least 14 percent this year, double Knight Frank's original forecast, Bailey said. The U.K. has an estimated 66,600 houses and apartments worth more than 1 million pounds, according to HBOS Plc, the U.K.'s largest mortgage lender. A third of those are concentrated in the two London boroughs of Kensington & Chelsea and Westminster. The following table shows the increase in value of prime central London real estate since 1976, starting from a base of 100,000 pounds. [TOP]
By Jeremy Gaunt, European Investment Correspondent
LONDON, Aug 8 (Reuters) - No one can ever say that Albert Edwards follows the crowd. How about predicting U.S. bond yields well below 3 percent and a potential 40 percent stock slide?
For at least four years, as equities have risen and low interest rates pumped the world economy to ever higher growth, the chief strategist and asset allocator at Dresdner Kleinwort has been warning -- often colourfully - of an impending chill.
We are, he says, in an investment "Ice Age" -- a secular era where low inflation will lead to a de-rating of equities and a re-rating of bonds. Rising stocks have merely reflected cyclical factors, simple interruptions to the long-term downward trend.
Sitting in Dresdner's spanking new London headquarters this week, Edwards was in no mood to dull his blade.
"We feel very confident now with the (economic) cycle turning ... that we are in a period that will be good for government bonds and be really negative for equities," he told Reuters in an interview.
How good and how bad?
Edwards said that a U.S. recession -- which Dresdner sees as a real threat -- would trim 40 percent from the S&P 500's current level. European and other stock markets would track Wall Street as they nearly always do when it falls.
As for bonds, Edwards reckons yields on 10-year U.S. Treasuries will head down "substantially" below 3.0 percent from today's nearly 5 percent. Euro zone equivalents will see yields around 2.5 percent from the current 3.9 percent.
Edwards and James Montier, his behavioural psychology specialist colleague, base their post-bubble "Ice Age" thesis on the long-term relationship between stocks and bonds.
Most strategists do not go back far enough, they say, tending to look at data from 1982. If you go back to the 1960s, however, a pattern emerges that suggests low inflation drives equity price-to-earnings (P/E) ratios ever lower.
Current U.S. prices per share are around 13 times forward earnings. These are low by historical standards, but not low enough according to Edwards. They are likely to get to 9 or 10 times before they are cheap.
"The de-rating process normally ends with assets very cheap and (with) investor revulsion. People don't want to go near that asset again," Edwards said. "We don't think we have got to that final stage of revulsion."
WHO IS RIGHT?
Edwards -- whose award-winning research is widely read by analysts who find it challenging their assumptions -- admits that equity markets have done better than the "Ice Age" would suggest over the past few years.
"Where we were wrong (was) underestimating the profits boom for the last 2-1/2 years in the U.S.," he said. "That has allowed the P/E in the U.S. to decline in a benign fashion."
Indeed, the Dresdner strategy team was so wrong-footed that it was forced to raise its recommended tactical allocation to stocks in January, half-joking that it was at least in part in response to client comments.
But now, with signs of economic slowdown ahead, Edwards reckons it is crunch time for what he admits is very much a minority view of the investment climate.
"The next six months, we will find out whether the Ice Age is right or whether the bulls are right," he said.
((Reporting by Jeremy Gaunt; jeremy.gaunt@reuters.com; Editing by Gerrard Raven; Reuters Messaging: jeremy.gaunt.reuters.com@reuters.net; +44 207 542-1028))
Keywords: MARKETS DRESDNER ICEAGE
Business property investors 'on a high'
06 Apr 2006
Inet Bridge -
The prospects for South African commercial property investors over the next two years seem positive
The prospects for South African commercial property investors over the next two years seem positive, with steady confidence levels from major players in this asset class.
According to the latest commercial property confidence index released by online business property portal eProp, market confidence in "business property" is stronger than ever, suggesting that the property cycle is in an upward phase.
Marc Schneider, research director at eProp, says in a survey where more than 40 property players with assets in the region of R50bn were questioned, the index was at an "extremely positive" level 75, with 50 being neutral. The index is out of 100.
"The index is strongly positive and it has been positive since the beginning of last year." The index, which was started in February last year, is also at the same level as the prior six months.
Confidence in industrial property was the highest, with a net balance of 53% of respondents positive about the sector, based on the assessment of 10 criteria. Among the criteria were the number of leases the property players expected to sign, the expected net operating income from properties and expected vacancy levels.
"Retail (property) has picked up since August last year. It's standing at a level of 46% of respondents (being positive about retail property) as opposed to 39% six months ago. It's possibly a reassessment of retail and there has been a slightly more positive outlook for retail whereas previously there may have been an expectation of a downward trend."
Schneider says that by the same token confidence in offices is also quite high at 49%, but this is down from the 58% of six months ago.
Catalyst Fund Managers says the expectation of distribution growth is still driving performance in the listed commercial property sector.
"In February about 50% of the sector declared results and the weighted average distribution growth was 8,9%.
"Based on the strong and improving property fundamentals, the listed property sector should deliver a 9% distribution growth over next two years," says Catalyst.
The group says that, provided there are no external shocks which could cause an interest rate hike, the outlook for commercial property in general is still favourable over the next two years.
Business Day
April 12, 2006 11:26 AM
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Property news
Demand for residential space in London bodes well for long-term investors
Monday, August 7, 2006
The two negative fundamentals for a market collapse – unemployment and rising interest rates – need not concern potential investors in property in London, Scott Picken, MD of International Property Solutions, assured delegates at the recent Rode Conferences.
Unemployment in the UK is at an all-time low and the average 10-year moving interest rate is 5,2%. The critical housing shortage in London also contributes to making residential property in the city an attractive long-term investment option.
Picken quoted data released by the Royal Institute of Chartered Surveyors indicating that the number of houses on the market dropped by 11% from November 2005 to February 2006, while demand stayed strong.
With the current shortage of housing and the increase in the divorce rate, 208.000 houses per year are needed in London. Until now UK Housebuilding has been delivering only 170.000 per year, which means that there is an annual shortfall of about 15%.
Apart from the housing shortage, the London rental market is also strengthened in certain areas by the high number of foreigners working in London for a year or two, and usually wanting to rent rather than buy.
Picken pointed out that property prices in London have doubled over the past six years and says that in the long term London offers good value, as it remains one of the most popular cities in the world. Over the past 30 years, London property has outperformed all areas in the UK (see graph).
With a ¾ million of the 1,3 million South Africans in the UK living in London, you could do well if you bought in an area popular with South Africans, such as the Wimbledon area, and break up a house into several apartments which you can then let out to several individuals.
“Compared with other asset classes, London property is still an attractive investment. Done properly and seen over the long term it should be a low risk investment. Staying out can be as costly as going in.”
18 Jul 2006 - Property Loan Stock Association -
Intro
The Property Loan Stock Association (PLSA) will be hosting its first-ever management, REITs REALITY – towards a REIT environment in South Africa – on 16th and 17th August at the Sandton Convention centre.
The Property Loan Stock Association (PLSA) will be hosting its first-ever management, REITs REALITY – towards a REIT environment in South Africa – on 16th and 17th August at the Sandton Convention centre.
South Africa lags behind major world markets in the shift to a REIT (Real Estate Investment Trust) structure. PLSA members support the re-positioning of the listed property sector towards a REIT environment and are leading the change process.
In furthering this, the PLSA, with sponsor Investec, is hosting REITs REALITY, a two-day senior management conference addressing moving towards a REIT environment in South Africa. The conference will take place on 16 and 17 August 2006 at the Sandton Convention Centre.
This conference will equip delegates with a comprehensive understanding of the impact and implications of adopting a REIT structure in South Africa.
Through this event the PLSA offers direct access to an unprecedented panel of leading international industry speakers, supported by key local figures.
International speakers include Richard C Anderson, director of Real Estate Investment Trusts at BMO Capital Markets, New York; Sam Zell, founder and chairman of the largest REIT group in the US, Equity Office Properties and Equity Residential; Sarah Cooper, director of equities at Credit Suisse in Australia and John J Kriz, managing director of Retail Finance at global rating agency Moody’s Investors Service, New York.
The South African speaker panel includes Norbert Sasse, chairman of the PLSA and CEO of Growthpoint Properties; Sam Hackner, CEO of Investec Private Bank and chairman of Growthpoint; Mike Flax, CEO of Spearhead Property Group; Colin Young, head of asset management, Old Mutual Properties; Ernest Mazansky, director of Werksmans Tax; Andrew Brooking, director of Java Capital; Mike Berman, CEO Velocity Trading and Jon Zehner, head of sub-Saharan Africa, JP Morgan South Africa.
Property Analyst for First South Securities Leon Allison comments that if one of the focuses of the South African listed property is – as it should be – attracting international investors, then it is vital to have a standardised structure and the most appropriate vehicle is the REIT.
“While the current listed property structures (PLS and PUTs) are not dissimilar to the REIT, conversion to this standard vehicle has clear benefits, certainly in terms of tax,” says Allison
He adds that when competing in the global investment market, keeping it simple is the key and this can be achieved through offering a familiar structure. “Global investors need to look at many markets, across many different countries and having to examine unfamiliar structures and dealing with complicated explanations can be a deterrent. Adopting a standardised REIT structure overcomes this,” notes Allison.
François Viruly of Viruly Consulting believes that in many respects the South African listed property sector is at the forefront internationally, even surpassing countries such as the UK. “It is critical that we have conferences such as the PLSA REITs Reality which provide a broader perspective than that we are used to accessing in South Africa,” says Viruly.
“The listed property sector, and REITs in particular, will increasingly become the vehicles in which properties are held, as opposed to traditional direct ownership.
Progressively more investors are crossing national boundaries and looking for investment vehicles with a familiar structure and similar levels of governance,” explains
Viruly who stresses that South Africa needs to provide a product that is well known and has been tested internationally.
Vuyani Bekwa, head of institutional investments at Investec Listed Property Investments stresses that the South African market has a well-developed listed property sector, which has mimicked REITs in a number of ways, with just a few issues outstanding, such as capital gains taxation.
“The move towards the conversion of all listed property sector instruments into REITs is a good move for the sector. It will align the South African markets with international norms, as REITs have been adopted since the 1960s in the U.S., 1969 in the Netherlands and 1972 in Australia,” says Bekwa.
Bekwa believes that once converted, international investors will invest locally in an asset class which they understand and that will increase the demand for the listed property sector, as yields locally are generally higher than in developed markets such as United States, Europe and Australia.
ther Property News
Free market flogs property
The latest increase in interest rates was harsh on the prices of listed properties over the past two months. Prices fell by 20%-30%.
Fortunately, the private owners of ordinary office buildings don't see what their property is worth in the paper every day, otherwise they would also lie awake at night worrying about falling prices.
It's the job of the board and management of a company to make a profit. After all, that's the shareholders' mandate to the board. And that's what the board and management are paid for. Somewhere along the line, the "market" attaches a value to this profit. If, for example, the company earns a profit of R2/share, the market can then decide it likes that and give it a price:earnings (p:e) ratio of 12. That means the company's shares will trade at 12x2, or R24 each.
However, if the market decides it doesn't like the company's profit or if something else is troubling it, it could attach a p:e or valuation of only eight to the profit. Then the share would trade at only R16 (2x8).
Investors, the board and the management, of course, are not at all taken with the vagaries of the market, especially if the market rating suddenly weakens and the share price drops.
Investors, especially in local listed shares, were probably much inclined to describe the market in more colourful terms over the past month or so. Just look at the unreasonably sharp fall of 24% in the prices of the SA PUT index in the second quarter of the year. It's quite unrealistic and is in fact the sharpest quarterly fall in 30 years - with the exception of the dark days of 1998 during the crisis in the emerging markets. At that time, this index collapsed by 29%, but that was after local interest rates on Government bonds had shot up by as much as 24%.
However, Stanlib's latest weekly survey shows that the market is not the culprit. It only sometimes seems to be.
The prices at which property shares were trading on the JSE were simply too high, because the valuations used to determine the prices were far too optimistic.
The price of a property, and therefore the price of the shares of a property trust, is determined by the future cash stream that the property can produce over the next few years at a rate discounted to the current value. Easy - there are scores of little models on computers to work it out.
The critical question or problem, however, is which rate to use for discounting the cash flow. That's determined by the market.
The Stanlib graph shows that early in May investors were prepared to discount the future cash flow at as little as about 6%. But suddenly the market looked surly and decided to push up the rate to the current 8,2%, which in fact is as high as 9,2% if the following year's income is used.
But what really frightened the market? Nothing - or nothing much. The SA Reserve Bank recently increased interest rates by as little as 0,5 percentage points. That's not enough to justify the surge from 6% to 8,2%, or perhaps 9,2%.
Relax. The market hasn't started fiddling the figures. It has merely corrected what was excessive. For years, listed properties have been trading at a return rate of a percentage point or so higher than the rate on Government bonds. Remember, a country's Government bonds are the safest investment in the country itself. Others, like property investments, should trade at a slightly higher rate.
However, after the past four years of solid increases in the prices of these listed property shares, investors became somewhat too excited, and from about April the return rate on these shares fell to just over 6%, while Government bonds were still trading at 7,15% - on the same angry market.
When it became clear in May that the four-year-long fall in local interest rates had ended, the yield on Government bonds rose from 7,15% to the current 8,35%. The return rate on property trusts therefore inevitably also had to rise. In fact, the one-year forward return rate of 9,2% on the shares that Stanlib shows in its graph looks very realistic. As already mentioned, the return on the property trusts in the past was always at least one percentage point more than the rate on 10-year Government bonds.
"But my property down the road is now worth 25% less than it was two months ago," the same unhappy investor says. "The bricks, the roof, the floor and even the tenants and the rental they pay are still the same as two months ago," he continues. "The property can't be worth 25% less now."
Unfortunately, it is. That's how the free market works, and it's not an amorphous market. Two months ago, investors were prepared to buy properties with an initial return of 6%; now they want an initial return of 8% or more. To satisfy the need or the desire of the market, the prices of properties had to fall.
Source: Finweek, Vic de Klerk
A good time to buy listed property
The recent reaction of holders of shares in property loan stocks to the 50 base point rise in interest rates has been excessive and irrational, says Ilan Kaplan, the analyst and acquisitions strategist at Spearhead Property Holdings.
Quoting Mariette Warner of Stanlib, Kaplan said that between 1994 and 1998, when interest rates rose from 15 to 25% the value of listed property stock fell by 44%. In the last two months, he said, the comparatively modest 0,5% increase in the interest rates had resulted in a 25% drop in the same index’s value over only a six week period.
“Even if there is another 100 base points rise in the rates,” said Kaplan, “this would not justify the overselling that we have seen recently.”
Asked to give reasons for his confidence in property stocks Kaplan said that the fundamentals in this sector all now look good and that recent share declines were no more than a technical correction in what is a long term Bull market. .
“Rentals of commercial space have moved up 15 to 20% in the last year and are set to rise further in the coming year because vacancies in most CBD and major retail offices are now under 4%. Furthermore, ongoing demand and upgrading of B-Grade commercial property will see the gap between A and B-Grade rentals closing.
“Today,” said Kaplan, “you can earn R60 per m2 for B-Grade offices and R120 per m2 for A-Grade offices. It seems inevitable that the B-Grade space will now increase over the next year to around R80 per m2.”
On the industrial side a similar spectacular improvement in rentals had been witnessed for some nine months now, said Kaplan, while on the retail side, which had had a very good run, a slow down in growth can be expected but investment here still remains a good proposition.
What lessons for the investor are to be learned from this?
“The message investors should be getting,” says Kaplan, “is that now is the time to put together property loan stock portfolios as, indeed, certain major fund managers are already doing.
“The stocks here are currently trading at the largest premium to bonds seen over the past 18 months and a correction is very definitely due. If bought now several of these shares will give a return of over 10% making it possible for the first time in a long while to more than cover the funding and finance costs.”
Kaplan added that the interest rate rise had, in his view, been necessary to dampen the overspending that had recently been prevalent, particularly among the less affluent middle class who should be saving far more and who have in some cases been reckless in taking on too much debt.
“One way of avoiding this danger,” said Kaplan, “could be to allow people to invest a larger portion of their salaries in pension funds. In Australia, I am told, it is now possible to invest up to 100% of your income in a pension fund. If we adopted similar methods people’s liquidity and spending power would no doubt be reduced, which right now would be a good thing.”
Merits of Listed Property still sound
While the recent interest rate hike – albeit small – may signal the beginning of the end of South Africa’s economic ‘honeymoon’ period, and investors need to revert to reality, listed property remains a sound investment, according to SAPOA (S A Property Owners Association) CEO, Neil Gopal.
“The low interest rates and strong Rand has fuelled consumer confidence and spending over the past 12 months, despite the Reserve Bank’s repeated warnings prior to the interest rate increase,” says Gopal. “Although the increase was not a large one, it does impact in many ways and the first interest rate increase after quite a long period of lower rates tends to have a sobering effect on the market generally. This is simply a correction and it was bound to happen – the pendulum after all, must swing both ways.”
He says that it’s important to retain a balanced view of the economy and one needs to put rate increases into context with other important factors such as a higher economic growth rate and public sector spending on infrastructure demand outstripping supply.
“Although we believe that the rise in interest rates will most probably have a dampening effect on the market, this will only be short-term and we confidently expect the listed property sector to continue to do well over the next few years.”
In terms of opportunities for property buyers and listed investors in the current climate, Gopal warns that the watchword is discernment. He says that caution should be exercised and investment choices made on the basis of quality and perceived sustainability. Property is just one of many asset classes and the rule of diversification with a spread of investments remains the best way to minimise risk. No one has a crystal ball to predict the future with 100% accuracy, but reliable research is a valuable tool in making informed decisions
“However,” says Gopal, “economic concerns I do have that negatively impact on the economy are related to the skills crisis, escalating crime levels, consumer household debt levels and low savings in South Africa. Household debt is very high in this country, the average currently quoted at 68% of household income and there is a direct link between this and savings. Savings levels are important because they contribute to the growth of the economy and reduce dependence on outside capital to fund development, as well as reducing the social burden on the state. For various reasons, South Africans have an entrenched culture of spending and they score very poorly in the savings stakes – according to statistics, saving an average of only 0,2% of disposable income – a mere fraction of the 15% ideally recommended by financial experts.” To put this in perspective, according to SASI (SA Savings Institute) guidelines, the national savings rate which currently stands at about 13% of GDP, should be closer to 20% of GDP if the country is to achieve its economic growth and development targets. In China, for example, savings comprise 40% of GDP.
“I don’t believe rate increases or other factors within the country and economy are a danger in terms of negative sentiment. I think it is external shocks such as oil price increases, instability in the Middle East and further terrorist attacks that pose the primary danger of creating negative sentiment.”
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EDITOR’S CHOICE
Demand for directly held property is growing
Pension fund trustees should definitely be considering their weighting in directly held property, particularly in their post-retirement annuity portfolios, says Colin Young, head of asset management at the Old Mutual Property Group.
“Property as an asset class has excellent liability matching, diversification and duration extension attributes. We are seeing significantly increased demand from actuaries for property, “he says.
This follows years of reduced property holdings by institutional investors such as insurance companies.
Young says the level of institutional property holdings in South Africa today is now growing from around 4%, down from 20% in the 1980s.
“Property returns in 2005 were even stronger than in 2004, with investors achieving a total return of 30%. Strong occupier markets led to rental incomes rising faster than at any time in the last 10 years. That was coupled with robust investment demand pushing yields lower.”
Young says the market was led by industrial and retail property with the sectors each producing a total return of 33%.
“Offices again lagged the rest of the market although there are strong signs of recovery with vacancy rates falling sharply. “
He says the investment climate has been characterised by increased volatility of equity markets and a fall in fixed income yields.
“There is pressure on matching liabilities because of changing demographics in many markets as a result of lower growth in populations and people living longer. “
Young says UK research shows that duration is key to liability matching - and that long duration bonds have helped but these are in short supply.
“The decision is thus to compromise and reduce duration or to use property to increase it.
“UK research also indicates that if other asset classes are used to match liabilities, they should display enhanced returns, the ability to generate inflation linked cash flows similar to duration characteristics of the retirement fund, and capital values which have a high correlation with the discounted value of the fund benefits.
“Typically, balanced mandates have been used to enhance returns and to reduce risk. But it has been found in the UK that there is a migration away from balanced mandates. That is partly because falling interest rates placed a greater emphasis on liability matching and because falling equity markets and surpluses heightened the importance of asset allocation. “
Young says the positive attributes of property include its high running yield, the compounded effect of a growing income stream and its ability to enhance return relative to risk.
“It’s a tangible asset that isn’t swayed by everyday sentiment. The importance of its liability matching characteristics are not reflected in asset allocation levels at 4%. Its reliable, predictable growing income stream can improve liability matching duration. And in a declining or low interest rate environment, it offers excellent yield enhancement qualities. “
Young says prospects for property are good.
“Economic growth is above the trend and expectations of above 5% growth for 2006 are conceivable. Personal disposable incomes are growing at 11% and underpinning buoyant consumer spending and business confidence indicators are at record highs. “
He says supply of space appears to be constrained, with completion of buildings lagging behind approvals.
“Vacancy rates are falling rapidly across all sectors and real rental incomes are growing at the fastest rate in a decade.”
“Given these factors, the recommended asset allocation to direct property for post-retirement annuity funds should be at least 20%, while for pre-retirement defined contribution funds it should be at a more modest 7.5% level. However, for pre and post retirement defined benefit pension funds, the allocation should be even higher.
“To cater for this demand, we will be launching an exciting new product in due course.”
Luring offshore money
While some local investors could continue selling off listed property stocks, offshore investors may start picking up the slack following the recent release of an international report that rates SA as a relatively low-risk property investment destination.
SA is ranked 13th out of 56 countries across the globe in the Jones Lang LaSalle 2006 Real Estate Transparency Index, one of the benchmarks used by the international investment community to compare the risk profiles of regional and global property markets.
SA ranks highest of all countries in the Middle East and Africa and even pipped developed European countries such as Austria, Belgium, Norway, Switzerland and Denmark as well as property hot spots like Ireland and Spain to the post. Australia, followed by America and New Zealand, take the top three honours in the survey.
First South Securities property analyst Leon Allison says SA's high ranking could make local real estate investments more attractive for foreign investors, particularly in the light of commercial property's positive growth prospects.
Allison says not only is SA's risk profile rated as low or lower than a number of developed countries, but SA real estate generally also provides higher growth and higher yields than that of many of its developed counterparts. SA increased its transparency rating significantly over the past two years, moving from 21st in 2004 to its current 13th position.
Until now, the JSE's real estate sector hasn't seen any significant offshore investment come its way, despite it offering attractive income yields relative to what's available in the US, the UK and Europe.
The only two listed property funds that to date have managed to attract some international investment interest are sector heavy-weights Growthpoint and Grayprop. But interest is still marginal with less than 4% of issued shares in both Growthpoint and Grayprop believed to be in foreign hands.
But this scenario is likely to change for a number of reasons. Not only because of the positive rating given by the Jones Lang LaSalle survey, but also because the sector is on a consolidation drive with a number of funds expected to merge in the next few months, making the sector more attractive for offshore fund managers who tend to chase bigger, more liquid funds.
Another factor that should lure more international investors to the sector is that SA listed property is gearing up to adopt a REIT (Real Estate Investment Trust) structure.
Though SA lags other world markets in the shift to a REIT environment, most local players support the conversion from property loan stocks (PLSs) and property unit trusts (PUTs) to the internationally accepted REIT structure. The Property Loan Stock Association (PLSA) is leading the process by hosting a two-day management conference later this month to address the move to a REIT environment.
