Specialist
Executive at real estate company
Agenda
- Pan-European CRE (commercial real estate) outlook – how resilient can the sector be in a more challenging operating environment?
- Sustainability of CRE capital structures, how these came to be and their suitability for the current environment, plus CRE’s ability to repair balance sheets and capital structures
- Deal flow developments, potential marginal buyers for asset disposals and key areas to expect them in
- Management team quality and companies that may be better- vs worse-positioned for adverse operating conditions
- Bank exposure to current CRE weakness, touching on commercial mortgage-backed security developments, possible weakness and whether FIs (financial institutions) can absorb potential write-downs
Questions
1.
What do you see as the current state of European and UK CRE [commercial real estate]? What’s happening at the moment?
2.
Do you think we could see lending rates going above 6%?
3.
Do you think we’ve historically seen such a large repricing at such a rapid rate on both the capital and asset sides for European real estate?
4.
You touched on the dot-com bubble and the great financial crisis. Would you be drawing parallels where the incoming CRE issues might be as impactful as those two events?
5.
How much has the rapid growth been due to easy access to capital? We’re in the low-rate environment set by central banks, but can that be just apportioned to that, or is it poor risk management by some of these institutions?
6.
What do you see occurring, given what we’ve discussed? What are some pessimistic, base and optimistic scenarios?
7.
What percentage of the market do you think is going to have structural cash-flow issues in relation to their capital structures?
8.
What kinds of haircuts do you see occurring to the assets we’re discussing? I appreciate this probably varies by asset type quite substantially.
9.
You laid out the dynamic that, on paper, you could calculate a 50% haircut on some assets, but you believe the market is maybe going to take around 10-15%. How does this play out if you’ve got a lot of real estate companies with unsustainable capital structures? They’re all trying to dispose of similar prime assets. There’s not a great deal of transaction volume, and access to new funding is relatively limited. How does this resolve?
10.
Do you see a specific asset class, perhaps office real estate, being the worst affected, or do you see this for specific companies or regions?
11.
Do you think a lender might also foresee potential structural issues, so it then makes the sustainability or restructuring of capital structure more challenging anyway?
12.
Do you think what we’re discussing potentially represents an opportunity? Might some players in the market see the distressed office buildings and look at it as an ESG CAPEX opportunity and turn it into resi, where we’ve got some more structural issues across the majority of Europe?
13.
What volume of NPLs [non-performing loans] or defaults do you see occurring?
14.
I’m thinking about the CRE balance sheet restructure and repair, if the bond markets are closed and you’ve got limited securitisation. You’ve touched on how real estate companies can cancel dividends or dispose of some of their more prime assets, so do you expect dynamics where we’re seeing callable bonds being called as they’re coming up, using RCFs [revolving credit facilities], or do you think people will let them roll over?
15.
How many companies do you think can avoid the death spirals? Is it the majority of the market – perhaps 80%?
16.
Do you think there’s room for new players to be entering the market? Will we see more direct lending from some funds taking up some of the slack where banks have got a higher cost of funds and are not as willing to lend?
17.
What do you see as the different pricing? What terms will a bank lend to vs bond pricing currently vs direct lending funds? What are the different spreads you see?
18.
How do you see transaction volumes and deal flow evolving? What’s your outlook for the rest of 2023?
19.
You think that smaller shops and local players could be the ones that are still going to be active in the market, potentially reading through to pension funds and insurers who have a slightly longer time horizon on the capital they’re trying to be accretive towards, and you see some of the larger players out of action in the market. Why has deal flow been so slow recently? Do you think those smaller shops and local players will have enough dry powder to take up most of what’s coming to market in the coming months?
20.
Do you think European banks will have very poor exposure in the current environment? Who are the net winners and losers going to be? Do you see any risks of contagion?
21.
Do you see the possibility of anything breaking in the next 1-3 months?
22.
What is your highest-conviction contrarian view around CRE at the moment and why?
23.
Is there anything we haven’t highlighted or covered that you’d really like to draw attention to around CRE?
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