WORLD PROPERTY CHANNEL ®

• Property Values Dip in U.K.
• 2 U.S. Financial Firms to Offer $5 Billion in Commercial Loans.
• Standard Pacific Buying $150 Million in California Farm Land.
• Australia's Largest Developer Posts $309 Million Net Profit.

Analysts Monitor Slowing U.K. Property Values

Stratford City Shopping Center rendering, London

The latest data published by research group Investment Property Databank show  property values in the United Kingdom have grown 15.4% since August 2009 and about 7% this year.

But the growth in property values has been slowing for the past four months. In July, U.K. property values barely budged, rising just 0.2% from the previous month, according to The Wall Street Journal.

For more than a year, commercial-property investment has benefited from low interest rates, low bond yields and, in some key markets, a rise in income from rent. In the U.K. in particular, property valuations surged last year.

"We expect some companies with lower-quality assets and short leases to see prices decline," says Harm Meijer, head of European property research at J.P. Morgan Chase & Co. in London. "We expect a small dip, but not for quality assets or long leases."

Analysts are particularly watching U.K. values because that market fell faster when the crisis hit in 2007 and led Europe when market valuations began recovering toward the middle of last year.

According to the latest report on capital returns in property by CB Richard Ellis, property values in Europe, excluding the U.K., rose 0.3% in the second quarter of 2010, the first Continental Europe rise in values since the index was launched in December 2007.

Andrew Barber

The WSJ reports Andrew Barber, director of international valuations at CBRE, points out that trading in U.K. property derivatives suggest U.K. property has had its run.

Market consensus appears to be that U.K. property values will rise a total of about 2.5% this year. Given that property values already are up 6% to 7%, it seems property values are set for a fall, he says.

"This means that U.K. property values will be negative in the second half of 2010, and in 2011 and 2012,"  Barber said.

"Where do we go from here?" asks Leonard Geiger, associate portfolio manager at Cohen & Steers property-investment firm in London. "In order to grow, companies are going to have to develop and make acquisitions."

The evidence of stagnation is beginning to show in the balance sheets of European property companies. British Land PLC reported recently that the growth in value of its property portfolio slowed significantly to 1.4% in the company's fiscal quarter to June 30. That sluggish growth comes after British Land's portfolio surged 16% in the previous two quarters.

Chris Grigg

"Valuations have risen more slowly in this quarter, reflecting in part a more uncertain economic outlook," Chris Grigg, British Land chief executive, told reporters when presenting results Aug. 4. "Valuations won't grow as quickly. But in terms of rental growth, we're quite optimistic. It's a function of 'not much supply."

"Vacancies are still very high in Brussels, around 12%," said Ingrid Daerden, Cofinimmo SA's investor-relations officer. "The Belgian market has not hit bottom yet."

Among the safe havens: retail property in Germany and Scandinavia.

In the first half of 2010, investment in the German retail market rose 88% to €4.1 billion ($5.3 billion). International investors accounted for 52% of the investment in German shopping centers, according to data published by CB Richard Ellis.

Investment in the Nordic region rose 63% to €1.4 billion in the first half of 2010, according to CBRE.

By comparison, retail investment in the U.K. fell 12% to €5.1 billion, and investment in shopping centers in Spain plunged 27% to €1 billion. Retail investment in France rose 33% to €1.1 billion, and investment in Italy was up 38% to €697 million.


 

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New Commercial Lenders Stepping Up to the Plate

Bond traders, fund managers and others in the U.S. financial services realm, see a golden opportunity over the next 12 months in offering jumbo commercial real estate loans.

This marks a new turn in the previously tight realty capital markets, according to The Wall Street Journal.

The latest example:  New York City-based Cantor Fitzgerald, best known for bond trading, is getting into the business of originating commercial mortgages.

The firm, which lost numerous key people in the 9/11 tragedy,  has teamed up with CIM Group, a Los Angeles real-estate fund manager.  They say they hope to make about $5 billion in commercial-property loans available over the next 12 months.  They plan to sell the loans later as bonds.