The Jones Lang LaSalle survey incidentally found that countries with listed REIT sectors tend to be more transparent than those using other vehicles.
Vuyani Bekwa, head of institutional investments at Investec Listed Property Investments, says though SA has a well developed listed property sector, which has mimicked REITs in a number of ways, the move to the REIT conversion will align the SA market with international norms. REITs were adopted in the Sixties in America and the Netherlands and in Australia in the early Seventies, while the UK real estate sector is in the process of converting.
Bekwa believes that once the SA sector converts, international demand for local listed property stocks will increase as foreigners will be investing in an asset class that they are familiar with.
Increased money-flow from offshore could be further fuelled by the sector starting to offer more value with share prices down roughly 25% since mid-May. The sector's forward yield is currently at 9%, which looks particularly attractive compared to yields of around 3% to 5% typically offered by American, UK and European listed property stocks.
Mariette Warner, head of property funds at Stanlib, says early signs of institutional buying became apparent in July, suggesting that listed property now offers good value.
Says Warner: "Listed property may have taken a knock, but its strategic role as a risk-diversifier in a balanced portfolio is undamaged."
"Over the next year, a recovery is more likely than another crash and there is reason to believe that listed property will outperform both equities and bonds."
The Jones Lang LaSalle survey measures transparency in terms of the availability of investment performance indexes, the availability of market data, financial disclosure and governance of listed vehicles, regulatory and legal factors, and professional and ethical standards.
Investec mum on Waterfront sale bid shortlist
01 Aug 2006 - Inet Bridge -
Intro
A shortlist of bidders for Cape Town's premier V&A Waterfront has been drawn up but it will not be released
By Donwald Pressly
A shortlist of bidders for Cape Town's premier V&A Waterfront has been drawn up but it will not be released, according to transaction adviser Investec Bank Ltd's Dave Tew who is running the sales process on behalf of Transnet and its pension funds.
Tew, of the Corporate Finance division, told I-Net Bridge on Monday that: "We have drawn up a shortlist and that shortlist won't be released."
He declined to say how many bidders were in the shortlist but acknowledged that there had been a narrowing down from the original number. He also would not say how many had lodged bids, which closed last Monday.
Asked when the process would become transparent, he said: "It will only become transparent once (it has been) finalised who the successful bidder is."
That announcement, he said, would be "during September". He did not provide a specific day in September.
Tew said that "obviously we have to take guidance from the client. Based on the indicative offers which we have received ... we are happy with the quality of indicative offers and the price offered by the parties."
He noted that the client - Transnet and its pension funds - were governed by the Public Finance Management Act which provided strict guidelines under which to carry out the sale.
"We can't put information out there that may, or may not, prejudice some of the parties."
It is speculated that the offers are upwards of seven billion rand and it has been reported that there were originally some 80 bids, although this was not officially confirmed. Bids carried a non-refundable deposit of 50,000 rand.
Investec Bank and Deutsche Securities (SA) are joint transaction advisers.
V&A Waterfront selloff ‘gets local and foreign bids’
02 Aug 2006 - Business Day -
Intro
Property industry sources say that 20 to 40 initial bids may have been made for the Victoria & Alfred (V&A) Waterfront in Cape Town.
V&A Waterfront selloff ‘gets local and foreign bids’
Nick Wilson
Property industry sources say that 20 to 40 initial bids may have been made for the Victoria & Alfred (V&A) Waterfront in Cape Town. Several of these bids were thought to have been made by foreign companies, which may or may not team up with South African partners.
A reliable source, who does not want to be named, says it is understood that about 40 bids were initially made.
It is also believed that several South African property players have been short-listed to go into the second round of the bidding process. Among these are Hyprop Investments, Zenprop, Old Mutual and the Cavaleros Group.
It is understood these players are members of consortiums that have made bids for the landmark Cape Town property.
“We don’t know how many went through. Apparently there were also some international bidders,” says the source.
Norbert Sasse, CEO of Growthpoint, SA’s largest listed property company, says his sense of the bidding process is that 16 to 20 bids would be made for the property.
“You are going to have four or five listed property companies, four or five institutions, four or five private consortiums and four or five international consortiums,” says Sasse.
But he would not comment on whether Growthpoint had made a bid for the V&A.
Investec Bank and Deutsche Bank, the advisers appointed for the V&A disposal process, are tight-lipped about the process.
David Tew, a corporate finance consultant from Investec, says he cannot say how many bids have been received.
“Our clients were pleased with the quality of the bids they did receive. On the basis of that we are still proceeding with the process. The prices were at the right level,” says Tew.
He says they will soon advise bidders who will go through to phase two of the bidding process.
There is speculation that foreign bidders may have an advantage over South African ones because of the lower cost of funding overseas.
Property commentators say that a foreign investor in the V&A could also act as a catalyst for future foreign direct investment in SA.
Les Weil, chairman of real estate group JHI Real Estate, says he has heard a Canadian pension fund, an international bank and Middle East investors have put in bids for the V&A. He says this is “very good” for SA.
“Where there are trophy assets and if they (foreigners) are successful (in running the asset) and it’s a good experience, it brings in other investors and not necessarily just into commercial property. It highlights SA as a good place to invest,” says Weil.
David Green, MD of commercial and industrial property brokers Pace Property Group, says foreign investor interest in the waterfront is a “fantastic indication that foreign investors see SA as a good location to invest”.
“Obviously the V&A Waterfront is one of our premier retail precincts with further opportunities for expansion. But I think the most important thing is if you are a foreign buyer you can’t buy in your country at yields as attractive as those offered in SA.”
He says if investments in SA by foreigners are funded offshore at lower interest rates than those applied to SA, it “makes it particularly attractive for foreign investors to invest in SA at higher yields than would globally apply”.
“Also, foreign investors are only really interested at the moment in large-scale investments and generally they want investments of more than a $1bn.
“Foreign investors are looking for a large real estate investment of which there are very few available and of course they are competing with domestic investors, which include the listed property funds, but the advantage the foreigners have is access to cheaper capital.”
Property economist Francois Viruly, of Viruly Consulting, says that the V&A is probably of “a size or value that would be of interest to foreign investors”.
“From a valuation perspective it will be interesting to determine at what yields the V&A Waterfront is sold because it would set a benchmark for prime shopping centres and mixed-use developments,” says Viruly.
He says a foreign investment in the V&A may “start opening the doors for other foreign investors and pension funds to start looking more carefully at the South African property market”.
In May, Transnet and two of its pension funds launched a process to sell a majority stake in the V&A by next month.
Transnet CE Maria Ramos said at the time that the parastatal would sell 77,4% of the V&A, or 100% if a third pension fund, the Transnet Pension Fund, decided to dispose of its 22,6% stake.
Ramos said that only offers for at least a 25% interest in the V&A would be considered and preference would be for a transaction involving a single buyer.
Market speculation on the V&A’s price tag varies from R3bn to R7bn.
JHI expects commercial rental increases of up to 20%
02 Aug 2006 - Business Day -
Intro
Office rentals are expected to increase up to 20% over the next year, according to JHI Real Estate’s South African property report for this year.
JHI expects commercial rental increases of up to 20%
Nick Wilson
OFFICE rentals are expected to increase up to 20% over the next year, according to JHI Real Estate’s South African property report for this year.
Speaking after the launch of the report, JHI chairman Les Weil says the office market hasremained relatively flat over the past five years because so much space is available.
But Weil says the “vacuum has been taken up” and, with building costs going up, rentals are expected to follow suit. Already, new office developments are fetching rentals of R100/m² and more.
Weil says JHI is “very positive” about the commercial property sector’s prospects over the next few years up to the 2010 Soccer World Cup. But retail property rentals, which have been increasing dramatically over the past few years, will not experience such strong growth in the coming year.
“Although retail rentals have increased very substantially in the last 12 months, in some cases by more than 30%, which includes turnover rentals, retail rentals may see slower growth over the next couple of years.”
The industrial property market is also expected to continue performing well if the South African economy continues maintaining reasonable growth of 4%-5% over the next few years.
But Weil says the “so-called easy money” may have already been made in the property sector, particularly in the residential and retail markets.
“If you are an investor looking to invest to make a big profit in the next couple of months, that is not the nature of property investment. Whether you are an investor or a tenant, typically your investment is of at least a medium-term nature.”
He says a number of factors are positioning the property market to benefit significantly over the next couple of years.
These include government spending R370bn on infrastructure and the commitment of the banking sector to spend R45bn on affordable housing by 2008.
He says the effects of the 2010 developments will also boost the property sector.
“We are looking at very good positive growth and positive rewards in property. We are also very positive for the prospects beyond 2010 — we are going to have 400000 visitors and around 2-billion people watching the World Cup.”
Weil says this offers a “massive opportunity” for tourism and foreign direct investment.
Pam Golding Vacation in Property oversubscribed for Pezula Private Residence Club
02 Aug 2006 - Pam Golding Property group -
Intro
South Africans have embraced the Private Residence Club concept to such an extent that all 70 fractional ownership options at the Pezula Private Residence Club were sold in just five weeks, says Dr Andrew Golding, CE of the Pam Golding Property group.
South Africans have embraced the Private Residence Club concept to such an
extent that all 70 fractional ownership options at the Pezula Private
Residence Club were sold in just five weeks, says Dr Andrew Golding, CE of
the Pam Golding Property group.
"This was an exceptional response even by international standards - in fact
the Pezula PRC, which is situated on the Garden Route, was hugely
oversubscribed. This concept has taken off globally and is among the fastest
growing sectors of the resort, real estate and hospitality industries
worldwide. What sets the Pam Golding Vacation in Property (VIP) product
apart is the fact that only products located within a hospitality
environment are marketed, so effectively, it's as if one is buying into a
successful, quality hotel," says Joop Demes, MD of Golding Hotel Investment
Consultants.
"Not only is one purchasing quality real estate at a fraction of the cost,
one enjoys the significant flexibility of utilising the 21 days' of free
accommodation per annum provided in several shorter stays at different times
of the year, or even to book two villas for one stay. This is coupled with
the full service benefits of living in a hotel environment - with no
maintenance hassles," he adds.
Jose Ventura, MD of Pam Golding VIP, says 90 percent of the investors at
Pezula PRC were South Africans, which reflects the significant impact of
this concept in the local market, with the balance being international
buyers, mainly from the UK, Holland and Switzerland. "The product simply was
not on the market long enough to be properly marketed internationally, such
was the swift response from enthusiastic South African investors. We had
already committed to marketing the Pezula product to the overseas market at
two UK exhibitions, but by then all the options were already sold out.
"Positive feedback from exhibitions and our global network is that not only
is there a huge international appetite for this type of product, there is
also keen interest in such prime products in South Africa and the Indian
Ocean, and potential for sound growth. This is further boosted by South
Africa's strong real estate market and active hospitality sector, with
significant capital appreciation anticipated in local private residence
clubs," he says.
In addition to the success of Pezula PRC, Pam Golding VIP have already sold
a fractional shareholding to the value of GBP120 000 at the Marriott Grand
Residence Club at 47 Park Street, Mayfair in London, to a South African
buyer, even prior to the official launch of this product.
Says Ventura: "We have a further 68 serious enquiries for 47 Park Street
with a high percentage emanating from Gauteng. We are arranging
presentations in Johannesburg - by prior appointment - to interested
investors from 25-27 August at the Sandton Sun Hotel. Prices for fractional
ownership at 47 Park Street start from GBP102 000 and there are 49
exquisitely finished one and two bedroom residences, each with designer
kitchen and separate dining and living areas. Investors are entitled to 21
nights' flexible ownership per year until 2050.
"The reason for the keen interest in 47 Park Street is because it has wide
appeal for those who visit London on business, for leisure use eg those
attending Wimbledon, and for visiting family in London. It's a fact of life
that many South Africans have offspring living and working in the UK and
they then find additional reasons to visit London for business or leisure in
order to see their relatives - or friends," he adds.
To make an appointment to attend a presentation on the Marriott Grand
Residence Club email darylann.collett@pamgolding.co.za or call 021 7622617.
The Johannesburg presentations will be held from 1-6pm on Friday 25 August
(2006), and from 10am till 6pm on Saturday 26 August and Sunday 27 August,
while other individual appointments can be arranged in regard to other
enquiries.
Auctions behind Alliance growth
02 Aug 2006 - Inet Bridge -
Intro
Alliance Group says its turnover for the year to June was R2bn and that it expected it to increase 20% in the next financial year
By Nick Wilson
Unlisted holding company Alliance Group, which owns auction and valuation companies, said yesterday its turnover for the year to June was R2bn and that it expected it to increase 20% in the next financial year.
Alliance Group CEO Rael Levitt said its auction business operated by Auction Alliance had been the "main driver" of its results.
?Auctions are becoming a first-choice method of sale, particularly in the commercial property sector because they are transparent. Auctions achieve good market value and it has become a new forum where properties are traded,? said Levitt.
He said Auction Alliance's biggest clients were the listed property sector. Levitt said auctions were a quicker and easier route to sell property than using brokers on the open market.
He said Auction Alliance's auction commission revenue had grown 400% over the past three years and "well surpassed the R100m mark in the third quarter".
The company now has 10 branches across SA with the most recent office opened in Port Elizabeth.
The biggest growth in revenue from the auction business came from KwaZulu-Natal, where revenues grew 301%.
"The market there (KwaZulu-Natal) has taken to auctions. There has also been a strong growth in the commercial property market there," said Levitt.
He said the group's valuation business, operated by Valuation Alliance, had "grown dramatically" in its first year of operation.
"We're the biggest independent valuation company in SA."
He said the company had conducted 11000 valuations by its June year-end.
Alliance Group said the valuation revenues were up 650% on the previous year before its valuation services were stripped out of Auction Alliance and placed in a standalone entity.
The group said growth had been particularly strong after the acquisition of valuation company Davis Langdon Crosher James in August last year.
In May this year the group announced that empowerment groups Amabubesi and Bamaka Investments had acquired a 25% interest in the group.
Business Day
Development pipeline tops R1 billion
02 Aug 2006 - Old Mutual Property Group -
Intro
Development projects and refurbishments worth more than R1 billion are under way or about to be started by Old Mutual Property Group.
Development projects and refurbishments worth more than R1 billion are under way or about to be started by Old Mutual Property Group.
The pipeline is set to grow even further as assessments and concepts are finalised on a mix of commercial, industrial and residential projects throughout South Africa, says Brent Wiltshire, business development executive at Old Mutual Property Group.
The projects include several for independent and corporate property owners. They range from the Orlando Ekhaya project by the Johannesburg Property Company to an apartment development in Cape Town for the Cape Peninsula Organisation for the Aged. The Orlando development involves
the construction of a shopping centre, 700 houses, office blocks and 150 lakeside loft apartments.
Other projects now under way are:
o a R105 million redevelopment of East London’s Vincent Park Shopping Centre, which will add a new mall in the north east corner of the complex.
o a R104 million refurbishment of The Link Shopping Centre, Cape Town.It also involves building two pedestrian bridges at first floor level to connect with Cavendish Square, an adjacent Old Mutual property.
o a R107 million extension of Bayside Centre, the Tableview, Cape Town, shopping centre jointly owned by Atlas Properties Ltd and Old Mutual.
o a R88 million expansion of parking facilities at Menlyn Park Shopping Centre, Pretoria. This will add another 1 750 covered bays.
o a R83 million expansion at Phumelela Park, an Old Mutual industrial park at Montague Gardens, in response to rising demand for large industrial space in greater Cape Town.
o a R20 million upgrade of Menlyn office park.
o a R20.5 million upgrade of The Zone @ Rosebank.
o a R89 million residential conversion of Steyns Building.
Gateway Theatre of Shopping, Umhlanga, is also being expanded to accommodate a Truworths extension . The Truworths store is being more than doubled in size.
A mixed use retail and housing development is being planned for Khayelitsha, Cape Town.
A working partnership between the Old Mutual Group and the Department of Provincial and Local Government which is focused on building sustainable capacity in certain Project Consolidate municipalities, will treat the Old Mutual/Nedbank development initiative in Khayelitsha as a pilot exercise for possible replication in other municipalities.
The development is proposed for a 10 ha site owned by Old Mutual in Site C, 1km from the Swartklip interchange.where there is good access to major arterials such as the N2 highway, as well as the R300. Site C is in the heart of the more affluent residential areas of Khayelitsha. The land provides an excellent opportunity for Old Mutual/Nedbank to respond to Government’s request to business to engage actively in the provision of affordable housing and sustainable development.
The development which will incorporate the social needs of the community, will deliver construction related employment and skills transfer during the process and permanent employment related to the commercial precinct after the development.
Samuel Seeff comments on 0.5% interest rate increase
07 Aug 2006 - Seeff Properties Randburg -
Intro
Anticipated impact on house prices expected to be minimal
Anticipated impact on house prices expected to be minimal
On Thursday this week, SAPA reported that the prime interest rate is to rise to 11.5 percent after the SA Reserve Bank opted on Thursday to hike the repo rate, at which it lends money to commercial banks, to eight percent.
Tony Ketcher, managing director of Seeff Properties Randburg says that recently released inflation figures were 4.8% while the target of the Reserve Bank was between 3% and 6% - so it was on the upper side of halfway. “Given increases in producer price inflation and the oil price, the hike in interest rates is not unexpected, and in itself is not a bad thing,” he said.
What impact is this interest rate increase going to have? “The issue here is confidence and sentiment in the market, which hinges on the direction that Governor Mboweni gives. Can we expect further rate increases or is this, ideally, the most we are facing? Perceptions of the answer to this will impact on where we see the market going and related activity. In summary, I think that perceptions will be that buyers will expect sellers to come down in price and will wait, or will offer lower prices. However, sellers who can manage the increase in payments will hang on to their properties without dropping their prices. In other words, we are not actually going to see the decrease in prices that many might be expecting to happen. If this trend does eventually start to happen, it will take a while to filter through,” says Samuel Seeff, CEO of the Seeff Group
“There will be a market this month and the next, and the one thereafter – notwithstanding the interest rate increase. The market will hot up again in October and November, in line with normal seasonal trends. In terms of this and other potential increases, the differential between what a person would be paying back on a mortgage at 10,5% before the two recent interest rate increases, compared to 11.5% now, is an increase of just under 10%. While this is significant – it is not enough to frighten buyers off,” says Ketcher.
Founded in 1964, Seeff Properties is one of South Africa’s largest independent real estate companies. Seeff Properties Randburg’s 50 agents sell properties in the northwestern areas of Johannesburg. For more information please contact the Managing Director, Tony Ketcher on 4763536 (office) 083 307 8083 (cell).
Become a commercial property value investor, not a market investor.
07 Aug 2006 - Bales Delaporte -
Intro
Now is the perfect opportunity to become a value investor in commercial property and to ditch the generalist market investor approach.
Now is the perfect opportunity to become a value investor in commercial property and to ditch the generalist market investor approach.
This is according to Tony Bales of commercial investment broking specialists, Bales Delaporte.
“For the past three years, most commercial properties have shown good capital and income appreciation and many investors took to purchasing any available commercial property.”
However, this will not be the case moving forward, cautions Bales.
“The market has changed and wise investors are seeking out properties in specific locations with specific fundamentals – properties that offer an investment that will grow at an above average rate. Enter the age of value investing.”
Bales advises that what is value for one investor may not be value for another.
“A passive investor may offload a property to one who has the capacity, time and inclination to develop it and unlock the potential value. Investors all have different profiles, such as knowledge, size, skills, etc. thus ensuring constant value arbitrage in the commercial property market.”
“The key here,” says Bales, “is to understand exactly what is value for oneself. The greatest value investor of all time, Warren Buffett, did not buy any technology shares during the boom in the late 1990’s – a move for which he faced mayor criticism. However, his actions were well rewarded in the end as today he is one of the wealthiest people in the world.”
According to Bales, another aspect to understand is that of internationalisation.
“Investors must see the value concept as one that has no borders. For example, there has been talk of international investors pursuing the purchase of the V & A Waterfront at yields of 4.5 %. What may seem overpriced to South Africans might be value for international players. Conversely, when the US dollar strengthens, we must expect the SA property market to offer less value than more developed countries and hence investors will move funds to those countries that offer them more perceived value.”
“It’s simple,” says Bales, “we are part of the international economy and can not ignore the fact – it affects our commercial property market and the concept of value.”
Bales concludes that the most successful commercial property investors in the next 24 months are going to be those focused, knowledgeable players who exploit the concept of value investing. “As Warren Buffett says, be a property analyst, not a market analyst.”
For more information please contact Bales Delaporte on 0861 332 562 or visit www.balesdelaporte.co.za
Ends
Bales Delaporte
Contact: Tony Bales
083 675 3773 www.balesdelaporte.co.za
ApexHi pulls a buck rabbit out of the hat
03 Aug 2006 - Inet Bridge -
Intro
Listed property loan stock company ApexHi Properties has surprised the market with a 9,67% increase in its combined distribution for the year to June
By Nick Wilson
Listed property loan stock company ApexHi Properties surprised the market yesterday with a 9,67% increase in its combined distribution for the year to June.
ApexHi Properties CEO Gerald Leissner said the increase to 244c a combined unit was more than "expected".
"We thought we would have an 8% increase in distributions. It's more than expected. The last quarter of the financial year was very good," said Leissner.
He attributed the solid results to the performance of the underlying portfolio, including stronger rentals and better cost control.
ApexHi reported that its total distribution for "A" units was 109,80c, a 7,65% increase on the previous financial year.
Its "B" unit distribution increased 11,37% to 134,20c from the previous year.
Leissner said the 227c threshold was "exceeded for the first time this year" and that "A" unitholders had started participating in the growth from the first quarter of the 2006 financial year.
ApexHi's linked unit structure differs from other listed property companies in that it is divided into A and B units. A-unit holders are guaranteed a distribution of 102c for as long as it takes the total distribution to reach 227c.
B-unit holders have a higher risk, but also higher returns in future as all future growth in income until the 227c mark goes to them. Once the 227c mark is reached, 45% of the distribution goes to A-unit holders and 55% to the B-unit holders.
Leissner said the company had also reported a 31% increase in profits from investment properties because of R1,7bn worth of property acquisitions.
Leissner said the company's goal was to add another R1bn in properties to its portfolio by the end of the next financial year.
"It's difficult at present because there has been a lot of activity in the last few years, but it has become more difficult to acquire properties in line with our strategy. They have to be revenue-enhancing properties and the price has to be right," said Leissner. ApexHi's property portfolio is now worth R6,7bn.
The company's net asset value also increased by 32% to R20,90 a combined unit.
ApexHi was one of the major property stocks whose unit price was knocked by recent jitters in the listed property sector.
The combined share price is now just under R24, down from about R33 in early May.
"We lost about a third of our value from the top. We have recovered slightly," said Leissner.
The entire listed property sector was negatively affected from early May by emerging market concerns following a hike in interest rates in the US.
Although they recovered, the recent local interest rate hike caused listed property prices to fall further. And the volatility is expected to continue in the listed property sector because of the threat of further interest rate hikes in SA and globally.
Angelique de Rauville, MD of Investec Listed Property Investments, said ApexHi's distributable earnings were ahead of "everyone's expectations" including ApexHi management, analysts and listed property investors.
"In addition to the very promising growth in distributions it was very encouraging to see the meaningful increase in net asset value. Both the increase in distributable earnings and net asset value confirm that inherent property fundamentals are stronger than anticipated and that property values have been understated historically or previously," said De Rauville.
Business Day
Europeans Spent Record $122 Billion on Property in First Half (Bloomberg) 2006-08-08 07:46 (New York) By Peter Woodifield Aug. 8 (Bloomberg) -- European commercial real estate spending rose 30 percent to a record 95 billion euros ($122 billion) in the first half as investors bought more offices, said property brokerage Jones Lang LaSalle Inc. Spending for the whole of 2006 may reach as much as 200 billion euros, compared with 156 billion euros last year, Jones Lang LaSalle, the world's second-largest publicly traded real estate adviser, said in an e-mailed statement. ``High levels of investor demand and a number of major portfolio deals pushed European direct investment volumes to new heights,'' said Tony Horrell, chief executive officer of European capital markets at Jones Lang, in the statement. ``We expect the strong levels of investor demand to be maintained in the second half.'' Investors have moved funds into real estate from stocks and bonds to reduce risk and boost returns. In the U.K., which accounted for a third of the European real estate investment market in the first half, commercial property has been the only asset to make money for investors every year since 1992. Spending in the first half exceeded the full-year investment totals between 2000 and 2003, said Jones Lang. ``The weight of money coming into European real estate overrides every other factor in influencing pricing,'' said London-based Horrell. Offices accounted for more than half the transactions in the first half for the first time since 2001. Hotel purchases quadrupled to 12 percent of spending as investment on malls and retail parks dropped to 24 percent from 29 percent. The U.K., Germany and France, the three biggest European investment markets, accounted for 73 percent of all spending in the first half, compared with 66 percent in 2005, said Jones Lang. Germany's share of transactions rose to 21 percent from 13 percent. [TOP]
Homeowners Start to Feel The Pain of Rising Rates (WSJ)
Payments on Adjustable Loans Hit Overstretched Borrowers; 'Budgets Are Out of Whack' By RUTH SIMON August 10, 2006; Page D1 Luisa Cordova-Holmes was looking to lower her monthly payments when she refinanced her $312,000 mortgage in 2004. Instead, she wound up digging herself into a ditch. For their new loan, Ms. Cordova-Holmes and her husband chose a so-called option adjustable-rate mortgage, which carried an introductory rate of 2.35% and gave her multiple payment choices each month. "I had a lot of financial obligations," says Ms. Cordova-Holmes, an accountant who lives near Detroit. Two years later, however, the interest rate on her loan has jumped to 8.75%, her loan balance has climbed to $324,000 and her minimum monthly payment has risen to $2,257. She says the terms of the loan weren't clearly spelled out. Ms. Cordova-Holmes says she would like to refinance, but can't -- in part because her loan carries a prepayment penalty that would force her to shell out thousands of dollars if she did. Instead, she's trying to sell her home. But with Detroit's economy slumping, she hasn't been able to find a buyer. When she and her husband first put the house on the market last summer, they were asking nearly $400,000. Now they're willing to accept as little as $270,000. "We're in a very bad situation," she says. "The payments are just killing us." In recent years, homeowners like Ms. Cordova-Holmes have embraced adjustable-rate mortgages -- and such variations as option ARMs, interest-only mortgages and "piggyback" loans, which, respectively, allow borrowers to make a minimum monthly payment, pay interest and no principal in the loan's early years, or finance 100% of the purchase price. The growing popularity of these products has helped fuel consumer spending, as well as double-digit home-price gains and rising homeownership rates. Yet the downside of the lending boom is starting to show. Rising interest rates are taking a toll on family budgets as growth in home prices flattens -- and, in some areas, prices fall. Mortgage delinquency rates hit 2.32% in the second quarter after bottoming out at 2.06% in the fourth quarter of 2005, according to an analysis by Equifax/Moody's Economy.com. The portion of adjustable-rate mortgages that were at least 90 days past due has climbed 141% in the past year, according to a recent study by Credit Suisse that looked at loans made to borrowers with good credit. That compares to a 27% rise in such delinquencies for fixed-rate mortgages. Many borrowers who run into trouble have relatively low incomes or scuffed credit records. But housing counselors say they are also hearing from a growing number of middle- and upper-middle-income borrowers who borrowed heavily to finance spending or buy a house they could barely afford. NeighborWorks Homeownership Center in Sacramento, Calif., says that 38% of the borrowers it's seen this year have "moderate or above-moderate" incomes, up from 24% last year. In Illinois, the new crop of borrowers includes people with bills for private schools, fancy cars and child care and monthly incomes of $3,500 to $10,000, says Michael van Zalingen, director of homeownership services at Neighborhood Housing Services of Chicago. Many of these borrowers took out loans that didn't require them to document their income and overstated their earnings, he adds. Steven Schwaber, a bankruptcy attorney in the Pasadena, Calif., area, says he's getting more calls from small-business owners who had refinanced into ARMs, tapping their equity in an effort to keep their businesses afloat. "All of the sudden their budgets are out of whack because their house payment went up by 25% or 30%," he says, at the same time fuel prices are rising. Some would have wound up filing for bankruptcy anyway, he adds, but rising interest rates have pushed others over the edge. Credit-counseling agencies say that in the past few months they've seen a growing number of homeowners pinched by rising mortgage payments. Neighborhood Housing Services of New York City says it has been "flooded" with calls from borrowers who took out ARMs two years ago and whose rates are now resetting for the first time. And Consumer Credit Counseling Services of Atlanta, which works with borrowers nationwide, says it has tripled its housing counseling staff in the past six months to keep up with increased demand. Until recently, most mortgage-payment problems were an unfortunate byproduct of major life changes, such as job loss, medical problems, divorce or a death in the family. But for the new wave of troubled borrowers, the problems stem largely, or in part, from the structure of their mortgage, housing counselors say. Uncharted Territory In the past, the home mortgage "was a steadying influence; it neither rose nor fell over time," says Elizabeth Warren, a Harvard Law School professor who has studied consumer bankruptcies. "All that has changed in the last half-dozen years," she adds. "The mortgage payment is now more variable than any other expense for millions of people. We're working in completely uncharted territory." Rising mortgage rates are causing problems for first-time home buyers such as Edward Snyder, a product manager who bought his house in St. Paul, Minn., two and a half years ago. Mr. Snyder financed the $210,000 purchase with a $168,000 interest-only ARM that carried a fixed-rate of 6.15% for the first two years and a $42,000 second mortgage with a 9.4% rate that is fixed for the first three years. Mr. Snyder says he was stretched even before a rate adjustment on his ARM boosted his monthly payments by $200 in May. Since then, he has fallen behind on his water bills, car payments and student loan. "Now, it's a choice of what gets paid late," Mr. Snyder explains. Last month, he received a letter from his lender with the words "rate increase" on the envelope. Mr. Snyder says he hasn't opened it "because it gets too discouraging." This week, he's meeting with a mortgage broker to discuss his options. "If I had been aware both loans were interest-only, I would have probably turned the loan down," says Mr. Snyder, who says that the terms of the mortgage were never properly explained to him. "I believe this loan is built for failure. There's no means to build up equity." Roughly $137.5 billion in residential mortgages will face payment resets this year, with an additional $524 billion resetting over the next four years, according to a recent analysis by UBS AG that looked at loans sold to investors who buy mortgage-backed securities. Rising interest rates aren't a problem for most of these borrowers because they can refinance or have the cash to meet higher mortgage payments. Borrowers with troubled credit records may be able to refinance into a mortgage with a lower rate if they've been paying their bills on time. But other borrowers are running into trouble, in some cases because they didn't understand the risks of their mortgage or wound up at the closing table with a loan that wasn't what they expected. More than 30% of mortgage brokers believe their clients don't understand the mortgage product they selected, according to a recent survey by Macquarie Mortgages USA, a unit of the Macquarie Group. Other borrowers didn't leave a cash cushion to cover higher mortgage payments at a time when gasoline costs and minimum credit-card payments are also rising. "Often the reason somebody is put into an ARM or an interest-only loan...is because that's the only way the broker or loan officer could get them qualified," says Jordan Ash, director of the Acorn Financial Justice Center, an advocacy group that focuses on predatory lending issues. Acorn is currently negotiating with two large subprime lenders -- who deal with borrowers with blemished credit records -- about changes in underwriting standards and how to deal with borrowers whose interest rates are resetting. Rising rates create new challenges not only for borrowers, but also for lenders that would prefer not to foreclose. When borrowers miss payments because of a sudden interruption in their income, a lender may structure a repayment plan that allows the borrower to make catch-up payments or do a loan modification that adds the unpaid debt to the loan balance. But if the problem stems from rising mortgage rates, a borrower may have to get a second job or prune spending. Early Alerts Some lenders are trying to alert borrowers to a payment reset well in advance, either through their Web sites or with phone calls or letters. They are also offering refinance options, such as switching from an ARM to a fixed-rate interest-only mortgage. A switch could mean higher monthly payments, but it insulates the borrower from future rate increases, says Bill Merrill, director of nonperforming loans at mortgage giant Freddie Mac. But for some borrowers, "there may not be a solution," says Doug Duncan, chief economist of the Mortgage Bankers Association. "ARMs always have higher delinquency and foreclosures" than fixed-rate loans, he says. Some borrowers are opting to sell homes they can no longer afford. Last year, James Zito, a retired salesman, refinanced into an option ARM in a deal that allowed him to pull out $50,000 in cash without increasing his monthly payments. Mr. Zito had been pulling out cash when he refinanced every three or four years. But this time, when his mortgage payments began adjusting, he realized he couldn't afford the higher payment, and refinancing yet again wasn't an option. In June, Mr. Zito sold for $745,000 the three-bedroom, two-bath house in San Jose, Calif., he had lived in for 43 years and bought a smaller home in a retirement community. "I wanted to get out from under the mortgage," he explains. With an option ARM, "your monthly payment increases, and you don't make any headway." Some California brokers say they are beginning to see a return of "short sales" -- transactions in which the sales price isn't large enough to cover outstanding loans. Patti Vaughan, an agent with Assist 2 Sell in Temecula, Calif., says in recent months she has begun to get calls from borrowers looking to unload houses they can no longer afford. "They've upgraded their houses, put in a pool and bought themselves Hummers and BMWs," she says. "Now they can't get it refinanced and they can't sell." [TOP]
Realogy's NRT Buys Brokerage in New York's Hamptons (Bloomberg) 2006-08-10 16:11 (New York) By Kathleen M. Howley Aug. 10 (Bloomberg) -- Realogy Corp.'s NRT Inc., the largest U.S. residential real estate brokerage, bought Allan M. Schneider Associates Inc. in Bridgehampton, New York, the largest real estate company in the Hamptons, on the eastern tip of Long Island. Realogy, based in Parsippany, New Jersey, didn't say how much it paid for Schneider, which had $1.4 billion in sales in the past 12 months. The offices will become part of NRT's Corcoran Group, a New York-based brokerage that had $1.2 billion in sales in the Hamptons in the last 12 months, NRT said in a statement today. The market for vacation homes will be boosted over the next decade by Baby Boomers, the 29 percent of the population born between 1946 and 1964 who are now in their peak earning and home- buying years. The Hamptons, within driving distance of Manhattan, attract a mix of Wall Street executives and Hollywood celebrities. Average prices for a Hamptons home broke $1 million for the first time in 2005, more than doubling from $499,194 in 2001, according to data from Suffolk Research Service Inc. In the first six months of this year, the average price was $1.26 million, up 21 percent from a year earlier. Peter Hallock, Timothy Davis and Peggy Griffin, former owners of Schneider, will be senior managing directors at Corcoran and will continue to manage the Southampton, Bridgehampton and East Hampton offices, according to the statement. Realogy shares rose $1.19 to $21.91 at 4 p.m. in composite trading on the New York Stock Exchange. Shares of Realogy, which was spun off from Cendant Corp., began trading Aug. 1. As a Cendant unit, the company had $7.1 billion in revenue in 2005. [TOP]
Europe set for wave of hotel IPOs (FT)
By Jim Pickard in London Published: August 13 2006 19:26 | Last updated: August 13 2006 19:26 Europe is poised for a wave of new hotel initial public offerings as private equity groups seek an exit from their recent acquisitions in the sector, according to a report by advisers Jones Lang LaSalle. Private equity groups have been frenetic buyers of hotel portfolios across the continent in the past couple of years, accounting for 41 per cent of the $20.6bn market last year – against just 1 per cent in 2000. The trend has come as many hotel groups have sought to sell their physical assets, usually through sale and leaseback deals, leaving themselves as “pure” operators. Many of the buyers have been private equity real estate funds, run by the likes of Morgan Stanley, Lehman Brothers and Blackstone, who have been able to buy hotels on higher yields than “vanilla” offices and shops. Recent deals have included the $3.2bn sale of Société du Louvre to Starwood Capital and the £1bn ($1.9bn) acquisition of the Intercontinental Hotels Group’s UK portfolio of 73 hotels by Lehman Brothers and the Government of Singapore. Blackstone spent $790m in March on the purchase of Hospitality Europe, the hotels group. The trend is epitomised by Paris, where 21 per cent of hotel rooms are owned by Americans, 8 per cent by Middle Eastern investors and 13 per cent by (non-French) Europeans. But private equity groups are “not long-term holders of real estate” and are likely to exit, says the report, with a public flotation the most attractive method. This will be even more the case with the arrival of reits – a type of tax-efficient property vehicle – in the UK and possibly Germany next year, according to the firm. “Property companies and private equity firms are expected to explore the possibility of exiting via the reit market now that the legislative process has begun in Germany and the UK,” the report says. In the US, which is the world’s most established reit market, there are several hotel reits. Despite the private equity group’s new grip over the sector, however, some European markets – such as Spain and Italy – remained dominated by domestic investors, JLL found. Meanwhile, this year could see a record number of hotel transactions across the world, the group has predicted. With global transactions reaching $41bn by June 2006, the industry could see $60bn of deals this year – a 33 per cent jump from last year’s figure of $45bn. Arthur de Haast, global chief executive of Jones Lang LaSalle Hotels, said: “We had expected to see similar levels to last year, but we certainly did not expect to get close to 2005 levels in just six months.” [TOP]
Property prices leap in eastern Europe (FT)
By Steve Johnson in London Published: August 13 2006 17:50 | Last updated: August 13 2006 17:50 Property prices are rising faster in the buoyant economies of eastern Europe than anywhere else in the world, according to a global index compiled by Knight Frank, the UK estate agency. However, Japan continues to battle against property price deflation of 2.7 per cent, even as its central bank has started to raise interest rates. Prices are also falling in Hong Kong as a powerful boom has turned to bust. ADVERTISEMENT Overall, the index shows global property price inflation running at 8.5 per cent in the year to June, below the 12.3 per cent in the year to June 2005 but sharper than the 6.1 per cent inflation rate recorded in March. The overall picture from the survey is one of moderating growth, with house price inflation in the US falling from 14.1 per cent a year earlier to 9.4 per cent, that of France slipping from 15.3 to 9.4 per cent, China from 8 to 5.8 per cent, Italy from 11.2 to 5.2 per cent and the UK from 6.1 to 4.8 per cent. “The most notable trend is that house price growth is continuing to slow across the globe,” said Liam Bailey, head of residential research at Knight Frank. “Many commentators have been concerned that the boom in house prices which has been seen in many countries would end in tears. However, in these markets price growth has begun to slow.” In spite of this, property prices in Riga, the Latvian capital, surged by 45.3 per cent in the year to June, following on from a rise of 73.5 per cent in the preceding year, with growth also buoyant in Bulgaria and Estonia. Mr Bailey attributed this trend to a “levelling up” of prices across Europe, particularly in the former eastern bloc nations that have joined the European Union. “Wage inflation, growing prosperity and access to less constrained mortgage finance have all contributed to rapidly rising prices,” he said. In Bulgaria, speculation and interest from foreign second-home buyers have helped maintain house price inflation at 20.5 per cent. Knight Frank predicts that Slovenia and Slovakia will be the eastern European hot spots in the year ahead, while Moscow will rival London as the world’s most expensive city within the next five years. Property prices in Germany, where inflation is 0.5 per cent, are also expected to see sustained growth as the economy continues to recover. The Knight Frank index, which covers 30 countries or capital cities, is based on official statistics or local survey data. [TOP]
DJ TriGranit CEO Favors London For EUR2-EUR3 Billion IPO (DOW JONES NEWSWIRES )
LONDON (Dow Jones)--TriGranit Holding Ltd., the Central and Eastern European property developer, is planning a EUR2 billion to EUR3 billion initial public offering and considers the London Stock Exchange a strong candidate for the listing, Chief Executive Todd Cowan said Friday. The company, which is backed by gold guru Peter Munk and Nathaniel Rothschild of the Rothschild banking family, has been approached by all of the major investment banks, but has yet to select managers for the IPO, Cowan said. "We will start preliminary discussions with banks over the next 12 months to hear their ideas," he said. "The listing will depend on where (our) shareholders feel is appropriate at the time, but London has an excellent case." Hungary-based TriGranit was founded in 1996 by Hungarian entrepreneur Sandor Demjan and Munk, the chairman of Canada-based Barrick Gold Corp. (ABX) and publicly-traded U.S. real estate investment trust Trizec Properties Inc. (TRZ). Munk was born in Hungary, but settled in Canada in 1948. Cowan, a former Trizec executive, said TriGranit began growing faster than its founders had expected. This led to the entry of more shareholders including Atticus Capital co-chairman Rothschild and Sandor Csanyi, chief executive and chairman of Central and Eastern European bank OTP. Immoeast Immobilien Anlagen AG (IEA.VI), a Central and Eastern European property investor listed on the Vienna Stock Exchange, became the latest TriGranit shareholder Friday, when it invested EUR400 million in the company. "We want to attract a larger group of financial investors (going forward), which is one of the main reasons for the IPO," Cowan said. He added that a public listing would better position TriGranit as a long-term player in the Central and Eastern European property sector. The Immoeast investment valued TriGranit at EUR1.6 billion, but Cowan said the company aimed to have a valuation of EUR4 billion to EUR5 billion by the time of the IPO. TriGranit has between 30 and 40 property projects in the pipeline and the investment from Immoeast will accelerate the rollout of its EUR5 billion regional development plan. Cowan said the management team is considering Vienna and Frankfurt as viable locations for the listing as well as London. He didn't rule out the possibility of a dual listing that would see TriGranit shares sold in London and on another exchange. "When we come to IPO, our story will be the strength of our integrated international and local management team and the track record of our projects," he said. [TOP]
British Land aims ever higher as rents climb (FT) By Jim Pickard, Property Correspondent Published: August 15 2006 09:57 | Last updated: August 15 2006 09:57 British Land looks set to build the Leadenhall Building, a 48-storey tower in the City, after seeing signs of a stronger occupier market. Stephen Hester, chief executive, said he was “80 per cent confident” that the group would build the 736ft skyscraper, set to be one of Britain’s tallest once finished in 2010.
Buy-to-let borrowing reaches fresh high (FT)
By Jamie Chisholm, Economics Reporter Published: August 16 2006 21:23 | Last updated: August 16 2006 21:23 Buy-to-let borrowing in the UK has hit record levels amid warnings that the sector might be forcing first-time buyers out of the market. Investors took out 152,500 loans worth £17.5bn to buy properties for rental purposes in the first half of the year, according to a report released on Wednesday by the Council of Mortgage Lenders. This was an increase of 17 per cent in volume terms and 20 per cent in value, compared with the previous record levels seen in the last six months of 2005. “The buy-to-let market remains robust, underpinned by strong rental demand,” said Michael Coogan, CML director-general. However, Milan Khatri, chief economist at the Royal Institution of Chartered Surveyors, said the expanding sector was not good news for first-time buyers. “Buyers will continue to face a property glass ceiling while rents and house prices rise together,” said Mr Khatri. The rise in buy-to-let investment dovetails with renewed buoyancy in the wider market. House-price rises have been picking up pace, with the Financial Times House Price Index recording an annual inflation rate of 5.4 per cent in July. Property investors have also been encouraged by evidence that rental yields are improving. A recent report from Rics said rents rose in the second quarter at their fastest pace in five years. CML said the buy-to-let sector now accounted for a record 8 per cent of the value of outstanding mortgage lending, up from 7 per cent in the first half of 2005. It warned that the sector may not continue to grow so impressively. It said the perception that interest rates are “on an upward trend is likely to cause the rapid growth of buy-to-let investment to slow in the coming months. Fundamentally, however, the rental market remains sound and looks set to continue.”
Listed Property version 2.0: Bringing the Horse to Water
We have just returned from what can probably be described as one of the best focused real estate conferences held in South Africa to date. To digress, the employ of the term ‘real estate’ is not by accident either as the world over the near universal use of ‘real estate’ as opposed to ‘property’ is somewhat indicative of where we are heading from a listed property perspective. The conference entitled “REITs Reality - Towards a REIT Environment in South Africa” was organised by the SA Property Loan Stock Association and essentially sought to explore how South Africa can become part of the Real Estate Investment Trust (REIT) phenomenon spreading around the globe.
Staging such a conference is not to imply that what we have in SA from a listed property perspective is faulty or that it does not indeed contain many of the key elements that REIT or REIT-like structures have, but merely that there is benefit in evolving towards a model that is more universally branded. As such, one option is to take the best of SA’s Property Unit Trust (PUT) and Property Loan Stock (PLS) structures and create a new REIT vehicle. Whether this eventually bears the REIT name or not – Australia call theirs Listed Property Trusts (LPT’s) - is too early to say. More importantly, adopting the REIT model can have a number of implications for SA, including potential for funds to more readily access non-secured debt as part of the other pillars of capital markets comprising public, private, equity and secured debt options. Such greater
Apparently there were 600 people in attendence.
JSE Property Showcase:
Earlier this month, the JSE Securities Exchange hosted a property showcase evening, during which numerous listed property companies/asset managers, as listed below, had an opportunity to present their business to a packed audience of brokers, investors and fund managers:
SA Retail Properties (Peter Sparks, MD)
Emira Property Fund (James Templeton, CEO)
Diversified Property Fund (David Lewis, MD)
Martprop Property Fund (Roger Perkin, MD)
Growthpoint Properties (Norbert Sasse, CEO)
Hospitality Property Fund (Gerald Nelson, Executive Director)
Capital Property Fund (Craig Hallowes, Director)
Resilient Property Fund (Desmond de Beer, CEO)
Vukile Property Fund (Gerhard Van Zyl, CEO)
Redefine Income Fund (Brian Azizollahoff, CEO)
Madison Property Fund Managers (Mark Wainer, CEO)
Hyprop Investments (Pieter Prinsloo, MD)
ApexHi Properties Limited (Gerald Leissner, CEO)
Other Property News
Falling too far, too fast?
The freefall in listed property share prices over the past 12 weeks - down 22% since 10 May against the Alsi's 6% drop - has taken the market by surprise.
Analysts say although a correction was expected as listed property prices had probably run too hard since 2002, the extent of the correction cannot be justified. The current knock seems particularly hefty compared with the sector's previous reaction to interest rate hikes in 2002, when prime went up four percentage points from 13% to 17%. At the time, listed property prices fell by about 20% - between November 2001 and April 2002.
Leon Allison, property analyst at First South Securities, says the sharper fall in share prices this time round can probably be ascribed to the fact that values came off a much higher base than in 2001/2002.
Investors who only recently climbed into listed property with borrowed money are in trouble and have understandably been forced to sell down to avoid the possibility of further weakness, comments Allison.
Nevertheless, underlying property fundamentals and income growth prospects are now considerably healthier than they were four years ago, so the correction seems excessive, says Allison.
He argues that it doesn't make sense for investors to keep on selling property stocks as they are now sitting pretty with a forward income of around 10%, which is higher than that offered by any other income-generating investment. Allison says even if rates continue to rise, cash flow will be little affected in the short term, with the income of property funds still expected to grow an average 9% to 10% over the next 12 to 18 months.
Mariette Warner, head of property funds at Stanlib, echoes the same sentiment. She says the market has overreacted "significantly".