Anthony Orso, a former real-estate banker at Credit Suisse Group who joined Cantor about a year ago, tells the WSJ "the timing is perfect" for his firm to enter the business.

Property values have started to stabilize after plunging more than 40% from the peak in 2007, limiting lenders' risks. And commercial real-estate debt is drawing interest from yield-hunting investors world-wide.

Demand for fresh funds is likely to be enormous, Orso says.

Already, financing challenges have contributed to a spike in loans being transferred to debt specialists responsible for dealing with soured loans, according the WSJ.

About 15% of outstanding commercial mortgages bundled into bonds, or about $110 billion, is expected to be in "special servicing" by year's end due to default or imminent default, according to a study by New York City-based Fitch Ratings.
 

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Standard Pacific Contracts to Buy 438 Acres of San Diego Farm Land for $150 Million

Standard Pacific farm land, San Diego

Irvine, CA-based Standard Pacific Corp. (NYSE: SPF) is rolling the dice and betting there will be a huge demand for new housing in Northern San Diego over the next five years. Specifically, about 737 residences.

The company has contracted to buy 438 acres of raw land for $150 million or about $320,512 per acre or $7.36 per square foot. Not exactly a fire-sale price, land appraisers tell Real Estate Channel.

The Wall Street Journal reports the transaction, Standard Pacific's biggest land deal since the market's 2006 crash, is further evidence of the company's strategy to bulk up on bargain-priced land now as it prepares for the housing market to improve.

In addition to its latest deal, Standard Pacific has committed to spend about $300 million for 4,600 lots so far this year.

The land Standard Pacific will buy currently contains active dairy farms, egg ranches and citrus groves. Although it plans as many as 737 homes, it will also consider selling lots to other builders

Raw land is typically less expensive than finished lots, so while Standard Pacific has to pay for the infrastructure, it can earn money selling homes or finished building lots, the WSJ reports.

"We decided to take the risk ourselves instead of sharing it with others," said Ken Campbell, chief executive of Standard Pacific CEO Ken Campbell told the WSJ.
 

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Australia's Lend Lease Group in Clover

Sydney, Australia-based Lend Lease Group, Australia's largest property developer, is back on track after surviving previous quarters of heavy write downs.

The company posted full-year net profit of A$345.6 million Australian dollars (US $308.6 million), compared with a A$653.6 million net loss in the previous year, reports Dow Jones.com.

Barangaroo development, Sydney, Australia

In 2009,  a rapid economic slowdown, particularly in the U.S. and Europe, generated nearly A$1 billion worth of asset write downs and negative property revaluations at the company.

Operating profit for the year ended June 30 was A$323.6 million, beating the company's guidance of a result in line with last year's A$307.5 million, and a A$319 million average forecast of four analysts.

With offshore construction activity subdued, Lend Lease had to cut costs to boost its operating profit, the company reported.

Revenue fell roughly 29% to A$10.57 billion from A$14.79 billion on lower construction activity and the impact of a stronger Australian dollar.

A slowdown in construction often lags behind a broader economic slowdown because many of Lend Lease's jobs are booked a year or two in advance and can often take years to complete.

Lend Lease, which blends property management and development with investment management, said it will pay a final dividend of 12 cents, down from 16 cents last year.

The company last year added a number of big projects to its development pipeline, the WSJ reports. Those projects include the A$6 billion first stage of Barangaroo redevelopment in Sydney and the GBP1.3 billion expansion of the Stratford City shopping center in London, which it said will underpin earnings growth over the longer term.

Macquarie noted the shift away from the U.S. in Lend Lease's earnings to contribute just 7% of operating profit, down from 30% in the 2009 financial year. Asia Pacific, however, accounted for 65% of earnings, up from 55%.

The broker is forecasting the group's net operating profit to grow 8% this financial year but earnings per share to fall 6% as the full impact of a recent  A$806 million equity raising is felt.

Goldman Sachs noted the lack of specific earnings guidance saying, "we expect investors will take this to indicate a weak FY11 and therefore delayed recovery back to EPS growth."

 

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