Warner argues that history suggests the 22% loss over the past 12 weeks is disproportionate. In 1998 when the prime rate went up three percentage points, listed property declined by 35%. Yet listed property retreated by 22% when rates went up by just 0,5 percentage points in June this year.
Says Warner: "This is either blind panic or most of the bad news of possible further rate rises has been priced into the market well ahead of time." She doesn't expect much further weakness, saying investors will probably sit tight as it's now too late to head for the exits. "If logic prevails, even two more 0,5% percentage point rate rises would cause a wobble rather than a freefall."
Mark Appleton, chief investment officer at Barnard Jacobs Mellet Private Client Services, agrees that investors have probably overreacted to interest rate pressures. Says Appleton: "It's important that investors remember that they bought listed property for the yields. With share prices having fallen, property yields are now in excess of 9% on a forward basis."
Appleton says current price levels make listed property investments even more attractive than before. He argues that now would be a good time to get into listed property and capitalise on what looks like an oversold position.
Appleton believes the outlook for the commercial property market remains positive, with the office sector poised for particularly strong growth. Says Appleton: "Given high building costs, there's a shortage of new office developments coming to the market, which is putting supply under pressure. This means we will continue to see rentals climb."
Source: Joan Muller, Finweek
I spoke this week at an international listed property conference and was the lone bearish voice, in fact the comments levelled at me were personal and abusive.
BESA launches SA hedge fund index
posted on Monday 21 Aug 2006 06:19 BST
From hedge week - see full story
Hedge Week reports that the Bond Exchange of South Africa (BESA) and Clade Investment Management have created a new index for the SA hedge fund industry.
The article reports that the purpose of the index, named The South African Hedge Fund Index, is to provide asset managers and investors with a sound benchmark for assessing individual hedge funds, and by which they can also compare hedge funds with other asset managers.
Colonia, German Property Stocks May Have Peaked Amid IPO Boom (Bloomberg)
2006-08-21 19:09 (New York) By Andreas Hippin Aug. 22 (Bloomberg) -- Germany's red-hot property stocks may be headed for the freezer. Colonia Real Estate AG's shares have soared more than five- fold in the past year, while Adler Real Estate AG has almost quintupled and Franconofurt AG more than doubled. The surge, fueled by low borrowing costs, growth in the economy and a rush of private equity funds into German real estate, adds up to a bubble, according to money manager Heiko Bienek. ``The more a wave is rising, the more dramatically it will break,'' said Bienek, who helps manage $6.8 billion at Lupus alpha Asset Management GmbH in Frankfurt. He has reduced his holdings of property stocks. ``The first U.S. private equity funds who were the main drivers of the property boom in Germany are looking for the exit.'' Twenty property companies have sold shares this year, with at least four more still planning to. Among the sellers: Fortress Investment Group LLC, a New York-based buyout firm that acquired almost 160,000 apartments in Germany for about 6.75 billion euros ($8.7 billion) over the past two years. The E&G DIMAX, a German property stock index, has surged 27 percent this year, outpacing the benchmark DAX Index's 7.2 percent gain. The property index, compiled by Bankhaus Ellwanger & Geiger in Stuttgart, includes 52 property development, management and investment companies. They have a total market value of about 12 billion euros. Cologne-based Colonia, a former stovemaker that now invests in distressed German real estate, has doubled this year. Adler, a Hamburg-based commercial developer and investor, has climbed 158 percent and Franconofurt, a broker and manager in Frankfurt, has advanced 88 percent. [TOP]
Another take out when the market is trading at an all time high, this must surely end in tears.
Morgan Stanley affiliate to buy Glenborough Realty NEW YORK, Aug 21 (Reuters)
- Glenborough Realty Trust GLB.N, a real estate investment trust that owns office properties chiefly in suburban areas, agreed to be acquired by funds managed by Morgan Stanley Real Estate, the companies said on Monday. Morgan Stanley's offer of $26 a share represents an 8.2 percent premium over Glenborough's Friday closing price and a 15.2 premium over the 30-day average closing price, the companies said. The equity portion of the deal is valued at about $915 million, according to Robert W. Baird & Co. analyst David Loeb
Madison recovers after post-listing beating
11 Aug 2006 - Business Day -
Intro
THE unit price of Madison Property Fund Managers, the first property asset management firm to list on the JSE’s real estate index in June, has recovered significantly over the past week after suffering a more than 20% drop since listing.
Madison recovers after post-listing beating
Nick Wilson
Property Correspondent
THE unit price of Madison Property Fund Managers, the first property asset management firm to list on the JSE’s real estate index in June, has recovered significantly over the past week after suffering a more than 20% drop since listing.
Madison, along with other listed property companies on the JSE, experienced the drop in price as fears of interest rate hikes in SA rocked the listed property sector.
The sector has had a torrid time since early May when listed property, along with other asset classes, weakened following higher interest rates in the US.
Though the sector recovered, it experienced another dip because of the 50-basis-point hike in SA’s repo rate two months ago. But since the further 50-basis-point hike last week, the sector has started to recover.
Madison executive director Marc Wainer said yesterday that Madison’s unit price had recovered about 12% in the past week.
Madison, which listed at R5 a unit, experienced a significant drop in value, with the unit price trading in the R4,10 to R4,20 band about two to three weeks ago. Madison was now trading in the R4,70 band. Wainer said the whole listed property sector’s prices increased by between 5% and 10% “based on people being more comfortable with the interest rate environment”.
Wainer said the fact that interest rates increased by only 50 basis points last week instead of 100 basis points, as well as the recent positive results from listed property companies, had contributed to restoring confidence in the listed property sector.
Macquarie First South property analyst Leon Allison said the listed property sector had recovered because of a “combination of good results coming through, earnings growth surprising on the upside”.
Interest rates increasing by 50 basis points, instead of 100 basis points, had contributed to the recovery.
“I still believe the medium-term prospects for listed property remain positive, supported by strong property fundamentals,” said Allison.
Quick Comment: consensus expectations for total returns from UK commercial property in 2008 have fallen, despite increased optimism for 2006. There is significantly greater optimism regarding prospective returns from central London offices than from UK retail, in line with our views.
Consensus expectations for total returns from UK commercial property in 2006 increased significantly from 13.4% to 16.5%, according to a detailed survey by the IPF (Investment Property Forum), reflecting the fall in investment yields that has gone on longer, and been stronger, than most expected.
However, this has not caused any material change in consensus expectations for total returns from UK commercial property in 2007, which have remained essentially flat at 7.5% (previous survey: 7.4%).
Further out, the consensus has become more cautious on total returns from UK commercial property in 2008, with expectations falling from 6.2% to 5.2%.
Central London offices are expected to outperform UK retail quite significantly. West End and City offices are both expected to generate capital growth of around 8% in 2007 and 3% in 2008. By contrast, standard shops and shopping centres in the UK are expected to generate only around 1% capital growth in 2007 and to exhibit about a 1% fall in values in 2008.
This puts us, with our preference for central London offices over UK retail, firmly in line with consensus. While we think this is the right view to take on the direct property market, our stock ratings will continue to take account of how much this consensus view on the direct property market has already been factored into share prices.
31 August 2006 - 11:42:48
SNAPSHOTS: SA economists react to PPI data
Johannesburg, Aug 31 (I-Net Bridge) South Africa's producer price index
(PPI) rose by 8.1% year-on-year (y/y) in July from a 7.5% y/y increase in June,
Statistics South Africa (Stats SA) said on Thursday.
The PPI rose 1.7% on a monthly basis after June's monthly rise of 3.0%.
PPI was expected to have risen to 7.5% year-on-year in July, unchanged from
the surprise 7.5% increase in June, a survey of 12 economists by I-Net Bridge
found, with forecasts ranging from 7.0% y/y to 9.3% y/y, although only four of
the 12 economists surveyed expected the increase to be above 7.5%.
MIKE SCHUSSLER, economist at T-Sec: "What a big shock. There is no way
we're going to avoid rate hikes at the next two MPC meetings. This won't be
good for the bond market."
COLEN GARROW, economist at Brait: "High. It's cementing the case
increasingly for another rate hike come October."
GEORGE GLYNOS: market analyst at ETM: "It's disappointing. I haven't had
time to examine the full breakdown yet, but I suspect that it's due to a
combination of factors. I would suspect that we've got a strong uptick in food
prices in the domestic component and wouldn't be surprised to find strong
increases in the likes of the steel industry. Higher oil prices and the rand
have played a strong role. I believe the market is a bit too optimistic about
inflation and should start pricing in the probability of an interest rate
increase in both October and December."
Kenmore, ProLogis Prepare IPOs for Real Estate Funds (Bloomberg)
FT Says 2006-08-28 19:44 (New York) By Bill Murray Aug. 29 (Bloomberg) -- Kenmore Capital Ltd., a private Scottish property company, plans to start its first publicly traded fund and will spend 400 million pounds ($758.1 million) on industrial real estate in Europe, the Financial Times said. The Kenmore European Industrial Fund will focus on France, Germany, Italy and Scandinavia, where yields tend to be higher and debt cheaper than in the U.K., the FT said. Over 60 percent of the company's portfolio will be based in and around Paris and investors can expect an annual dividend yield of about 6 percent, the newspaper said. Separately, ProLogis, the largest U.S. real estate investment trust focused on industrial sites, plans an initial shares sale for its 4.5 billion euro ($5.8 billion) European business on the Euronext NV exchange in what would be Europe's largest property IPO so far this decade, the FT said. ProLogis is being advised by Morgan Stanley and Deutsche Bank AG on the IPO, the FT said.
[TOP]
PSP Swiss Property's Profit Doubles on Revaluation (Bloomberg)
(Update1) 2006-08-29 03:20 (New York) (Updates with revaluation of portfolio in second paragraph, earnings details in fifth paragraph.) By Simon Packard and Dorothee Enskog Aug. 29 -- PSP Swiss Property AG, Switzerland's largest real estate company, said first-half profit more than doubled as the firm revalued its portfolio. Net income rose to 117.9 million Swiss francs ($96.7 million) from 45.1 million a year earlier, the Zurich-based company said today in an e-mailed statement. The revaluation of the company's properties added 84.4 million francs to earnings, compared with a loss of 15.4 million a year earlier. PSP has stepped up buying buildings outside its hometown while reducing vacancies. Rental income and office prices in Switzerland have fallen each of the past three years as oversupply has crimped tenant demand, particularly in Zurich, the largest Swiss city. ``Due to the improved market environment, PSP Swiss Property is confident for the future,'' the company said in the statement. Overall vacancies are expected to range from 12 percent to 14 percent, compared with the first half's 15.5 percent, PSP added. Excluding gains or losses from the sale of real estate investments, earnings before interest, taxes, depreciation and amortization fell 0.1 percent to 94.2 million francs. PSP cut its full-year Ebitda target of 207 million francs to 200 million francs, citing higher maintenance and renovation costs. Net asset value, used by investors to gauge the performance of real estate companies, advanced 1.3 percent from a year earlier to 53.98 francs per share. Rental income rose 4.5 percent to 118.9 million francs.
[TOP]
Fed Signals No Rush to Resume Rate Increases as Growth Slows (Bloomberg)
2006-08-30 00:07 (New York) By Scott Lanman and Rich Miller Aug. 30 (Bloomberg) -- The Federal Reserve signaled it's in no rush to resume raising interest rates, and may even be done tightening as the slowing economy eases inflation. Chairman Ben S. Bernanke's team regards the benchmark lending rate of 5.25 percent as potentially ``consistent with satisfactory economic performance,'' minutes of the Fed's Aug. 8 policy meeting showed yesterday. The language reinforced investor expectations that the Fed will leave borrowing costs unchanged when policy makers meet on Sept. 20 and Oct. 24 and 25. Economic reports since this month's gathering, where rates were held steady for the first time in two years, show a deepening housing slump, worsening consumer confidence and signs of slowing inflation. ``The Fed seems to be moving from a pause, which connotes further rate increases, to a full-fledged stop,'' said Paul Kasriel, director of economic research at Northern Trust Securities in Chicago and a former Fed economist. ``The next move is more likely to be a cut in rates.'' Investors cheered the outlook in the minutes, even though the summary of the discussion showed the decision to forgo a rate increase was a ``close call.'' Stocks and bonds rose, while the dollar retreated. Fed economists predicted cooler growth with ``somewhat'' slower inflation. The report didn't indicate much support for Richmond Fed President Jeffrey Lacker, who opposed the decision to keep rates steady and argued for an 18th straight increase. Lacker, 50, saw economic growth as unlikely to weaken enough to bring inflation under control, the minutes said.
[TOP]
JPMorgan Cuts Rating on European Commercial Property (Bloomberg)
2006-08-30 12:35 (New York) By Peter Woodifield Aug. 30 (Bloomberg) -- Shares of European real estate companies, which have outperformed the broader market for almost seven years, are expensive and pay low dividends, said JPMorgan Chase & Co. analyst Harm Meijer, who lowered his recommendations on stocks including Unibail SA, Hammerson Plc and Corio NV. Meijer lowered his rating for the industry to ``neutral'' from ``overweight.'' He also reduced his ratings on Great Portland Estates Plc, IVG Immobilien AG and Shaftesbury Plc. He raised his recommendations on Beni Stabili SpA, Italy's second-largest property company, and French real estate company Fonciere des Regions SA to ``overweight.'' ``The party is not over, but some guests may leave early,'' London-based Meijer said in a note to clients today. ``Returns will moderate and risks are mounting. Sector valuations are stretched and the dividend yield is relatively near historic lows.'' European real estate shares are outpacing other financial stocks such as banks and insurers this year and are set for a seventh straight year of gains. Since the start of 2000, the Bloomberg Europe Real Estate Index has risen 98 percent, compared with a 25 percent decline in the Dow Jones Stoxx 50 Index of European shares. Property companies recommended by JPMorgan include Derwent Valley Holdings Plc, which invests in offices in London's West End, and office property investors Beni Stabili and Fonciere des Regions. Changing Recommendations It previously recommended Derwent Valley, Great Portland, Land Securities Group Plc, Europe's largest real estate company, and Slough Estates Plc, the owner of six of the U.K.'s largest business parks. Meijer lowered Hammerson, an owner of offices and malls in the U.K. and France, Unibail, which owns offices, shopping centers and exhibition facilities in France, Great Portland, which owns offices in central London, and Shaftesbury, which owns part of London's
Metrovacesa Profit Almost Triples on Value of Assets (Update2) (Bloomberg)
2006-09-01 11:53 (New York) (Adds closing share price in fifth paragraph.) By Joao Lima Sept. 1 (Bloomberg) -- Metrovacesa SA, Spain's biggest real-estate company, said first-half profit almost tripled as the value of its assets increased and rental revenue climbed. Net income rose to 622.3 million euros ($798 million) from 221.8 million euros a year earlier, Madrid-based Metrovacesa said today in a regulatory filing. Earnings for all of 2006 may exceed the 800 million euros that Metrovacesa forecast in June. Revenue jumped 30 percent to 747.8 million euros in the first six months. Chairman Joaquin Rivero and Grupo Sacresa, Metrovacesa's biggest shareholder, are trying to secure greater control of the company as it increases investments in rental properties following a seven-year surge in Spanish house prices. Last year Metrovacesa bought Paris-based Gecina SA, gaining access to some of Europe's highest office rents as well as tax breaks. ``The Madrid office market remains strong and office rents in Paris are beginning to rise,'' the company said in the statement. Metrovacesa said it may exceed its 2006 profit forecast of 800 million euros. Shares of Metrovacesa fell 40 cents to 73.50 euros in Madrid, valuing the company at about 7.5 billion euros. The stock has gained 43 percent this year after surging 72 percent in 2005. Excluding the changes to the value of its assets, Metrovacesa said profit increased 26 percent to 216 million euros. The company said its net asset value after tax at the end of the first half was 47.35 euros a share, a 17 percent increase from the 40.33 euros reported for December.
I don't know the catalyst, but the broad market just cannot see a major selloff in the REIT market based on the weight of cash looking for yield.
The market will naturally be shocked when the selloff comes and will spend countless days reconstructing how they could never have foreseen it coming.
I believe studying history is the only way disasters can be avoided.
Mike Berman
Let me add the only other measure is to observe human behavior.
Mike Berman
the R157 (10 year bond) weakened by 12bps
to end at 8.77%. Contrary to other income type assets,
listed property re-rated positively with the historic rolled
yield firming by 87bps to end August at 7.73%. This
performance supports the argument that the sell off of
property stocks during the May to July period was
overdone. Listed property is now trading at a greater
discount to the R157 than it was at the end of April 2006,
just prior to the listed property sell off. The historic rolled
yield is now at a 104bps discount to the R157, versus the
52bps discount that existed at the 30th of April 2006.
Pearls of wisdom from Vukile's CEO in a newsletter to shareholders.
Interest rate increases
The recent increases in interest rates have had a severe negative impact on the listed property sector as a whole. Linked unit prices tumbled by approximately 25% from the highs of March/April of this year. In reality, there was no reason for the linked unit prices to reduce at all. In the case of both Vukile and MICC (and most of the other PLS and PUT companies as well), all our debt is either fixed or hedged and the increased interest rates will have no effect whatsoever on our cost of debt. In addition, the fundamentals of the property industry remains strong and there is some evidence of a shortage of commercial space. Due to the fact that the higher interest rates will curb development activity, this can only lead to higher rentals. We are therefore of the opinion that the drop in prices has been too severe and that a further upward correction can be expected.
Yours sincerely
Gerhard van Zyl
Chief Executive
&a waterfront – conclusion of sale process
--------------------------------------------------------------------------------
2006/09/20
International, BEE investors acquire V&A Waterfront for R7.04bn
The V&A Waterfront Holdings (Pty) Ltd (“V&A Waterfront”) linked unitholders – namely Transnet Ltd and its pension funds Transnet Second Defined Benefit Fund, the Transnet Pension Fund and the Transnet Retirement Fund (TRF) – are pleased to announce that the L&R Consortium, through Lexshell 44 General Trading (Pty) Ltd (“Lexshell”), has been selected as the successful bidder to acquire 100% of the V&A Waterfront for a cash price consideration of R7.04 billion.
The consortium, selected from nine short-listed bidders based on the evaluation criteria published in May 2006, is a South African company made up of a broad spread of local and international shareholders led by the UK-based London & Regional Group Holdings Limited (“L&R Group”).
Apart from the L&R Group, the consortium comprises international property investors Istithmar PJSC (“Istithmar”) and Black Economic Empowerment (“BEE”) investors. The total interests of BEE shareholders is 23.1%, with another 2.0% ownership in the consortium to be set aside in a trust for V&A Waterfront’s black employees.
The BEE shareholders in Lexshell include Decorum, Western Cape Women’s Investment Alliance, Kgontsi Investments, Tsa Rona Investments and the Cape Empowerment Trust, a wide range of community-based and non-governmental organizations. The BEE component also boasts leading South African entrepreneurs and executives like Mr Jabu Mabuza, Dr Vincent Maphai, Mr Hassen Adams and Mr Luyanda Mpahlwa.
Commenting on the transaction, Ms Maria Ramos, Group CE of Transnet Ltd and the V&A linked unitholders’ spokesperson, said: "This is a balanced deal: The V&A linked unitholders are satisfied that the L&R Consortium has successfully fulfilled the stated evaluation criteria with maximum value being realised for the linked unitholders' stakeholders, 74% of whom are pension fund members, while leveraging meaningful BEE participation and retaining jobs of all V&A employees. Based on the price offered the linked unitholders are satisfied that an appropriate value has been achieved from the Trade Sale Process and consequently a possible listing of the V&A Waterfront in terms of the Dual Track Process was not pursued."
At the launch of the sale process in May, Ms Ramos said the linked unitholders wanted their exit to be via a structured, transparent, equitable and value-maximising process. “These objectives have been accomplished. The disposal process has been implemented according to the highest standards of corporate governance and has been confirmed by KPMG”, says Ms Ramos.
L&R Group – one of the largest private property companies in Europe with investments, developments and business interests exceeding €7 billion (approximately R65.3 billion) in over seven countries including the UK, Sweden, Finland, Germany, Poland, Denmark and Russia – has in excess of 50 hotels across Europe and has a development program of over 7 million ft2 predominately in London and extensive experience in developing and managing marina and port based developments across the globe.
Istithmar is a Dubai-based investment house that forms part of Dubai World which in turn is held by the Dubai Government. Dubai World is a holding company that manages the portfolio of businesses and projects for the Dubai Government across a wide range of sectors, including famous projects such as The Palm, The World and Dubai Waterfront, to Istithmar, a private equity house.
“This transaction is a major vote of confidence in our economy by international investors. As linked unitholders, we are glad to be able to exit in favour of a consortium that has real prospects of unlocking further value in this prime national asset, whilst bringing with it skills and proven expertise,” says Ms Ramos.
Commenting on the transaction, Mr Bulelani Ngcuka, the Chairman of the V&A Waterfront board, said: "The board of directors and executive management of the V&A Waterfront are pleased to welcome the L&R Consortium as the successful bidder in the Trade Sale Process to acquire a 100% stake in the V&A Waterfront. The Board would like to acknowledge the successful bidder's commitment to the evaluation criteria, particularly employee retention and BEE participation, which are vital to the transformation of the local economy."
The transaction is subject to the approval by South African competition authorities and to the extent required, the approval of the South African Reserve Bank.
The TRF, which had the option of retaining its 22.6% interest or increasing it to 26%, has elected to dispose of its stake as well.
The successful sale of the V&A Waterfront is part of Transnet’s strategy of selling its noncore assets and enables Transnet to pursue its vision of being the custodian of the ports, freight rail and pipeline businesses in our country.
* As a designated spokesperson for both the process and linked unitholders, Ms Maria Ramos will hold one-on-one interviews via the phone with interested journalists. Members of the media can make the necessary arrangements through her spokesman John Dludlu (see his details below).
The bright long-term outlook for earnings growth in South Africa's listed property market, combined with the portfolio diversification and liquidity benefits of the sector, makes this asset class an attractive one for longer-term investors.
This remains true despite many analysts' expectations of a slowdown in growth compared to the heady returns of the past few years.
Traditionally regarded only as a long-term investment, recent years have seen listed property attract large inflows of shorter-term funds as speculators have capitalised on the strong gains in the sector.
Indeed, property unit trusts have posted average annual returns of around 40% per year since 2003, driven mainly by falling interest rates.
As a result of this spectacular performance, SA listed property has been accepted as an important asset class for any investment portfolio.
According to the Association of Collective Investments, assets in the property sector reached R15.6-billion as at June 30 2006 and accounted for 3.4% of the R455.3-billion in total assets in the collective investments industry, including institutional and retail funds.
When one compares this with R1.3-billion or just 1.2% of total assets in June 2001, the sector's stellar rise in popularity is evident.
Investors now have some 24 property funds from which to choose, compared with only four in 2001. Of course, greater choice brings a need for more detailed research as the funds differ significantly in their holdings and risk profiles - so investors must be selective in their choices.
Some, like the Old Mutual SA Quoted Property Fund, offer pure exposure to the local property market by not including shares of international property groups, and limiting cash holdings to less than 5% of the fund?s value. Others may represent a wider property exposure, while the proportion of cash and bonds can vary substantially.
Since May, when rising global aversion to risk and the deteriorating inflation and interest-rate outlook prompted a sharp correction in the listed property market, investors have been wary of the sector.
Len van Niekerk, fund manager of the Old Mutual SA Quoted Property Fund, points out that although some of this correction can be justified, the extent of the sell-off was largely overdone, and made worse by aggressive selling by some fund managers and concerned individual investors.
"Shorter-term investors have exited the sector as they recognise that the days of 40% annual returns are over," he observes, "but the longer-term market fundamentals haven?t changed. The outlook for listed property remains almost as attractive as ever, particularly for longer-term income investors."
While the residential property sector may appear to be floundering somewhat, the fundamentals for the commercial property market have never been better.
Listed property offers investors valuable exposure to this market, which comprises retail, industrial and office properties, without the need to invest in physical property.
Demand for all three of these property categories is growing as the economy expands, ensuring that vacancies remain low or continue to decline. What's more, supply constraints ? due to rising land and building costs and stricter zoning ? support a sustainable rise in rental income.
"Although there has been some deterioration in conditions in the retail environment, we do not anticipate it falling off a cliff," Van Niekerk says.
"There is, however, a risk that poorly located and tenanted retail centres could suffer, given the amount of new retail space that has come to the market."
Meanwhile, the industrial property market is enjoying solid growth, with rental increases of above 30% no longer uncommon. Office property rental increases are still in their early stages.
The accompanying "property clock" illustrates the current phase of South Africa?s property cycle. The positive domestic earnings cycle, which began early in 2004, should be sustainable until the end of the decade, underpinning distribution growth for listed property companies.
Van Niekerk is confident that in the longer term listed property offers growth in both yield and distributions.
"The sector now offers a forward pre-tax yield of 9%, compared to 6.5% for cash and 8.5% for bonds," he explains, "and we are forecasting income growth of 9% to 10% per year, which means that listed property could enjoy total returns of up to 20% pre-tax over the next year. Neither cash nor bonds offer any income growth."
However, he cautions, heightened market nervousness has increased the sector?s vulnerability to price volatility over the next few months and poses a risk to capital values.
Worse-than-expected inflation, credit extension and trade data have all increased the probability that interest rates could be increased by more than previously expected.
So while listed property may experience higher volatility over the short term as worries over interest rates linger, investors who have the patience to stay the course could be rewarded with stable growth and a reliable income stream that could also support an increase in capital value over time.
# Business Times brings you investment insights from Old Mutual Asset Managers
Business Times
Volatility playing havoc with listed property sector
15 Sep 2006 - Inet Bridge -
Intro
The unit-price volatility that has been a feature of the South African listed property sector since May appears to be continuing
By Nick Wilson
The unit-price volatility that has been a feature of the South African listed property sector since May appears to be continuing.
After experiencing boom conditions for the past few years, the listed property sector lost about 25% of its value over a two-month period from May as emerging market jitters and rising interest rate fears took hold.
Although it has managed to recover most of this loss in capital value, this month also saw some price weakening again.
Angelique de Rauville, MD of Investec Listed Property Investments, said the listed property sector gained 23% this year up to May 10.
"Then all profits eroded as the sector dropped 24,8% from its high on May 10 to July 17," said De Rauville.
She said the second half of July and last month showed a major rebound in the sector, with it regaining 18,6%.
This month also saw negativity return with further downward pressure eroding 5,4% of these previous gains, De Rauville said.
The recent sell-off could possibly be attributed to two factors: the sector recovering too quickly in the six weeks since mid-July and general market jitters over more aggressive interest-rate rises compounded by higher-than-expected inflation figures. De Rauville said the next set of results for listed property companies with September reporting periods were due at the end of October and in November.
She said she expected these results to "bring further good news ? and return some of the capital values eroded. Until then, we are expecting the market to continue being fairly volatile. This is not all bad news as this can present some good buying opportunities."
Macquarie First South property analyst Leon Allison said he would "continue to expect volatility for the rest of year" and that this was in line with financial markets in general.
"The key focus for listed property investors should be income yield rather than capital appreciation. On a 12-month view we see limited capital growth potential from the listed property sector.
"The sector is now yielding 9,3% on a one-year forward basis and there is a high degree of certainty to that income," said Allison.
Business Day
David Pretty, chief executive of Barratt Developments, has shrugged off last month's interest rate rise and insisted a further increase would have no impact on demand at one of the country's biggest housebuilders.
"The recent interest rate rise has had no discernable effect on sales," said Mr Pretty, who is due to retire in December. "Another interest rate rise would not be particularly welcome but I don't think it will have any fundamental impact on the market."
He said that, outside central London, where house prices have risen rapidly in recent months, his regional sales teams were reporting "a good, steady market" despite a quarter point rise in the borrowing rate to 4.75 per cent last month.
Mr Pretty said the failure of local government to respond to Whitehall pressure to speed up the planning process was putting a squeeze on supply, while demand was on the rise.
US housing crash could bring UK down with it (Telegraph)
By Edmund Conway, Economics Editor (Filed: 28/09/2006)
If one of your friends whispered to you that there was going to be a recession next year, you probably wouldn't pay them too much attention. After all, the economy is powering on ahead, isn't it?
Growth this year will be strong, and will endure into 2007, driven by company profits and investment.
We know as much because the Treasury, the International Monetary Fund and other economic authorities have told us so. And, indeed, the consensus forecasts show that growth in 2007 will be 2.4pc, following strong expansion of 2.6pc this year.
But what if that bearish friend of yours happened to be a respected City economist - one whose figures were watched closely by a variety of institutions, including the Treasury?
Peter Warburton, who runs a small consultancy called Economic Perspectives, believes that the UK will slump into a full-blown recession next year, shrinking by some 0.3pc over the 12 months. This would be the worst economic performance since 1991, the last recession, which came amid Britain's ignominious ejection from the European Exchange Rate Mechanism.
Mr Warburton - a member of the Shadow Monetary Policy Committee - warns that the UK will be badly hit by a US housing market crash.
He says: "There is an increasingly large possibility of a scenario where, frankly, economic activity could fall quite materially. In short, I do not believe that the UK has become a more stable economy."
His thesis is that for the past decade, despite its stable growth rate and low inflation, the UK economy has been brewing up potential problems. These include the record level of debt taken on by the household sector, a similarly large jump in government borrowing and a fall in manufacturing output. If, as many experts predict, the US suffers a housing market collapse next year, this could trigger an even more dramatic downturn in the UK.
The reason, he says, is that British companies are particularly reliant on the US for their exports. If they lose much of their custom, they are likely to have to lay off employees, triggering a rise in unemployment and a possible drop in consumer spending.
"The landscape can change quite quickly, and the UK is one of the most vulnerable economies out there," he says. "It's fanciful to suggest that just because corporate balance sheets seem to be in a more healthy state that businesses will carry on spending even if the consumer stops spending.
"You can see that things are already not well in the economy. Unemployment is up to the highest level in around seven years and the public finances are in a much poorer state than you would ever imagine from an economy growing at 2pc-3pc.
"There is a cauldron of insolvency, which people are trying to pretend is a micro-economic social issue. I think it's a big economic issue.
"Additionally, there aren't any more rabbits we can pull out of the hat."
Grim tidings. And for all that Mr Warburton has been consistently pessimistic about economic growth for a number of years now, his views are an important warning of the dangers facing UK policymakers.
He thinks, for example, that the Bank of England has "seen an inflationary ghost", and its likely decision to raise interest rates to 5pc or beyond could trigger a serious house price tumble.
Perhaps most chillingly for Gordon Brown he believes that the efficiency of the private sector has been slowly eroded by Labour's imposition of stealth taxes and regulation.
Such a miserable outlook is not shared by Trevor Williams, the chief economist at Lloyds TSB Financial Markets. While Mr Warburton was the most pessimistic of all major UK economists, Mr Williams has the brightest outlook, predicting that after expanding by 2.8pc this year, the UK will grow at 2.9pc next year.
For a start, he does not believe that the US will suffer a housing market crash, predicting that it will instead merely see house price growth slow down to more manageable levels - as happened here 18 months ago.
"The global background is quite good for the UK, and we're benefiting from strong growth in Europe and in the US," he says.
"My view is that the consensus developing in the market is wrong. I don't think there will be a crash. I think the economy is fundamentally strong.
"[In the UK] house prices are likely to remain above their long-term valuations for a long time, though there will be a peak to the mini-boom late next year."
Mr Williams's optimism is partly fuelled by his belief that Britain has become a powerful knowledge economy, where growth can be driven by our specialisation in ideas and skills.
For the moment, he is much closer to the orthodoxy. But things change fast in economics, and if the US housing market continues to deteriorate, there could soon be many more joining Mr Warburton's camp
Property fund plans £3bn Asia spree (Times)
By Jenny Davey
THE property fund manager backed by Sir Alex Ferguson and Sir David Frost is planning to spend £3 billion on property in India, Japan and China, The Times has learnt.
The war chest of Active Asset Investment Management (aAIM) represents one of the biggest new funds set up by a British investor dedicated to the Far East.
It comes after a new £2 billion property fund set up by aAIM targeted the UK and mainland Europe.
The group is proposing to spend £1 billion in each of the three countries, but is singling out India as its priority. It will target shopping centres, mixed-use developments, IT parks and hotels. Talks have already been held with big Asian companies, including Reliance Industries, the vast private Indian conglomerate.
Private investors have already given indicative commitments to provide the £300 million of equity needed to launch the fund, which will be geared up to provide £3 billion of buying power.
It is understood that Sir Alex, Sir David and Simon Cowell, star of the ITV programme, The X Factor, are all expected to invest.
Robert Whitton, one of the founding members of AAIM is in Hong Kong attending Mipim Asia, a giant Asian property jamboree.
According to a report due to appear in PropertyWeek magazine, alongside the three core countries of India, Japan and China, the fund will also have the mandate to look at attractive deals in Korea, Singapore, Malaysia and Indonesia.
A number of other UK-based investors have been eyeing Asia. REIT Asset Management, the owner of St Katharine Docks, the marina and luxury residential complex near the Tower of London, has already ploughed hundreds of millions of pounds into India and is looking into opportunities in Japan.
Elliott Bernerd and Nick Leslau, two of Britain’s best known private property entrepreneurs, are also known to have run the slide rule over investment opportunities in India.
The plan by AAIM to conquer the Far East comes just weeks after The Times revealed that Bank of Scotland had agreed to take a 20 per cent stake in the aAIM management company, enabling its founders, Mark Tagliaferri, a former corporate financier at Nomura, Mr Whitton and Stuart Le Gassick, to share an estimated £15 million windfall just three years after setting up the company.
The group specialises in buying high-quality new properties, let to blue-chip companies. It made an 80 per cent return on its first investment, an MFI office in Northampton, which was sold for £8 million. AAIM has completed £1 billion of commercial property transactions in the UK and on the Continent.
WHO ARE THE BACKERS?
Sir Alex Ferguson — tough-talking Scottish manager of Manchester United Football Club who has guided the team to eight league titles
Sir David Frost — TV broadcaster of shows including That Was the Week That Was, Breakfast with Frost and The Frost Report
Simon Cowell — music guru and feared judge on the talent shows Pop Idol and The X Factor
The Japanese market, meanwhile, feels frothy.
Tycoon Richard Li this month sold a skyscraper on an effective yield of 2.7 per cent. Aaim plans to use 90 per cent leverage, far more than supposedly high-risk real estate private equity funds.
Last week, it was reported that Aaim had plans "to conquer the Far East". Perhaps backers such as Simon Cowell, star of X Factor, the reality TV talent show, know something that many experienced property companies do not.
Sizzling in Spain
We all knew it was hotter in Spain - but not this hot.Many property stocks in the UK may feel fully priced right now but not by the standards of Iberia. Metrovacesa has been the subject of a frenzied bidding battle this summer between chairman Joaquim Rivero and private company Sacresa.
This struggle, which reached an impasse last week, pushed the share price to €113. This crazy level was way above the price at which the two sides have been snapping up stock; about €80.
It also reflected a premium to NAV of over 240 per cent, if you exclude the newly acquired French business, according to analysts at Lehman Brothers.
"We think that the slightest downward momentum in the share price will trigger a correction," they warned.
On Wednesday, those fears were realised as the stock dropped 14 per cent. But is it still overpriced at about €95?
Even one of Sacresa's directors, Jesus Garcia de Ponga, has told Bloomberg that Metrovacesa's share price should be closer to €60. In this environment you can see why investors may want exposure to funds that can go both long and short in property equities.
Rock Capital has recently launched such a hedge fund. It is not hard to see how such a fund could find ready arbitrage opportunities when many property stocks are clearly overvalued.
Investors should tread carefully, however. Metrovacesa, long scorned by analysts, was heavily shorted by hedge funds and others in the run-up to the current bid pantomime.
For two years, about 10 per cent of its stock was shorted, even as the price started sizzling on the takeover story. Sticking to fundamentals is well and good. But takeover bids can throw a spanner into even the best analysis.
Keep researching Lies, damned lies and statistics. It is curious how much credence is often put on far-from-conclusive research.
Independent researchers at Knight Frank were hired by the CBI, British Property Federation and Royal Institution of Chartered Surveyors to look into the effect of a planning gain supplement (PGS).
The resulting survey showed the tax would be spread across more projects than existing Section 106 agreements, which are negotiated individually by developers and councils.
The PGS would result in more payments for smaller schemes and less payments from bigger ones.
On the basis of 18 case studies, most of which were already paying under Section 106, it could even raise less money than the existing system.
This would be the end of the world, according to some observers. It was the latest example of Labour's housing policies falling into "disarray", said Caroline Spelman, shadow local government secretary.
But had they read the entire report? Mr Edge concedes the research was too small to represent the entire planning system, which sees 600,000 applications a year.
One flaw of the Section 106 system is that agreements do not fall evenly across the board.
They apply to only 7 per cent of projects, according to recent research by Sheffield Hallam university. This figure may be too low - the Homebuilders Federation puts the figure at 75 per cent. No one knows. But if 16 out of Knight Frank's 18 case studies were paying Section 106, then how can they be emblematic of the entire industry?
If, instead, a different 18 had been selected - with only a handful paying Section 106s - we would have seen the opposite headline: "Planning gain supplement to raise much more than current system", for example.
There are strong arguments on both sides of the PGS debate. But wise heads - and ministers - should be wary of concluding much from this research
[TOP]
Why Slowing Housing Sales May Be Good News (WSJ)
For Developers: Falling Prices in Commodities
NEW YORK -- Real-estate developers and government builders have complained for years about runaway construction costs. Relief could be on the way, however, thanks to falling commodity prices and slowing housing sales.
Considering that commodity prices are notoriously volatile, it may be too soon to uncork the champagne. That is especially true for oil prices, which could start rising again if leaders of the Organization of Petroleum Exporting Countries are successful in their bid to shore up prices by convincing members to cut production.
For now, the oil-led decline in commodity prices is welcome news for real-estate developers in the public and private sectors that have struggled to respond to construction inflation, which began to outpace economywide inflation in 2004. While overall inflation in the U.S. crept up 3.3% in 2004, steel and iron prices surged 33.7% in 2004. Lumber was up nearly 16.8% that year and prices of gypsum, or wallboard, were up 20%. The price increases continued in 2005 and the first half of this year. Analysts cited a strong construction market in Asia and the U.S. and the rapid rise in petroleum prices.
Although construction inflation slowed some municipal and commercial construction, the red-hot residential market more than offset the loss, and construction spending expanded overall. Construction spending rose 11.6% in 2004 and 10.5% in 2005, according to the U.S. Commerce Department. The latest figures showed the U.S. economy spent $1.2 trillion on construction on a seasonally adjusted basis in the year ended Aug. 31.
Still, individual projects were roiled by the price increases, forcing design changes or, in some cases, cancellations. At the same time, contractors had plenty of work, especially on the residential side, which reduced the number of bidders on jobs, adding to construction costs. Related Cos., a New York developer, canceled close to $3 billion of projects in Las Vegas earlier this year, blaming construction inflation.
"It has been very challenging for contractors to correctly estimate what the cost of a job will be, so they have either had margins squeezed or seen projects delayed or cancelled," says Kenneth Simonson, chief economist with Associated General Contractors, a trade association based in Arlington, Va.
One place that has been especially hard hit by construction inflation is fast-growing Arizona. The state's Arizona School Facilities Board funded $1.4 billion for 168 new schools in the past five years. But rapid cost increases mean that money isn't enough to get the projects done and now districts are being asked to pare back the amenities in new schools to bare minimums.
Vail Unified School District near Tucson, Ariz., has built 14 schools in the past 20 years. Now, because state funding hasn't kept up with construction inflation, Vail Unified is being forced to rethink the design of some buildings, district Superintendent Calvin Baker says.
"It's becoming very difficult to build an aesthetically pleasing school" or an energy-efficient one, Mr. Baker says. The money from the state's funding formula, for instance, only provides enough for unfinished concrete block walls, rather than walls finished with gypsum and insulation. The lack of insulation means air-conditioning costs will be more in the long run. "We're building schools that are very shortsighted for energy efficiency," he says.
Some economists say change is coming and project that prices of basic commodities such as steel, oil and natural gas, which have fallen in recent months, will soon trickle down to finished construction products such as asphalt, gypsum, plastics and cement.
The biggest contributor to easing construction inflation is oil. Petroleum is a key component in materials such as asphalt and plastic and is used to make and transport items such as cement and steel. "With the decline in petroleum prices... common sense would say asphalt prices should soon retreat and also see some retreat by cement as well," says Robert Murray, vice president at McGraw Hill Construction, a New York trade publication. Asphalt, which is used on highways, parking lots, driveways and roofing, is a byproduct of petroleum.
In addition, with less residential construction, prices for gypsum "are going to come down quite a bit," predicts James Haughey, director of Research and Analytics at Reed Construction Data, a Norcross, Ga., publisher of building information and a unit of Reed Elsevier Inc. "Gypsum prices have fallen substantially in previous housing downturns." Residential construction was down 5.1% on a seasonally adjusted annual basis. That's compared with a 4.4% increase for construction projects of all types, according to the Commerce Department.
Mr. Simonson at Associated General Contractors believes prices for copper, used in electrical wires and pipes, are heading lower. Spot commodity prices for copper are already as much as 22% off their high earlier this year, and that should translate into lower prices for finished products within a month or two.
One contractor who believes it is premature to celebrate is Robert Seghetti, vice president at Acme Concrete Paving Inc. in Spokane, Wash. He has had two jobs canceled in the past two weeks because of clients who couldn't come up with the cash for higher material prices, prompting him to lay off several seasonal staff members earlier than usual.
One project was a tarmac and deicing facility at Tri-Cities Airport in Pasco, Wash. Acme was the only bidder at $11 million, almost double what the airport expected. He also has bid three times for the same taxiway job at Fairchild Air Force Base near Spokane, Wash. All three times the job was shelved because the price was too high. The first time was in the fall of 2004.
In each subsequent bid, Mr. Seghetti had to raise his price because the cost of asphalt and concrete had risen so much. Even though the scope of the job is the same, the cost has doubled to $3.8 million. In an email last week, the Air Force told him the job was off again: "Due to the budgetary constraints, slab replacement taxiway P has been cancelled. Thanks for your interest and we hope you will continue to respond to future solicitations."
"I'm expecting we may see the softening in cement as the housing market deteriorates," Mr. Seghetti says, "but it's too early to tell."
[TOP]
Despite constraints construction firms are forecasting a long bull run
28 Sep 2006 - Financial Mail - Nicky Smith
Intro
Boom times for construction and engineering companies are just beginning, says Carl Grim, CE of industry giant Aveng.
Boom times for construction and engineering companies are just beginning, says Carl Grim, CE of industry giant Aveng. He says the sector will have to work flat out to meet the growth in demand from both the public and the private sector.
Grim says that by looking at the rate of development of capital stock - such as railways, roads and power stations - as a ratio of SA's economic growth, it is clear that "this boom still has legs". Investment in capital stock is driven by a number of factors, says Grim. The first is consumer spending. This influences building of new shopping malls, hotels and manufacturing facilities such as automotive paint plants. Aveng believes that consumer demand will fizzle out within the next year because of a tighter monetary policy by the Reserve Bank.
WHAT IT MEANS
Boom will boost construction margins Demand will last longer than expected.
The second leg is investment in mining and energy generation, which are exposed to exchange-rate fluctuations because they require imported machinery and equipment. The third leg is based on government infrastructure spending. "We think that there are about five to seven years in that leg. Government can really drive this thing," says Grim. He explains that a country ideally wants to be investing in capital at the same rate as its economy is growing. (See graph). Under investment can lead to growth and capacity constraints, which are already evident in SA's power and rail industries.
This is having an impact on Aveng's performance. "Spoornet has cost us a lot of money," Grim says of Aveng's financial results for the year to end-June, which showed profits up by 86%. (See results table). Pierre Blaauw, economist at the SA Federation of Civil Engineering Contractors, says there is enough work available for the industry until 2016 just to catch up with infrastructure backlogs. Though some of this work will come in fits and starts, the trend will be towards steady growth in investment. Blaauw says the R400bn (of which government is responsible for R375bn) in infrastructure spending will boost growth, jobs, housing demand and consumption, which will lead to further investment.
But there are large constraints. Already companies such as Mittal and Sasol are having problems finding the skills for new projects or maintenance work. It's not just an SA phenomenon; Grim says Aveng is experiencing similar constraints at its Australian operations. Aveng has been restrained in adding to its order book. The idea is to wait
until demand increases enough and then cherry pick the projects with bigger margins. "Our view is that you're going to get the really high margin stuff going into the next six months... we held back on our order book in order to get the cream projects," he says. The expected demand will also enable Aveng to be more prescriptive in contract talks.
Grim says the local economy is experiencing the "double-barrelled push from the resources boom and the increase in public spending". However the country's creaking infrastructure and the skills shortage could spoil this, he says. "Attracting and retaining skills is the critical factor to success."
At present there are only 200 engineering graduates produced in a year, half the number of 30 years ago. Peer company Group Five estimates that this number needs to be boosted by 50%/ year as about 5 000 engineers are needed to meet the workload envisaged. Even that may be conservative. Engineering News recently quoted a recruitment firm as stating SA would need at least 60 000 engineers. Group Five says so far in 2006 construction activity is up 20% on last year, with the industry expected to generate at least R100bn in revenue this year
Blaauw says SA has had 20 consecutive quarters of GDP growth, which has exacerbated the capacity constraints of the infrastructure network, particularly in roads, power supply and rail. If government is to come anywhere close to meeting its 6% growth target it needs to release public funds for infrastructure funding very soon.
Listed property still offers value
19 Sep 2006 - Inet Bridge -
Intro
Investors now have some 24 property funds from which to choose
The bright long-term outlook for earnings growth in South Africa's listed property market, combined with the portfolio diversification and liquidity benefits of the sector, makes this asset class an attractive one for longer-term investors.
This remains true despite many analysts' expectations of a slowdown in growth compared to the heady returns of the past few years.
Traditionally regarded only as a long-term investment, recent years have seen listed property attract large inflows of shorter-term funds as speculators have capitalised on the strong gains in the sector.
Indeed, property unit trusts have posted average annual returns of around 40% per year since 2003, driven mainly by falling interest rates.
As a result of this spectacular performance, SA listed property has been accepted as an important asset class for any investment portfolio.
According to the Association of Collective Investments, assets in the property sector reached R15.6-billion as at June 30 2006 and accounted for 3.4% of the R455.3-billion in total assets in the collective investments industry, including institutional and retail funds.
When one compares this with R1.3-billion or just 1.2% of total assets in June 2001, the sector's stellar rise in popularity is evident.
Investors now have some 24 property funds from which to choose, compared with only four in 2001. Of course, greater choice brings a need for more detailed research as the funds differ significantly in their holdings and risk profiles - so investors must be selective in their choices.
Some, like the Old Mutual SA Quoted Property Fund, offer pure exposure to the local property market by not including shares of international property groups, and limiting cash holdings to less than 5% of the fund?s value. Others may represent a wider property exposure, while the proportion of cash and bonds can vary substantially.
Since May, when rising global aversion to risk and the deteriorating inflation and interest-rate outlook prompted a sharp correction in the listed property market, investors have been wary of the sector.
Len van Niekerk, fund manager of the Old Mutual SA Quoted Property Fund, points out that although some of this correction can be justified, the extent of the sell-off was largely overdone, and made worse by aggressive selling by some fund managers and concerned individual investors.
"Shorter-term investors have exited the sector as they recognise that the days of 40% annual returns are over," he observes, "but the longer-term market fundamentals haven?t changed. The outlook for listed property remains almost as attractive as ever, particularly for longer-term income investors."
While the residential property sector may appear to be floundering somewhat, the fundamentals for the commercial property market have never been better.
Listed property offers investors valuable exposure to this market, which comprises retail, industrial and office properties, without the need to invest in physical property.
Demand for all three of these property categories is growing as the economy expands, ensuring that vacancies remain low or continue to decline. What's more, supply constraints ? due to rising land and building costs and stricter zoning ? support a sustainable rise in rental income.
"Although there has been some deterioration in conditions in the retail environment, we do not anticipate it falling off a cliff," Van Niekerk says.
"There is, however, a risk that poorly located and tenanted retail centres could suffer, given the amount of new retail space that has come to the market."
Meanwhile, the industrial property market is enjoying solid growth, with rental increases of above 30% no longer uncommon. Office property rental increases are still in their early stages.
The accompanying "property clock" illustrates the current phase of South Africa?s property cycle. The positive domestic earnings cycle, which began early in 2004, should be sustainable until the end of the decade, underpinning distribution growth for listed property companies.
Van Niekerk is confident that in the longer term listed property offers growth in both yield and distributions.
"The sector now offers a forward pre-tax yield of 9%, compared to 6.5% for cash and 8.5% for bonds," he explains, "and we are forecasting income growth of 9% to 10% per year, which means that listed property could enjoy total returns of up to 20% pre-tax over the next year. Neither cash nor bonds offer any income growth."
However, he cautions, heightened market nervousness has increased the sector?s vulnerability to price volatility over the next few months and poses a risk to capital values.
Worse-than-expected inflation, credit extension and trade data have all increased the probability that interest rates could be increased by more than previously expected.
So while listed property may experience higher volatility over the short term as worries over interest rates linger, investors who have the patience to stay the course could be rewarded with stable growth and a reliable income stream that could also support an increase in capital value over time.
# Business Times brings you investment insights from Old Mutual Asset Managers
Business Times
Big turnout at shopping centre conference
29 Sep 2006 - Inet Bridge -
Intro
The 11th African Congress of Shopping Centres, which was held from September 13 to 15 at the Sandton Convention Centre, drew a record 1000 delegates
The 11th African Congress of Shopping Centres, which was held from September 13 to 15 at the Sandton Convention Centre, drew a record 1000 delegates. About 800 delegates were expected.
The South African Council of Shopping Centres, which hosted the congress, said this endorsed the international status of SA's retail industry and proved that international brand marketers increasingly considered the country a major world player.
Council GM Tracey Fowler said the theme of the conference was Thinking new - the birth of new concepts. The conference focused on SA's "leading role in the retail field".
Fowler said overseas and local speakers underlined SA's attraction, based on its advances in retail design and marketing.
She said this was highlighted by the new retail developments discussed at the conference and the results of the council's annual Footprint Awards for innovative marketing.
Fowler said that panel discussions at the conference were at a very high level.
She singled out the session chaired by local architect Lisa Blane on retail development and design.
Fowler said that highlights were the panel discussions on retail development and design and on the iconic Melrose Arch development and the success of Rand Merchant Bank's new lifestyle clothing centre, Worldwear, in Fairland, Johannesburg.
Business Day
Nippon Building Leads a Boom in Japan's REITs as Rents Recover (Bloomberg)
2006-10-11 11:22 (New York) By Finbarr Flynn Oct. 12 -- Shares of Nippon Building Fund Inc., Japan's biggest real estate trust, reached a record last week as land prices and rents soared. Rivals such as Japan Real Estate Investment Corp., the second largest, are poised to catch up. Commercial land prices in central Tokyo rose 14 percent in the year ended July 1, five times the pace of the previous 12 months. Climbing rents and land values have attracted investors to Japan's five-year-old REIT market, with 11 new trusts listing this year alone. Investors are tapping a rebound in the property market that spent more than a decade and a half in the doldrums after the asset bubble burst in the early 1990s. ``Nippon Building's room to climb higher is limited for now but there is room for others, like the industry No. 2, to follow it,'' said Toshiyuki Anegawa, a REIT analyst at Merrill Lynch Securities Co. ``The top REITs will continue to grow.'' Nippon Building's shares have gained 27 percent this year to 1.26 million yen, the best performance in the Tokyo Stock Exchange REIT Index. Japan Real Estate is up 6 percent to 1.03 million yen and Nomura Real Estate has jumped 17 percent to 980,000 yen. The real estate index has climbed 7.7 percent this year, the seventh-best industry group out of 33 in the Topix index, which has lost 1.7 percent in the same time. Nippon Building, with a market value of 640 billion yen ($5.4 billion), is 1.8 times bigger than Japan Real Estate. ``Japanese REITs give us exposure to improving property fundamentals in the central Tokyo wards,'' said Steven Burton, manager of ING Clarion Real Estate Securities, which owns Nippon Building shares. ``REITs aren't cheap, but there are still some opportunities.'' ING Clarion is part of ING Real Estate, which manages nearly $100 billion in assets.
Commercial property shrugs off rate hike
16 Oct 2006 - Business Day - Nick Wilson
Intro
THE 50 basis-point hike in interest rates by the South African Reserve Bank on Thursday is not expected to hurt the South African commercial property market, which includes retail, office and industrial property.
THE 50 basis-point hike in interest rates by the South African Reserve Bank on Thursday is not expected to hurt the South African commercial property market, which includes retail, office and industrial property.
Property pundits say the market was expecting the hike and that it had been priced in. But future hikes may have a detrimental effect on prices.
David Green, MD of office and industrial property brokers Pace Property Group, said on Friday that a rise in interest rates generally affected the value of real estate negatively.
“And we would anticipate that initial yields on which properties are valued would rise, which implies that property values decline. To some extent the increase in interest rates was anticipated and therefore the property values are currently indicative of interest rate increases, so we don’t anticipate that the last interest rate will negatively affect property prices,” said Green.
But he said further interest rate increases might well have a negative effect on property.
Green said investors in commercial property would now be wanting to acquire properties at slightly higher yields than they had applied over the past 18 months as they priced in risk of potential future interest rate increases.
Barry Stuhler, MD of listed property unit trust Capital Property Fund, said there would have to be a “fundamental increase upwards” in interest rates in order for commercial property pricing to be affected.
Stuhler said he did not “see any effect on values from this interest rate hike”.
Andrew Bradford, director of commercial property consultancy Bradford McCormack, said while the commercial property industry was obviously affected by rising interest rates, the property fundamentals of supply and demand were still having a “far greater influence on rental rates for office and industrial properties”.
“For new developments, rising building costs, shortage of building materials, increased contractors’ margins and now higher interest rates are manifesting in pioneer rental rates. As developers hesitate on these new marginal projects, so existing stock is placed under increasing pressure from tenants, resulting in rentals rising to unprecedented levels,” said Bradford.
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Milk and honey
03 Nov 2006 - Inet Bridge -
Intro
There are three reasons why you are certain to make good money by investing in the listed property sector
By Ian Fife
There are three reasons why you are certain to make good money by investing in the listed property sector. "It's a no-brainer," says Andre Stadler, MD of listed fund manager Catalyst. Here's why:
By a quirk of investment thinking, fund managers treat listed property investment, with its predictable income stream, as a proxy for long-dated debt like the 10-year R157. So when the interest rates rise, the price goes down to give investors a higher yield in line with the rate increase. For instance, at the end of September, Growthpoint, with a 8,4% forward yield (91,5c payout in 2007) was R10,90/share, but if the interest rates rise by another 1,5 percentage points by April, the yield could rise to 9,5% and the price drop to R9,53.
The big point for long-term investors is that the actual income doesn't go down with higher interest rates like, say, retailers, whose customers buy less. Growthpoint's payout will not be affected by the interest rates, as most of its debt is fixed. It's certain that interest rates will fall and the prices will go up again. When the rates eventually drop by, say, 3%, the forward yield drops to, say, 7% and the price rises to R13,07. It might take a year or so to get there but everybody knows it will happen.
The commercial property sector is in the first phase of a long-term boom. Retail, office and industrial rents are rising. SA's rents have trailed the rest of the world's for decades. Prime office rents are about R120/m? against an average of at least double that in similar countries like Australia, Argentina and Spain. Growthpoint payouts are likely to continue growing in double digits until SA rents catch up with their peers. So a further 12% rise in payout in each of two years, to 114,8c by 2009, will push the price at a 7% yield to R16,40. But it gets better.
The fast-globalising property market is about to hit SA. Only 2% of the JSE's R65,5bn listed property sector - R1,3bn - is foreign- owned compared with between 10% and 50% on the rest of the JSE. According to global real estate company Jones Lang Lasalle, cross-border property investment increased 30% in the first six months of 2006 to US$290bn (R1,2 trillion). The purchase of the Victoria & Alfred Waterfront in Cape Town last month was not just a flash in the pan.
"Australia is a good example," says Stadler. "Foreign investment has grown from 4% of the Aussie property sector three years ago to between 15% and 20%."
SA listed property, at $8bn, is too small. "But smaller funds will start investing," says Stadler.
That will put downward pressure on fund yields as SA gets into line with global yield averages. Currently, property yields are just under the yield on 10-year bonds. Global property yields are on average 12% below global 10-year bond rates. If foreign investment drives our listed sector to, say, one percentage point below 10-year bonds, that would push Growthpoint's yield to 6,35% and its price to R18 in 2009 - nearly double its price today.
Stadler's right, it's a no-brainer.
Financial Mail
Blackstone to Buy Equity Office for $20 Billion in Record Deal (Bloomberg)
2006-11-20 01:22 (New York) By Dana Cimilluca and Brian Louis Nov. 20 -- Blackstone Group LP, manager of the world's largest buyout fund, agreed to buy billionaire Sam Zell's Equity Office Properties Trust, the top U.S. office landlord, for about $20 billion in the biggest private-equity deal in history. Equity Office shareholders will receive $48.50 a share, an 8.5 percent premium to Friday's closing price of $44.72, the companies said in a statement yesterday. Including assumption of Equity Office debt, the transaction is worth $36 billion, topping the $33 billion acquisition of hospital chain HCA Inc. announced in July. Acquirers of office properties are taking advantage of under- priced leases that will come up for renewal at higher market rates as vacancies decline and rents surge in markets such as New York. The buyout comes amid a deal-making bonanza for private equity firms, which have raised a record $170 billion this year, according to London-based consultant Private Equity Intelligence Ltd. ``Demand for office space and commercial property in the U.S. has been firm,'' said Hans Kunnen, who helps oversee $70 billion at Colonial First State in Sydney, including property stocks. ``With office properties, you get the rental income and that generates a nice stable yield.'' The pace of real estate acquisitions has doubled this year to $189 billion from $93 billion last year at this time, according to Bloomberg data, and more deals may be coming. Billionaire investor Carl Icahn and Macklowe Properties Inc. last week made an offer for Reckson Associates Realty Corp. of $4.26 billion, setting up a possible bidding contest with SL Green Realty Corp., which had already agreed to buy Reckson for $3.8 billion.
[TOP]
Tishman, BlackRock
Tishman, BlackRock Close $5.4 Billion Apartment Deal (Update5) (Bloomberg)
2006-11-17 17:07 (New York) By Sharon L. Crenson and Brian Louis Nov. 17 -- Tishman Speyer Properties LP and BlackRock Realty closed on their $5.4 billion purchase of Manhattan's biggest apartment complex, ending six decades of ownership by MetLife Inc. The largest U.S. life insurer built Stuyvesant Town and Peter Cooper Village in the 1940s with city assistance that included the use of eminent domain and 25 years of tax breaks. New York needed the 11,200 apartments to ease a housing shortage for World War II veterans returning home. ``Tishman Speyer is honored to become the steward of this wonderful property,'' said Rob Speyer, Tishman Speyer managing director, in a statement. The purchase of the 80-acre complex is the biggest in New York real estate history, and gives 25,000 residents a new landlord at a time when demand for rental properties in Manhattan is surging. Closely held Tishman Speyer, which owns Rockefeller Center and the Chrysler Building, partnered with BlackRock to bid for the apartment community, which stretches from 14th to 23rd streets on Manhattan's East Side. The new owners plan to keep the apartments as rentals rather than convert them to condominiums, a choice made as two years of rising interest rates and sky-rocketing prices have sidelined many would-be buyers in New York, the nation's most expensive urban real estate market.
[TOP]
Equity Office Pptys Trust Rumored Price Seems Reasonable; Big Industry Implications
Author: Matthew Ostrower, David S. Cohen
Conclusion: We view the 5.5% cap rate implied by the price Blackstone is reported to be paying for EOP as reasonable in the context of other recent transactions given the quality and geographic diversity of EOP’s portfolio. Recently, Blackstone and BPO acquired TRZ for a 5.8% cap rate, and other deals include CRE (6.7%), ARI (5.7%); the latest bid for RA could represent a sub-5% cap rate (more expensive that the EOP transaction), but is dominated by RA’s Midtown Manhattan assets, by far the strongest US office market in the country.
What’s New: The Wall Street Journal is reporting that Blackstone will acquire EOP for $48.50/sh, or $20B, the largest REIT privatization in history. EOP management is not expected to be part of the buyout group. EOP has been the subject of LBO speculation for some time, and we have been skeptical about its likelihood – we specifically mentioned that our July upgrade of the stock was not in anticipation of an LBO. That said, the robust private markets make an enormous transaction like an LBO of EOP a distinct possibility.
This deal is about much more than EOP: We have been skeptics about arguments that publicly traded real estate is no longer relevant in the face of the recent LBO flurry. We have argued that those privatized to date have, with only a couple of exceptions, been small and more importantly have underperformed for years. While EOP definitely fits the underperforming rule, this transaction’s size causes us pause, forcing us to ask if the public markets will be whittled down to irrelevance. That question asked, we still strongly believe most REITs will remain public, and that the public markets will prove the optimal ownership format for real estate over the long term.
[TOP]
Final REIT draft accepted by German government: After weeks of hefty
debate a REIT proposal of the Ministery of Finance received the green light
from the government. As the German government is a broad coalition we
believe that further ratification will be not more than a formality. Existing
residential real estate will be excluded from the REIT but new residential real
estate will be admitted in.
To be a GREIT, 75% of both income and economic value of assets must be real
estate or real estate related. The GREIT has to distribute 90% of recurring
earnings incl. half of all realised capital gains, that will be limited due to trading
restrictions. Depreciation is a maximum linear 2% per annum. GREITs are
likely to be slightly higher yielding than SIICs and BREITs.
GREITs must be listed, just like in France and in the UK. A German REIT must
have a freefloat of at least 15%. Freefloat is defined as shares in the hands of
holders that own less than 3%. At the time of listing the freefloat must be at least
25%. Loan to value is limited to 60%.
No single shareholder is allowed to own more than 10% of A German REIT
directly. Indirectly however, shareholders may own more. We would not be
surprised to see further adjustements to the GREIT. (Source: UBS)
Property recovers but volatility remains
16 Nov 2006 - Business Day - Nick Wilson
Intro
THE South African listed property sector has regained most of the losses that occurred in the second quarter of this year. But analysts do not rule out further price volatility in the sector in the short term as uncertainty around interest rates and inflation figures persists.
THE South African listed property sector has regained most of the losses that occurred in the second quarter of this year. But analysts do not rule out further price volatility in the sector in the short term as uncertainty around interest rates and inflation figures persists.
According to Catalyst Fund Managers, the listed property index recorded a total return of 9,91% last month. The year-to-date total return was 21,8%. Andre Stadler, MD of Catalyst Fund Managers, said yesterday the closing price of the index on October 31 was 449,38, a recovery close to the price of the index on May 10, when the price was 465,68.
The listed property sector, which experienced boom conditions over the past few years, peaked in early May and then started losing value — first as a result of interest rate hikes in the US and general emerging market jitters and then as a result of a 50-basis-point interest rate hike in SA. There was a large sell-off by investors but the market has recovered since then on the back of some stellar financial results coming out of the sector.
Stadler said the historic yield on the listed property index was now 88 basis points higher than on May 10 because of strong income distribution growth over the period. “The direction of interest rates still remains uncertain. People appear to be less concerned but there is still uncertainty and there could still be volatility in the short term. In the long term, solid fundamentals and growth from the (listed property) sector should provide support for long-term total returns,” said Stadler.
Mariette Warner, head of property funds at Stanlib, said there was always uncertainty and volatility at the beginning of a rising interest rate cycle. “The uncertainty will remain until economic data reflects the intention behind the hiking of interest rates, such as a slowdown in consumer spending, a slowdown in passenger vehicle sales or slowing growth in house prices,” said Warner.
She said the “intentions behind the interest rate hikes” were now starting to materialise. This should reduce uncertainty regarding the length and extent of the rising interest rate cycle, said Warner. Property company earnings continued to surprise “on the upside”. This had largely protected property prices during the rising interest rate environment.
“We expect strong fundamentals to continue for some time. As long as GDP (gross domestic product) growth remains around 4%, the outlook for commercial and industrial property remains positive,” said Warner.
Angelique de Rauville, MD of Investec Listed Property Investments, said the group was also expecting some short-term volatility in line with expected interest rate increases, but that long-term property fundamentals were strong and “expected to prevail” for the next three to five years. “This will ultimately result in the continued outperformance of listed property over cash and bonds over time,” said De Rauville.
Her company was “bullish” about all the commercial property market’s sectors but De Rauville said she had some reservations about retail property. “We are keeping a close eye on some of the extensive retail developments that are going on and the possible negative effect of overdevelopment in some areas, particularly if consumer spending starts to taper off in line with the hikes in interest rates.”
Catalyst Fund Managers said the retail property sector had been “the most resilient and best performer over the long term”. “However, with new supply being introduced and a potential slowdown in consumer spending, growth from retail is expected to moderate off its current high base,” said Stadler
Industrial property had “performed very well” over the past two to three years. “There is a shortage of suitable zoned land and industrial users are demanding higher building specifications, eaves height and greater turning circles,” said Stadler. Offices had been the worst performer of the three property sectors over the past few years.
Monopoly money
Nov 23rd 2006
From The Economist print edition
The game of commercial-property investment has gone global
THE barbarians are at reception. No longer are private-equity firms attempting merely to turn round ailing industrial giants. This week, the Blackstone Group bid $36 billion, including debt, for Equity Office Properties Trust, America's biggest owner of office buildings. In nominal terms, it was the largest buy-out ever.
The deal showed that the commercial-property market remains piping hot, even as housing shivers. According to David Harris of Lehman Brothers, the Blackstone deal is just the latest "privatisation" of the American property market, a trend that has seen 22 companies worth more than $100 billion disappear from public ownership since the start of last year.
Such companies look ideal from the point of view of buy-out groups. Today's property barons can borrow against the value of the assets and use the cashflow from rental income to meet the interest payments. With property values rising fast in some sectors (the American office sector has returned 38% to date this year), they can afford to strike the deals above their stated asset value.
This Monopoly-like craze is not confined to America. Just as bonds and shares are freely traded across borders, property is now a global asset too. According to Jones Lang Lasalle, an estate agent, cross-border property investment in the first half of this year hit $290 billion, a 30% increase on the same period in 2005. International deals now comprise 44% of the volume of sales.
In the process, once-obscure markets have been swept into the mainstream. In 2004-05, the new entrants into the European Union benefited from the "convergence" trend as investors took advantage of high property yields. As yields fell, the same money that chased Warsaw office buildings began looking at Sofia warehouses, betting on Bulgaria's entry into the EU in 2007.
This is really all part of the same "search for yield" that has seen investors pile into other high-income assets, such as corporate bonds and emerging-market debt. Andrew Jackson of Standard Life Investments, a British fund-management company, says office yields in China have fallen from 12-13% a couple of years ago to 8% today. The gap between yields on the highest-quality properties and the second-tier sites has narrowed everywhere.
Property is a hybrid asset. It offers a high yield, giving it bond-like characteristics. But like shares (and unlike bonds), investors can expect that income to grow, at least in line with inflation.
Enthusiasm for the sector waned in the 1980s and 1990s thanks to fat stockmarket returns. Pension funds, however, are now desperate to diversify from shares and bonds, and property is benefiting from the same inflows that are boosting hedge funds and commodities. The catch-and it is a serious one-is the lack of liquidity. It takes time to buy and sell a building, and recruiting and managing tenants involves a lot of hassle.
So the key to the globalisation of the property market has been the growth of the REIT, or real-estate investment trust. These are stockmarket-quoted companies that bundle together portfolios of buildings, allowing investors to buy and sell whenever they wish. REITS have existed in America for decades but in recent years they have spread into new markets, such as Japan and Hong Kong. From January they will be available in Britain.
As the market develops, investing is becoming more sophisticated. A joint venture between GFI Group, a broker, and CB Richard Ellis, an estate agent, has introduced derivatives on property indices in America, Europe and Hong Kong, allowing investors to hedge their portfolios and to bet on falling prices.
Not that prices are falling at the moment. The National Association of Real Estate Investment Trusts says its All-REITS index has quadrupled since the start of the decade. Of the 15 national markets monitored by IPD, a data provider, 12 achieved double-digit returns last year.
In the process, valuations now look toppy. Yields on the most commonly held American REITS are lower than those on treasury bonds, while prime British properties yield less than gilts. In both cases, enthusiasts say there is no need to worry since rents are set to rise, bringing the prospect of higher yields.
Relying on prospective valuations is exactly what stockmarket investors were forced to do in the late 1990s. And it is worth recalling that previous surges of cross-border property investment (Japan in the 1980s, for instance) did not end well. But the peak in commercial property is probably at least a year away-the barbarians still have huge war chests.
Copyright © The Economist Newspaper Limited 2006. All rights reserved.
Toll Brothers hit by housing slowdown - FT
December 5 2006 By Daniel Pimlott in New York Toll Brothers said fourth-quarter net income plunged 44 per cent as the the largest builder of luxury homes in the US felt the full force of the downturn in the housing market. The company, which has seen its stock price slide 45 per cent over the last 18 months, said on Tuesday it made net profits of $173.8m, or $1.07 a share, in the fourth quarter, down from $310.3m, or $1.84, a year ago. Revenue dropped 10 per cent to $1.81bn. According to Thomson Financial, analysts had expected earnings per share of $1.06. Toll said its results included writedowns of $68.7m, equivalent to 42 cents a share. A year earlier, write-downs were less than 1 cent a share. House prices, house purchases and newly built homes have all come under strong downwards pressure over the last year. Prices in some areas have dropped and housing starts have fallen. Toll Brothers is particularly susceptible to the problems in the property market because it makes new homes, which tend to be more difficult to sell during housing downturns than existing homes. But the company sought to sound a positive note on Tuesday, saying that it thought the housing market weakness may have bottomed out in some areas. “Fifteen months into the current slowdown, we may be seeing a floor in some markets where deposits and traffic, although erratic from week to week, seem to be dancing on the bottom or slightly above,” said Robert Toll, chairman and chief executive. But analysts said that the housing slowdown still had some way to go. “The fact is that there is a very high level of excess inventory - as much as 1.5m homes,” said Rick Murray, an analyst at Raymond James. “That’s going to take two to three years to work out.” Toll said it had had 585 cancellations in the quarter, above expectations. It also said it was reevaluating and renegotiating its optioned land positions in response to current market conditions Full-year net income fell 15 per cent to $687.2m, or $4.17 a share, from $806.1m, or $4.78, last year. The results included writedowns of $92.7m, or 56 cents a share, against 2 cents a share the year before. Revenues rose 6 per cent to $6.12bn Toll said that because of “uncertain market conditions” it expected $60m of pre-tax land-related write-downs for next year, far above the $16m it had budgeted for. The company projected net income of between $1.58-$2.08 a share for next year, but said that because of an accounting change, earnings of between 22-29 cents a share would be shifted from 2007 to later years
Annual house price growth hits 9.6% - Financial Times
December 7 2006 09:09 By Jamie House prices rose by more than expected last month, according to a report published on Thursday, another sign that two recent increases in interest rates have so far been easily absorbed by the market. In its latest survey of residential property, the Halifax, Britain’s biggest mortgage lender, said the average house price was £187,995 in November, up 1.7 per cent on the October reading, and the fifth consecutive month of gains. This takes annual house price growth to 9.6 per cent, up from 8.6 per cent in October, and means that inflation is nearly double the Halifax’s forecast of a 5 per cent increase for 2006. Analysts had pencilled in a month-on-month rise in prices for November of 0.8 per cent. Although the headline numbers far exceeded these expectations there was little move in the money markets as traders calculated they did little to alter the immediate prospects for monetary policy. The Bank of England’s rate-setting body announces on Thursday its latest decision on interest rates, with most economists believing they will leave the cost of borrowing at 5 per cent. Richard McGuire at RBC Capital Markets said the Halifax report was “much stronger than expected and, via its positive implications for consumer demand, is keeping the door open to a possible further firming of UK policy – but not today.” The monetary policy committee does not seek directly to target house prices as part of its remit to contain inflation, but its members are aware of the potentially destabilising effect of any over-exuberance and a number have made clear they are uncomfortable with the pace of house price growth. Mervyn King, Bank of England governor, warned last week that “if there were a change in the general level of real interest rates around the world economy, then all asset prices would be affected, house prices too.” The Halifax said that for now the housing market was being buoyed by a lack of homes for sale, rising employment and an economy that had enjoyed 57 successive quarters of growth. However, Martin Ellis, Halifax chief economist, adopted a cautious tone when addressing the market’s medium term prospects. “The marked slowing in real average earnings growth over the past six months, and a squeeze on households’ discretionary income due to the substantial increase in utility bills during the last year, should temper housing demand. As a result, we expect house price inflation to ease over the coming months.” The FT House Price Index, which aims to be among the most comprehensive and timely indicators of prices in England and Wales, showed annual growth of 6.6 per cent in October. New FTHPI data for November is due for release on Friday.
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Australian firms cancel European REIT – International Herald Tribune
December 7, 2006 By Joyce Moullakis SYDNEY: Babcock & Brown, the second-largest Australian investment bank, and GPT Group on Thursday scrapped plans to sell stock in a European real estate investment trust fund to the public after investors balked at the offering. The sale would not realize the "full value" of the real estate and retail property assets, the two companies said in a joint statement. Babcock & Brown and GPT plan to explore other ways to raise capital for the fund like seeking direct investments, according to the statement. Babcock & Brown and GPT last month unveiled plans to raise as much as €420 million, or $558 million, by selling shares in a new European real estate fund. As many as 30 public real estate companies in Britain are planning to convert to real estate investment trusts next year because of new laws. Germany is also planning to introduce these types of trusts as early as January. "For investors, it comes down to price," said Justin Blaess, who oversees property stocks at ING Investment Management in Sydney. Babcock & Brown and GPT's "strategy is dependent not just on buying the assets. They also need to be setting up funds." The "market's response" to the public share sale resulted in the offer being halted, Phil Green, chief executive of Babcock & Brown, said in the statement. "We will pursue alternative options and expect to see the assets bedded down in a long-term managed structure during 2007," Green said. Babcock & Brown shares dropped 2 percent Thursday, closing 49 cents, or 38.7 U.S. cents, lower as 23.51 dollars, trimming its gains for the year to 37 percent, more than double the return of the 56-member S&P/ASX 200 Finance index. GPT stock fell 2.8 percent to 4.91 dollars. Britain is following Brazil, France, Hong Kong, Mexico, Russia, the United States and 13 other nations that have allow real estate investment trusts. Several British real estate companies including Land Securities Group and British Land, the two largest in Europe, plan to convert to these trusts next year. By doing so, they gain tax breaks in return for distributing at least 90 percent of their taxable income in dividends. Shares in the Babcock & Brown and GPT property fund were due to begin trading on the Amsterdam stock exchange on Dec. 6. The companies have acquired 5.7 billion dollars in property assets in Europe and the United States as of Nov. 21. Nic Lyons, chief executive of GPT, teamed with Babcock & Brown to expand in Europe and to raise earnings growth amid a dearth of opportunities in Australia, were most available investment-grade property is already owned by trusts. GPT Group, the fourth-largest Australian real estate investment trust, and Babcock & Brown injected a further 800 million dollars into their property venture last month to buy more assets and start new investment funds. British real-estate returns are starting to decline on a quarterly basis, according to Investment Property Databank. Property investments delivered a return of 3.8 percent in the third quarter, the lowest since the first quarter of 2005 and less than the 4.9 percent return for the second quarter this year.
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Tishman Rides Manhattan Demand - WSJ
December 7, 2006 By Michael Corkery and Jennifer S. Forsyth Tishman Speyer is selling a skyscraper in Midtown Manhattan for $1.8 billion, one of the highest prices ever paid for a single U.S. office building, a company spokesman said last night. Tishman Speyer, which also recently purchased a massive New York apartment complex for a record $5.4 billion, has agreed to sell the 41-story office tower -- 666 Fifth Avenue -- to the Kushner Companies, based in Florham Park, N.J., said spokesman Steven Rubenstein. The Kushner Companies own 22,000 apartment units and about five million square feet of office, industrial and retail space in addition to several thousand acres of land in New Jersey, New York, Pennsylvania, Maryland and Delaware. Tishman Speyer is selling the building for more than three times what it and some partners paid in 2000, according to a person with knowledge of the deal. The sale, earlier reported on the New York Times Web site, represents another example of the skyrocketing values of Manhattan real estate, and these transactions simply prove that "the New York office market is on fire," said Jim Sullivan, a principal with Green Street Advisors, a Newport Beach, Calif.-based real-estate research and trading firm. It is the third largest real-estate transaction in the U.S. since mid-2000, according to statistics compiled by Real Capital Analytics, a real-estate research firm. The largest deal was Tishman Speyer's $5.4 billion purchase of Peter Cooper Village and Stuyvesant Town, in partnership with a unit of money manager BlackRock Inc., earlier this fall. The second largest transaction was Tishman Speyer's purchase of Rockefeller Center in December 2000 for $1.85 billion. While these transactions are setting new historical highs in the United States, "when you look at London or Tokyo, these prices aren't outlandish by any means," Mr. Sullivan added. The sale of 666 Fifth Ave. -- between 52nd and 53rd Streets -- comes as the Midtown office market is almost as strong it was in the heady days of 1999 and early 2000, when technology stocks sent the stock market zooming. Many tenants are now finding it difficult to find any large space in that area and, in some extreme cases, have signed leases for more than $100 a square foot. As in most markets, the demand for Manhattan office space directly correlates to job growth. Data from Moody's.com show that Manhattan lost 89,000 office-related jobs from 2001 to 2002. That trend has reversed, and it has gained about 23,000 such jobs in the past two years, though the work force is still smaller than in 2001. The recovery was boosted by the relatively few new office buildings that have been built in the city over the past decade.
Reckson Chief Chips in $25 Million to Win Approval of Buyout (Bloomberg)
2006-12-08 00:03 (New York) By Bob Ivry and David M. Levitt Dec. 8 -- Reckson Associates Realty Corp. Chief Executive Officer Scott Rechler won approval of the $3.8 billion sale of his company to SL Green Realty Corp. only after agreeing to give his $25 million severance to shareholders. Rechler spent two days trying to persuade investors to support the transaction after the company's board had rejected higher bids. On the phone yesterday morning with Cohen & Steers Inc., Reckson's third-biggest shareholder, Rechler proposed paying out severance promised to him in the sales agreement as a 29 cent-per-share dividend. Four hours later, the deal was done. The transaction cost ``$25 million of my severance, plus about 25 years off my life,'' Rechler, 39, said yesterday to reporters after the shareholder vote. ``I'm going to Vermont. I'm going to sit under a tree and contemplate life, $25 million poorer.'' Reckson faced difficulty getting approval because of shareholder criticism of a $2.1 billion deal in which SL Green will sell back most of Reckson's suburban properties to a group headed by Rechler and Marathon Asset Management LLC. Financier Carl Icahn also made two bids, one for the whole company and another for the properties that the Rechler group will receive. The support of Cohen & Steers was crucial. Until the last minute, the New York-based investors remained undecided, said James Corl, head of real-estate investment at the firm.
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The Other Real-Estate Boom - WSJ
December 11, 2006 By Scott Patterson Investors, painfully aware that the housing market is in the doldrums, may be surprised to learn that some of this year's best stock performers have been real-estate companies. Yes, home builders have been basement dwellers and some lenders look shaky. But real-estate investment trusts are up more than 30% year-to-date, and the real-estate mutual funds that invest in them are hitting home runs, according to fund-tracker Morningstar. REITs, as they are known, are tax-advantaged stocks that concentrate on the commercial side of the real-estate business and distribute the lion's share of profits to shareholders through dividends. They deal in office parks, shopping malls and apartment buildings -- rather than McMansions. Commercial construction has been booming after a protracted slump earlier this decade. During the first half of the year, commercial building grew at a 15% annual rate, according to Commerce Department data. The sector contracted in 2001, 2002 and 2003, so likely isn't as overdone as the residential side. Overbuilding would be a big problem for REITs because that would drive down rents, their primary source of income. Low interest rates help, and the private-equity boom has added steam to some REIT players, luring investors who want to bet on the next fat deal. REIT mergers and acquisitions have hit a record $117 billion in 2006, according to the National Association of Real Estate Investment Trusts, soaring from $30 billion for the past two years combined. But has the REIT run gotten overdone? One recent event raises the question: industry icon Sam Zell's $20 billion sale of Equity Office Properties Trust, the REIT he took public in 1997, to Blackstone Group. If Mr. Zell is selling, perhaps that says something about the outlook for the sector as a whole. REITs look pricey by other measures. Consider one metric of how much investors are paying for every dollar of the cash REITs produce -- called price-to-adjusted funds from operations. It stands at 26, well above the group's historic average of 15, according to Green Street Advisors, a real-estate research firm. "REIT valuations are just so high relative to other assets that the sector as a whole is really susceptible to a shift in investor sentiment," says Christopher Mayer, a real-estate professor at Columbia University and a board member of Oak Hill REIT Management, a hedge fund. "Everything has to work right in the wonderful world of real estate that we live in," says Sam Lieber, Alpine Mutual Funds president.
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CB Richard Ellis Sells Savills Stake for $311 Million (Update3) (Bloomberg)
2007-01-11 12:16 (New York) By Peter Woodifield Jan. 11 -- CB Richard Ellis Group Inc., the world's largest realtor, raised $311 million by selling its 19 percent stake in Savills Plc, the U.K.'s biggest publicly traded commercial real estate agent. The U.S. company's shares rose to a record. CB Richard Ellis sold 25.9 million shares at 623 pence ($12.12) each, Savills said today in a statement. The $311 million represented the net pretax proceeds, the statement said. Savills didn't say whether it had bought back any of the shares. It said earlier today it might buy back as much as 4.9 percent of the company. CB Richard Ellis, which is based in Los Angeles, bought the stake as part of its acquisition last month of Trammell Crow Co., a Dallas-based real estate broker and services company. CB Richard Ellis said at the time that it would sell the shares and use the proceeds to reduce the debt incurred buying Trammell, which used to Savills' partner in the U.S. Shares of Savills fell 5 pence, or 0.8 percent, to 642 pence in London. CB Richard Ellis shares rose 33 cents to $34.58 at 12:09 p.m. in New York Stock Exchange composite trading after earlier rising as much as 1.9 percent to a record $34.89. Morgan Stanley, Credit Suisse Group and Hoare Govett Ltd., a unit of ABN Amro Holding NV, handled the share sale.
First options on property mark new milestone – Financial Times
By Jim Pickard January 16 2007 An esoteric but important milestone has been reached in the fledgling world of property derivatives with the sale of the first real estate “options”. It is understood that Goldman Sachs has sold an option that enabled an institution to bet on the direction of the German commercial property market. Also, it is believed that a handful of options based on the UK market have been sold as elements of structured notes. An option is a contract that grants the right to sell or buy – at a specified price – a specific number of units at a certain date. That property-based options have been sold reflects the growing sophistication of the real estate derivatives market, which barely existed two years ago. Furthermore, the deal is the first German property derivative and only one of two to have taken place in continental Europe. Merrill Lynch and Axa carried out a property swap based on the French office market last month. It has long been thought that the initial success of the industry in the UK – which has pioneered such products – would be replicated abroad. In Britain, the volume of completed deals leapt from £1.7bn in the first quarter of last year to £3.7bn by the end of the third quarter, according to the Investment Property Databank. As liquidity has improved, investors have become less hesitant about buying such products. So far the deals have been “swaps”, whereby one counterparty bets that property returns will outperform a set benchmark (for example the London inter-bank offering rate plus 2 per cent) while the other bets that it will not. The growth in the industry is a change from several years ago when there were regulatory and fiscal reasons for UK institutions to steer clear of such products. For years, the only derivative-type products with any success in the UK were “property income certificates”, a type of bond that offered returns correlated to the wider market. Now investors can go short on property – as well as long – in an instant trade that avoids the many months (and often high costs) of physical trading. In the meantime there is growing excitement in the US, which has the biggest commercial property market in the world. There, Credit Suisse has for some time held the exclusive rights to sell derivatives based on the flagship NCREIF index, which shows the performance of institution-owned property in the US. Credit Suisse only carried out a handful of deals and late last year the bank let its exclusivity lapse. Since then it is understood that a large number of other investment banks have set up desks specialising in property derivatives. Other bodies have come up with new indices – on which derivatives could be based – such as the Chicago Mercantile Exchange, Massachusetts Institute of Technology and agents Cushman & Wakefield.
UBS/Gallup Index of Investor Optimism - News Alert
www.ubs.com
Over One-Third of Investors Expect Stock Market to Reach New Record Level in ‘07 Investors Less Pessimistic about Residential Real Estate Outlook NEW YORK, January 22, 2007 – Investor optimism soared to its highest level since 2004 reaching 103 for the month of January. This is a jump of 13 points from last month’s level of 90 and only the fifth time the Index has been above 100 since December 2000. The Index is conducted monthly and had a baseline score of 124 when it was established in October 1996. Investors are beginning 2007 with a bullish outlook for the stock market. Thirty-seven percent of investors expect the Dow Jones Industrial Average (DJIA) to end 2007 at a higher level than its record 2006 close. Of those expecting the DJIA to end 2007 higher, 66 percent expect an increase of five to ten percent, 22 percent expect an increase of less than five percent, and 11 percent predict an increase of more than ten percent. Only 15 percent of investors expectthe DJIA to end 2007 lower than its 2006 close, and 46 percent expect it to close the year at about the same level as last year. While investor sentiment continues to suggest that residential real estate market conditions continue to deteriorate, investor perceptions are somewhat less negative than they were in previous months. Two in three investors (65 percent) believe conditions in the residential real estate market nationwide are getting worse, down slightly from the 70 percent who felt this way in November and December of last year. Similarly, 50 percent of investors say conditions in their local community’s residential real estate market are getting worse, not getting better. This is a drop from 57 percent who felt this way in December. “With inflation remaining under control, investors see the possibility of a Fed interest rate cut during 2007 and therefore believe the slide in the real estate market may be coming to an end. The continued rally in the stock market has also improved investors’ outlook for their own portfolios over the coming year,” said Mike Ryan, Head of UBS Wealth Management Research Americas. Despite falling oil prices and sharply lower gas prices at the pump than during much of 2006, high energy prices continued to top investor concerns in January with 57 percent saying they believe energy prices are hurting the current investment climate “a lot.” This is essentially the same as the 54 percent who felt this way in November and the 55 percent who felt this way in December, but significantly lower than the 78 percent who held this view in August 2006. In December, 50 percent of investors pointed to international tensions as hurting the investment climate a lot and the same percentage pointed to the federal budget deficit as a major investor concern. The Personal Dimension, which measures people’s optimism about their own portfolios over the next 12 months, jumped four points to 73 in January – the highest point for this dimension of the Index since March 2002 when it stood at 80. The Economic Dimension, which measures people’s optimism about the economy over the next 12 months, increased nine points in January and now stands at 30, its highest level since February 2004 when it also hit 30. This suggests that investors as a whole are somewhat optimistic about the economic outlook for 2007. These findings are part of the 106th Index of Investor Optimism, which was conducted January 2-14, 2007. To track and measure Index changes on an ongoing basis, new samplings are taken monthly. Dennis J. Jacobe, Chief Economist for Gallup, said the sampling included 802 investors randomly selected from across the country. For this study, the American investor is defined as any person who is head of a household or a spouse in any household with total savings and investments of $10,000 or more. Nearly 40 percent of American households have at least this amount in savings and investments. The sampling error in the results is plus or minus four percentage points. For more than 60 years, the Gallup Organization has been a recognized leader in the measurement and analysis of people’s attitudes, opinions and behavior. While best known for the Gallup Poll, founded in 1935, Gallup’s current activities consist largely of providing marketing and management research, advisory services and education to the world’s largest corporations and institutions. UBS is one of the world’s leading financial firms, serving a discerning global client base. As an organization, it combines financial strength with an international culture that embraces change. As an integrated firm, UBS creates added value for clients by drawing on the combined resources and expertise of all its businesses. UBS is the world's largest wealth manager, a top tier investment banking and securities firm, and one of the largest global asset managers. In Switzerland, UBS is the market leader inretail and commercial banking. UBS is present in all major financial centers worldwide. It has offices in 50 countries, with about 39% of its employees working in the Americas, 36% in Switzerland, 16% in the rest of Europe and 9% in Asia Pacific. UBS's financial businesses employ around 75,000 people around the world. Its shares are listed on the SWX Swiss Stock Exchange, the New York Stock Exchange (NYSE) and the Tokyo Stock Exchange (TSE). Additional information about the Index of Investor Optimism can be found at www.ubs.com/investoroptimism
Apollo to launch $2bn Indian real estate fund – Financial Times
By Jim Pickard in London Published: January 24 2007 02:00 | Last updated: January 24 2007 02:00 Apollo, the US private equity group, is poised to launch India's biggest-ever real estate fund after joining forces with SUN Group, a local investment company. It is understood that Apollo and SUN have together raised $630m of equity which, with gearing, gives them $2bn of spending power on Indian property. The launch is the latest in a string of new vehicles aimed at the booming real estate market in India, including half a dozen newly floated companies on London's Aim market. There are also a string of US, Middle Eastern and local funds looking to take advantage of India's fast-growing GDP and perceived lack of good quality infrastructure. Apollo Real Estate Advisors is one of America's best known property investors, having developed projects such as the Time Warner Centre in New York. It is part of the wider Apollo group, which last year bought out Realogy, the largest chain of estate agents in the US. SUN Group, owned mainly by the Khemka family, has a range of investments across India and the former USSR. Its private equity investments included a former stake in SUN Brewing/SUN Interbrew, now the 12th largest beer company in the world. SUN also formed WestBridge Capital Partners, an Indian IT-based private firm, since merged with US-based Sequoia Capital. The property joint venture, SUN-Apollo India Real Estate Fund, has a remit to invest across the whole spectrum of residential and commercial property in the major Indian cities. The managing director is Chetan Dave, formerly chief investment officer forTranswestern in Houston and a one-time real estate banker at JP Morgan in New York. The fund already has one investment, a 50:50 joint venture to develop a 58-acre site on the edge of Chennai into IT, retail and residential space. International investors are flocking into India because they believe its growth prospects outweigh those of more established markets in the US and Europe. Major players include developers such as Hines and Tishman Speyer, investment banks such as JP Morgan, Deutsche Bank, Merrill Lynch and Morgan Stanley and private investors such as Britain's REIT Asset Management. Investing has become easier since the Indian government relaxed its strict criteria on foreign direct investment (FDI) into property early last year. But there is only a slender margin between borrowing costs and yields, both at about 10 per cent. Uday Khemka, vice-chairman of Sun, said the opportunities were enormous given that India had no more "Grade A" office space than Boston or Amsterdam.
Equity Office Share Spread Narrows as Blackstone Vote Looms (Bloomberg)
2007-02-07 00:15 (New York) By Brian Louis and Hui-yong Yu Feb. 7 -- Equity Office Properties Trust stock rose to less than 1 percent above Blackstone Group LP's $39 billion takeover offer as investors in the largest U.S. office landlord prepare to vote on the bid today. Shares of Chicago-based Equity Office gained 1.1 percent to $56.05 in New York Stock Exchange Composite trading yesterday, compared with Blackstone's cash offer of $55.50. Blackstone is competing with a $56 offer in cash and stock from Vornado Realty Trust. ``I'd rather take the cash at this point,'' said Colin Higgins, president of San Mateo, California-based Golub Group LLC, which owned 189,000 shares of Equity Office at the end of December. ``That's a fair price and I'd be happy to take that.'' The bidding for Equity Office, the real estate investment trust formed by billionaire Sam Zell, pits Blackstone's Stephen Schwarzman against Vornado Chairman Steven Roth. They raised the ante three times to try to gain a company with about 540 properties coast-to-coast. Blackstone and Vornado have battled since Jan. 17 for control of Equity Office and the contest may not be over. ``Vornado may come back,'' said Sri Nagarajan, an analyst at RBC Capital Markets. ``It ain't done yet. They believe the Equity Office portfolio is well below market in terms of rent growth. They're expecting double-digit growth.'' Unless there is a higher Vornado bid today, Blackstone likely will win shareholder approval for the takeover, he said. Vornado spokeswoman Roanne Kulakoff declined to comment.
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Vornado offers alternative to win over Equity Office shareholders – International Herald Tribune
Seattle: Equity Office Properties Trust, which is planning a shareholder vote Wednesday on a $38.3 billion merger agreement with Blackstone Group, said Monday it would evaluate an alternative bid from Vornado Realty Trust "in due course." Vornado, which had offered $56 a share in cash and stock for each share of Equity Office, on Sunday said it could instead pay $56 a share in cash for as much as 55 percent of the outstanding shares, and stock for the remainder of the shares when the merger closes. The total value of Vornado's bid for Equity Office, the largest U.S. office landlord, remains $41 billion, including assumed debt, under either plan. "All the institutional holders are behind Vornado's bid and that's before this," said Dean Frankel, a manager at Urdang Securities. "If they're paying us cash right now, that sounds smart, unless Blackstone steps up." Vornado and Blackstone's battle for the Chicago-based Equity Office, with its 543 properties, comes as U.S. office vacancies fall and rents climb to records in the biggest markets. Under Vornado's original offer, Equity Office shareholders would be paid $31 a share in cash and $25 in stock for their shares only when the merger closed, which the Equity Office board estimated would take four to six months. Vornado shares would also have to trade in a range of $115 to $135. (The shares were at $124.94 in late Monday trading on the New York Stock Exchange, down 41 cents.) Vornado's revised offer would give some shareholders all cash in about two months, with the remainder getting Vornado stock when the merger closed. Blackstone's offer, while for only $54 a share, is all in cash and would be paid in days. The Equity Office board rebuffed Vornado's original offer on Friday, saying Blackstone's offer was less risky for shareholders. Blackstone's bid still must win shareholder approval, and Vornado's new offer may complicate that. Vornado said that because the cash tender would not require approval from its own shareholders or from the U.S. Securities and Exchange Commission, the "timing would be short and certain" for its revised offer. Equity Office declined to comment. Blackstone said Sunday that Vornado has not increased its price or guaranteed that shareholders would receive a certain amount, while its own all-cash offer could close as early as Friday, two days after the scheduled vote by shareholders. "Vornado has had plenty of time to either increase its price or reduce optionality and uncertainty," Blackstone said. "It has done neither." In weighing Vornado's new proposal, the Equity Office chairman, Sam Zell, and the rest of the board have had to consider the risks of delaying a deal since U.S. commercial property assets trade at record highs, along with the opposition of several large shareholders to Blackstone's bid. The board has expressed its desire to complete the deal quickly.
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2007 Better Be Better
It’s almost too much to digest: on the same day EOP
disappears, and just days after VNO (by all accounts the REIT
world’s uber-opportunist) attempted to win it at a 5-ish percent
initial return, the Wall Street Journal features news of a large
private capital fund getting ready to put another $19B of
equity to work. To put a cherry on top, this is all happening at
the same time that Simon Property Group (which successfully
resisted doing a mall acquisition for five years) has turned the
supposedly distressed Mills situation into a bidding war with
Brookfield Asset Management (a Canadian Vornado of sorts).
The world, dear friends, is now officially flat.
Nearly lost in all of this, of course, has been the reporting of
2006 year-end REIT earnings. Please do not suggest for one
second that we would advocate investors tearing themselves
away from the increasingly popular REIT tip sheets to focus
on something as mundane as fundamentals. Then again, all
these low initial yields suggest sophisticated investors are
using a multi-year IRR approach (now pause briefly to
recollect yourself after overwhelming deja vous), so that must
make the direction of fundamentals awfully important. We
can only imagine how closely Blackstone read EOP’s
quarterly information supplement before initiating a
transaction process. That should be as good an excuse as
any for diving into a brief review of revelations from quarterly
announcements thus far.
Realia, Profiting From Spanish Boom, Plans IPO in May (Update1) (Bloomberg)
2007-02-28 11:12 (New York) By Joao Lima Feb. 28 (Bloomberg) -- Realia Business SA, a Spanish real estate developer that delayed an initial public offering last year, will proceed with the share sale in May, according to one of its co-owners. The company is benefiting from a booming Spanish property market. Rafael Montes, chief executive officer of Fomento de Construcciones & Contratas SA, didn't provide a value for Realia when he announced the plan at a briefing yesterday. The share sale will be the fifth by a Spanish property company since the beginning of 2006 and by far the biggest. Morgan Stanley estimates it would value Realia at about 2.4 billion euros ($3.2 billion). ``We will post gains in 2007 as a result of this divestment, which will be carried out in May,'' Montes said. Realia is taking advantage of a stock market rally in which Spain's IBEX 35 index has outperformed the Dow Jones Euro Stoxx 50 Index, a benchmark for the euro region, for five of the past six years. It may not last much longer, according to Josep Prats, a fund manager at Ahorro Corporacion in Madrid. ``They're all trying to get cash, predicting that what's coming will be worse,'' said Prats, whose firm oversees about $15 billion and doesn't recommend investing in real estate stocks. Actividades de Construccion & Servicios SA and Grupo Ferrovial SA, two of Spain's biggest construction companies, also disposed of property holdings last year. ACS sold its 25 percent stake in Inmobiliaria Urbis SA for a pretax profit of 511 million euros, while Ferrovial divested its real estate unit in a 1.6 billion euro transaction. Last year, Montes said as much as half of Realia would probably be sold to the public. FCC owns 49 percent of the company, while the other major shareholder is Caja Madrid, a Spanish savings bank. Spain's residential property market may already be peaking, as demand is curbed by rising borrowing costs. House prices are growing at an annual rate of less than 10 percent for the first time in more than five years, making property less attractive to investors. ``Investing in real estate companies at this moment is very risky, as we would be investing on a base of earnings that will be difficult to sustain in the long term,'' Prats said. Realia's revenue climbed 17 percent to 741 million euros last year, and home sales accounted for 82 percent of the total. ``It's a cycle that hasn't ended,'' FCC's Montes said yesterday. Spanish house prices climbed at an average annual rate of 15 percent between 1999 and 2005, according to La Caixa, a Spanish savings bank. The market's growth has been fueled by foreign buyers of vacation homes, as well as an influx of immigrants, many of which end up working in construction. ``Given the frothy real estate market and lofty valuations in Spain, FCC could extract more than the net asset value by floating Realia,'' Alejandra Pereda, an analyst at Morgan Stanley in London, said in a December research note. Rising borrowing costs will probably restrict this year's increase in prices to between 3 percent and 5 percent, according to Banco Bilbao Vizcaya Argentaria SA. Transactions are taking longer to complete, suggesting that six interest-rate increases in a year may already be deterring some would-be buyers. Last year, the average amount of time required to sell a house in Spain was 12 months, up from 11.2 months a year earlier, a study by Inmobiliaria Urbis SA showed. The selling time will probably increase to between 18 and 20 months, the real estate company said in October. The four Spanish real estate companies that first sold shares to the public last year now have a combined value of about 10.6 billion euros. The best performer, Astroc Mediterraneo SA, has climbed almost nine-fold since its IPO in May. Parquesol Inmobiliaria & Proyectos SA, the worst performer, has risen 10 percent since the company sold shares in May. The Spanish benchmark stock index has advanced 21 percent in the past 12 months, falling short of the 36 percent increase in the Bloomberg Europe Real Estate Index. After racking up earnings in the booming housing market, some developers are trying to generate more rental income to make up for a slowdown in sales of homes and land. Grupo Inmocaral SA, a Madrid-based property company, last year acquired Inmobiliaria Colonial SA to gain offices and become less dependent on the Spanish market. Realia, with assets valued at about 2 billion euros, in May announced the purchase of SIIC de Paris, a property company that mostly owns office buildings in the French capital. Realia's purchase in Paris follows the expansion of larger Spanish real estate companies into the French market. In the last two years Colonial has acquired Paris-based Societe Fonciere Lyonnaise and Metrovacesa has bought Gecina SA, gaining access to some of Europe's highest office rents and allowing them to take advantage of tax breaks. Home developers are ``betting strongly'' on the Madrid office market, and that pressure is leading to narrower yields in the market, Knight Frank LLC said in July. Commercial real estate broker Jones Lang LaSalle in July estimated investment on the Madrid office market would reach 3 billion euros at the end of last year, double the figure for 2005.
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Markets
Published: February 28 2007 18:52 | Last updated: February 28 2007 18:52
A characteristic of financial bubbles is that, with the benefit of hindsight, they look ridiculous, sometimes embarrassingly so. Nasdaq’s p/e ratio of 72 times in March 2000, or gaping current account deficits in fixed exchange rate regimes before the 1997 Asian crisis, are cases in point.
The sell-off in markets this week does appear to indicate psychological fragility among investors, largely because the alternative explanations are implausible. Shanghai’s stock market is far too small (2 per cent of global capitalisation) to lead the world. Alan Greenspan’s comments on a possible US recession were made 36 hours before Wall Street fell. If Iranian tensions were really to blame, gold and oil prices would have risen.
What elements of today’s markets might look ridiculous with the benefit of hindsight? Not fundamentals: the economic cycle is now mature but growth, inflation and corporate earnings look sound. And equity valuations are reasonable. Yet not everything passes the sanity test.
First, a mispricing of credit risk is certainly occurring. In five years investors may blush when they recall this week’s $45bn private equity buy-out, reportedly using gearing of more than 80 per cent, of TXU, a historically volatile power generator; or the fact Ecuadorian bonds yield 11 per cent in spite of a government openly threatening default. Second, the big economic question remains of when America will control its borrowing – or its creditors stop lending. Finally, the explosion of alternative investment vehicles and credit derivatives suggests huge hidden leverage in the system, partly funded by the yen carry trade.
In terms of corporate defaults, today’s “Goldilocks II” economy can probably weather a rise in credit spreads. A gradual slowdown in the US (as suggested by Wednesday’s revisions to fourth quarter growth) could even allow an orderly easing of global imbalances. But the great unknown is whether, given the unprecedented degree of leverage within the financial system, even a modest and necessary adjustment of interest and exchange rates could seriously destabilise asset prices.
Copyright The Financial Times Limited 2007
Morgan Stanley Splits Real Estate Investing, Banking (Update1) (Bloomberg)
2007-03-08 19:03 (New York) By Hui-yong Yu March 8 (Bloomberg) -- Morgan Stanley, the biggest property investor among Wall Street banks, split its real estate investing unit from banking to take advantage of the surging market for commercial and residential buildings. The new group, called direct investing, will comprise real estate, a new infrastructure fund and new private equity funds. It will be run by Jay Mantz and Stephen Trevor, according to an internal memo sent yesterday by the New York-based firm. Morgan Stanley, with $45 billion in property assets, saw revenue from real estate investing, banking and lending surpass $1 billion for the first time in 2005, jumping 57 percent to eclipse equity underwriting. The firm stands to collect almost $500 million of fees in the next several years on a new $8 billion property fund it plans to close this year, before profits. ``Morgan Stanley Real Estate Investing has experienced explosive growth from 1991 until now, with assets under management almost doubling in the last two years alone,'' according to the memo, which was obtained by Bloomberg News. Morgan Stanley spokeswoman Erica Platt confirmed the memo. She declined to comment further. Dow Jones Newswires reported the reorganization yesterday. The memo was sent by Morgan Stanley Co- Presidents Zoe Cruz and Robert Scully, investment banking chief Walid Chammah and Owen Thomas, president of Morgan Stanley Investment Management. Mantz and Trevor, hired from Goldman Sachs Group Inc., will report to Thomas. Thomas ran Morgan Stanley's real estate division from 2000 to 2005. Before the reorganization, real estate investing and banking were overseen by Mantz and John Carrafiell, reporting to Chammah. Now, Carrafiell and Sonny Kalsi will be co-heads of real estate investing. Kalsi previously was sole head of investing. He recently moved to New York from Tokyo after having led real estate in Asia. Carrafiell is based in London. Morgan Stanley has raised ever-larger funds and increased fees as demand from pension funds to invest has grown and its strong returns give it clout to charge more. Thomas has been adding products such as hedge funds since he took over Morgan Stanley's asset management unit in December 2005. His division oversaw about $478 billion as of Nov. 30, 2006, and includes global equity, fixed income and alternative investments. While Morgan Stanley's grouping of real estate investing with banking and lending -- a different structure from other Wall Street firms -- meant the firm got early notice of potential investments and could arrange loans and complete deals quickly, pension fund consultants have warned investors that it also increased the risks of conflicts of interest. Trevor, who began work at Morgan Stanley this month, and Alan Jones will head the private equity component of the direct investing group, the memo said. Jones previously was head of Morgan Stanley's corporate finance department. Morgan Stanley later this year is scheduled to finish raising $8 billion for its newest global high-return real estate fund. The firm expanded into property investing in 1991 after the U.S. savings and loan crisis, when the collapse of more than 1,000 thrifts that speculated on real estate forced the federal government to sell defaulted mortgages at discounts. Since 1991, the firm's real estate investments have produced annual returns averaging more than 20 percent. Morgan Stanley employs more than 700 people who work on real estate in 22 offices. Morgan Stanley also announced personnel changes in real estate banking. Hoke Slaughter will become chairman of real estate banking and together with Chris Niehaus will become a vice chairman of the investment banking division. Guy Metcalfe and Struan Robertson will become global co-heads of real estate banking and Jonathan Lane will become chairman of real estate banking in Europe, the memo said. Morgan Stanley was first in advising in global real estate mergers and acquisitions in 2006 and first in arranging real estate initial public offerings and commercial mortgage-backed securities, according to the memo sent yesterday. Morgan Stanley shares rose $1.52 to $75.41 in New York Stock Exchange composite trading.
Foreclosures May Hit 1.5 Million in U.S. Housing Bust (Update3) (Bloomberg)
2007-03-12 16:37 (New York) By Bob Ivry March 12 (Bloomberg) -- Hold on to your assets. The deepest housing decline in 16 years is about to get worse. As many as 1.5 million more Americans may lose their homes, another 100,000 people in housing-related industries could be fired, and an estimated 100 additional subprime mortgage companies that lend money to people with bad or limited credit may go under, according to realtors, economists, analysts and a Federal Reserve governor. Financial stocks also could extend their declines over mortgage default worries. The spring buying season, when more than half of all U.S. home sales are made, has been so disappointing that the National Association of Home Builders in Washington now expects purchases to fall for the sixth consecutive quarter after it predicted a gain just last month. ``The correction will last another year,'' said Mark Zandi, chief economist for Moody's Economy.com in West Chester, Pennsylvania. ``Fewer people qualifying for mortgages means there will be less borrowers, and that will weigh on demand.'' A five-year housing boom that ended in 2006 expanded home- ownership to a record number of U.S. households. Now it has given way to mounting defaults, failing subprime mortgage companies and an increasing number of unsold homes. If this slump follows the same pattern as the last one, in 1991, it will persist for at least another year and may fuel a recession. New-home sales declined 45 percent from July 1989 to January 1991 and about 1 percent of all U.S. jobs, or 1.1 million, were lost in that recession, said Robert Kleinhenz, deputy chief economist of the California Association of Realtors. This time around, new-home sales have declined 28 percent since September 2005, hitting a low in January, the last month for which data is available. And though the national jobless rate is near a five-year low this month, mortgage-related jobs fell by almost 2,000 in January alone. At least two dozen of the more than 8,000 mortgage lenders have been forced to close or sell operations since the start of 2006. Subprime lenders Ameriquest Mortgage Co. in Irvine, California; Ownit Mortgage Solutions LLC and WMC Mortgage Corp., a subsidiary of General Electric Co., in Woodland Hills, California; Mortgage Lenders Network USA Inc. in Middletown, Connecticut and Fremont General Corp. together have fired more than 5,600 workers in the past year. New Century Financial Corp., the second-largest subprime lender, said today it ran out of cash to pay back creditors who are demanding their money now. The Irvine, California-based company has lost 90 percent of its market value this year and stopped making new subprime loans, prompting speculation it will seek bankruptcy protection. New Century already has cut 300 jobs and its 7,000 remaining employees are waiting to see if the company will survive. Fremont General, the Brea, California-based lender that is trying to sell its residential-mortgage unit, was ordered to stop making subprime loans by the U.S. Federal Deposit Insurance Corp. last week. Fremont was marketing and extending loans ``in a way that substantially increased the likelihood of borrower default or other loss to the bank,'' the FDIC said last week. Doug Duncan, chief economist of the Washington-based Mortgage Bankers Association, predicted in January that more than 100 home lenders may fail this year. The subprime crisis ``has taken the fuel out of the real estate market,'' said Edward Leamer, director of the UCLA Anderson Forecast in Los Angeles. ``The market needs new money in order to appreciate, and all of that money is gone for a very long time. The regulators are not going to allow it to happen again.'' Subprime mortgages are given to people who wouldn't qualify for standard home loans and typically have rates at least 2 or 3 percentage points above safer prime loans. The portion of subprime loans that financed new mortgages rose to 20 percent last year from 5 percent in 2001, according to the Mortgage Bankers Association. Subprime loans contributed to a home-ownership rate that reached a record 69.3 percent of U.S. households in the second quarter of 2004, up 5.4 percentage points from the same period in 1991, according to the U.S. Census Bureau. ``Probably the gain in home ownership over the last four, five years, is almost entirely due to looser lending standards,'' said James Fielding, a homebuilding credit analyst at Standard & Poor's in New York. As home prices steadily gained from 2001 to 2006, homeowners who fell behind on mortgage payments could sell their homes and pay off their loans or get better refinancing terms based on the higher value of their property. Now that home values are declining, many borrowers won't be able to refinance because they would have to come up with the difference between their new mortgage and what their home is now worth. Defaults may dump more than 500,000 homes on a housing market already saturated with leftover inventory built during boom times, New York-based bond research firm CreditSights Inc. said in a March 1 report. Mortgage defaults may climb to $225 billion over the next two years, compared with about $40 billion annually in 2005 and 2006, according to debt strategists at Lehman Brothers Holdings Inc. The portion of subprime loans more than 60 days delinquent or in foreclosure rose to 10 percent as of Dec. 31, from 5.4 percent in May 2005, the highest in seven years, according to data compiled by Friedman Billings Ramsey Group Inc. of Arlington, Virginia. Many of the delinquencies came from loans where borrowers didn't have to provide tax returns or other evidence of income, or where they financed 100 percent or more of the home's value, CreditSights analyst David Hendler wrote in a March 5 report. Other defaults came on adjustable-rate mortgages with artificially low introductory ``teaser'' rates, sometimes with ``option'' payment plans that allowed borrowers to defer interest. Banks ought to be concerned about such loans and are likely to see more missed payments and foreclosures as consumers with weak credit histories begin to face higher monthly mortgage payments, Federal Reserve Governor Susan Bies said last week. ``What we're seeing in this narrow segment is the beginning of the wave,'' Bies said. ``This is not the end, this is the beginning.'' About 1.5 million U.S. homeowners out of a total of 80 million will lose their homes through foreclosure, University of California-Berkeley economist Ken Rosen said last week. ``The subprime borrowers paid too much for their homes, and all of a sudden, they'll see their house value drop by 10 to 15 percent,'' Rosen said. The Center for Responsible Lending in Durham, North Carolina, said in a December study that as many as 2.2 million borrowers are at risk of losing their homes, at a potential cost of $164 billion, from subprime mortgages originated from 1998 through 2006. The number of U.S. foreclosures rose 42 percent to 1.2 million last year from 2005, according to Irvine, California-based RealtyTrac, while delinquencies in the last three months of 2006 rose to the highest level in four years, the Federal Reserve said. Housing and related industries, which account for about 23 percent of the U.S. economy -- including makers of everything from copper pipes to kitchen cabinets -- fired about 100,000 workers last year. The total will be higher this year, according to Amal Bendimerad of the Joint Center for Housing Studies at Harvard University in Cambridge, Massachusetts. By the end of this year, job cuts at companies including Benton Harbor, Michigan-based Whirlpool Corp., Masco Corp. of Taylor, Michigan, and St. Louis-based Emerson Electric Co. may exceed the fallout from the 1991 housing slump, said Paul Puryear, managing director at St. Petersburg, Florida-based Raymond James & Associates. The Bureau of Labor Statistics doesn't give data for housing-related job losses. ``The fallout in the early 1990s was much worse than what we've seen so far, but this downturn is not over,'' Puryear said. ``The full impact hasn't hit yet.'' U.S. House Financial Services Committee Chairman Barney Frank, a Massachusetts Democrat, said he may propose legislation to reign in ``inappropriate'' lending, and a House subcommittee is scheduled to consider subprime lending and foreclosures March 27. ``The standards got loosened so much, and there's always the pressure to make money that there was pressure to maybe make the questionable loans that shouldn't have been made,'' said Ohio Representative Paul Gillmor, the subcommittee's top Republican, in a March 9 interview. ``The major problem has been the overall deterioration in credit standards by lenders that's exacerbated by those who are unscrupulous.'' The Federal Bureau of Investigation says mortgage fraud is ``pervasive and growing'' and the incidence of such fraud has almost doubled in the past three years. ``There has been an increase in unscrupulous individuals in the market,'' said Arthur Prieston, chairman of the Prieston Group, a San Francisco-based company that investigates mortgage fraud. ``There's an unfair assumption of a connection between subprime failure and fraud. But there is a connection between early default and fraud.'' Mortgage fraud is committed when a borrower misrepresents himself or his finances to a lender. Some of that fraud involved speculators. They drove up prices during the boom by ordering new homes with the intent of selling them immediately after taking possession. That ``flipping'' inflated demand and put the speculators in competition with the homebuilders, propelling the median U.S. home price to $276,000 last June from $177,000 in February 2001. ``A lot of the housing bubble was speculation,'' said Mike Inselmann of the Houston-based research firm Metrostudy. When home prices got so high that speculators could no longer turn a profit, they canceled their contracts and walked away from their down payments. Cancellation rates for new homes have surged to almost 40 percent of home contracts, Margaret Whelan, a New York-based analyst at UBS AG, said in a report on March 2. That forced the top five U.S. homebuilders -- D.R. Horton Inc., Pulte Homes Inc., Lennar Corp., Centex Corp. and Toll Brothers Inc. -- to write off a combined $1.47 billion on abandoned land in the fourth quarter of 2006. On top of that, new home sales plunged 17 percent last year from 2005, the biggest decline since 1990, according to the Chicago-based National Association of Home Builders. Existing home sales fell 8.4 percent in 2006 from a record in 2005, according to the National Association of Realtors. Donald Tomnitz, D.R. Horton's chief executive officer, said last week that his Fort Worth, Texas-based company would miss its projections for this year and that ``2007 is going to suck, all 12 months of the calendar year.'' A Standard and Poor's index of 16 homebuilders tumbled 4.1 percent today, its biggest decline since August, on concerns over increasing inventory and subprime defaults. The index has fallen 12 percent since Jan. 1. D.R. Horton shares fell 5.1 percent today in New York Stock Exchange composite trading. Bloomfield Hills, Michigan-based Pulte dropped 4.8 percent; Lennar, based in Miami, dropped 4.9 percent; Dallas-based Centex lost 3.7 percent and Toll, based in Horsham, Pennsylvania, fell 3 percent. Concern that the housing slump and defaults in the subprime mortgage industry will affect earnings at the largest banks and lenders has hurt financial stocks. They are the worst performers in the Standard & Poor's 500 Index since the benchmark reached a six- year high on Feb. 20. The group lost 5.6 percent, outpacing the broader index's 3.9 percent drop. Investment banks including Merrill Lynch & Co., Deutsche Bank AG and Morgan Stanley have spent more than $4 billion over the past year to buy home-loan companies as add-ons to their mortgage-bond trading businesses. They needed loans to repackage into securities to sell to investors. Demand for higher yields led them into the subprime market. As that business flourished, financial firms either invested in subprime lenders of bought them. The number of U.S. financial institutions in the mortgage business jumped 16 percent to 8,848 in the past four years, according to the Federal Financial Institutions Examination Council. ``It's a little too early to tell how it shakes out for investment banks,'' said Andrew Davidson, president of New York- based Andrew Davidson & Co., which advises fixed-income investors on mortgage bonds. ``If it turns out that they have large losses, the investment banks tend not to be very forgiving and usually terminate businesses that haven't worked for them.'' Dale Westhoff, a senior managing director at New York-based Bear Stearns Cos., the largest underwriter of mortgage bonds, said last week that failing subprime lenders ``are going to be absorbed very quickly.'' ``Hedge funds and private equity are going to play a very important role in buying distressed assets,'' Westhoff said. In contrast to the 1991 housing skid, worker productivity is increasing, consumer confidence is expanding, interest rates remain within 1 percentage point of the 40-year low and the jobless rate fell to a five-year low last month. Last month, 7.4 million new and existing homes were sold at an annualized pace, more than twice the 1991 bottom. And real estate people tend to be the world's most optimistic, said Bryce Bowman, director of development for Randolph Equities LLC in Chicago. ``There's a lot of capital chasing real estate and that has not ceased with this bust,'' Bowman said. ``Developers have stopped building crazy speculative housing developments and are burning off their inventory, so we're excited about the end of '07, and we want to be ready to go when business picks up in '08.''
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