A slightly balding, overweight middle aged man today pledged £8.30 to Ellandi blog’s favourite good cause, Charity is Makes You Feel Better Than Tax.  The utterly unremarkable father of two declared “It’s good to give something back to the little people, like for example the people next door haven’t even got Sky HD. It’s good for social cohesion.”

Hardly worthy of note even in this little read corner of the interweb.

All things being equal, why does a multi-millionaire (who is about to pocket £300m) giving £100,000 to charity warrant fawning front page news in this evening’s Standard? (It’s rhetorical)

http://www.thisislondon.co.uk/standard/article-23859556-the-dispossessed-city-stars-pound-100000-donation-to-help-everyone-live-a-little-better.do

I would happily bet every penny of tax I have ever saved by using clever accountants (I have never claimed not to be a hypocrite), that Pierre spends far more monthly on clever accountants than he as just given to charity.

Oh, and don’t forget, donations are tax deductible.

I am sure I’m not the only one who feels like we are living in a period of phoney war?

The ConDems have done the best to convey a feeling of impending doom; that plague and pestilence will follow this Autumn’s spending review, but every week my rubbish gets collected, the dead are still getting buried, I am not blogging by candlelight.

At the moment there seems little chance of a return to the industrial strife of the late 70’s.

But surely cuts promised on this unprecedented scale, potentially leading to 650,00 - 1,500,000 job losses (depending on who you believe), will see us descend into Greek style anarchy; although even the most militant members of the RMT would probably pull back from actually barbecuing a few bankers?

I don’t doubt it’s going to be difficult, but I can guarantee that it won’t be as bad as when I was a child and it’s all thanks to Mrs T.  Of course, I hear you say, the trade union reforms neutered the proletariat’s ability organise labour effectively; there will thankfully be no return to The Flying Pickets (and their close part harmony acapella). This is undoubtedly true, to an extent, and Willie Walsh can point you in the direction of some good lawyers if you don’t believe me.

However it is a more fundamental and dare I say it deliberate policy that may prove to be the opium of the masses.

Have you ever wondered why such a disproportionate number of Anglo-Saxons own their own homes?

The seeds of this policy were sown in 1930’s America in the aftermath of the Great Depression, as a matter of public policy home ownership was encouraged and to facilitate this two large public backed mortgage corporations Fannie Mae and Freddie Mac were established (which to be fair in itself didn’t play out very well 65 years later).

Terribly generous dontcha think?

Not when you consider that mass home ownership, as public policy, was only encouraged once it was realised that PEOPLE WITH MORTGAGES DO NOT STRIKE (as much), for fear of losing their homes.  You can perhaps now see why Norman Tebbit et al. were so keen to see so many low paid, labour voting, public sector workers buy their own slice of heaven on council estates up and down the land.

Now we have gorged ourselves of a trillion pounds of mortgage debt when push comes to shove workers willingness and ability to man the barricades will be suitably curtailed.

For most of my adult life I had assumed that stagflation was the process by which everyone of your friends stag do’s had to be more lavish and excessive than the last; 10 years ago paintballing in Shropshire would suffice, now it’s a long weekend in Ibiza/Vegas/etc…..

Unfortunately for UK plc then, like often, I was wrong; stagflation is persistent inflation in an a recessionary environment.

But we’re not in recession, I hear you say; fair enough, but 0.2% growth is pretty anaemic even by the standards of one of Queen Victorias children and with the Eurozone, our biggest trading partner heading down the pan, we’re not free from the woods yet.

And inflation? Merv seems pretty relaxed in his latest letter to his new best friend Chancellor Clegborne.  Having said that this is the seventh time in two years that he has had to write such a letter, so much for inflation being a “temporary” phenomena.  But, who am I,  a jumped up retail agent, to judge?

Well I would hope if it was my job to judge I would make slightly a better fist of it.  Exactly a year ago the BoE forecast that “temporary” inflation would have passed and that it would have reduced to 0.70%.  So they only underestimated “temporary” inflation by a factor of 500%.

One thing is very clear, for a property industry that has been “juiced” by practically free money; if “temporary” inflation is unexpectedly this high in another twelve months, interest rates will be a lot higher.

Is not actually the question I am often asked, but “Why do you bother?”  is.

The corporate answer is that when we set up our blog, Morgan and I wanted to to have a forum to interact with our various partners in a dynamic manner which would lead to an evolving discourse on property and related matters.

A practical answer is that it is a really cheap way of updating our website, on a regular basis, without having to pay Underscore every time we do it.

The real reason is that I am a megalomaniac, narcissist, who thinks that just because my inane ramblings are on the web, it makes me feel important.  I managed to con my business partner into agreeing with this because, despite being a wizz with spreadsheets, he has no idea about computers or indeed most things invented last couple of decades.

And on all three counts it actually works; people do read it before meeting us to have something to talk about, it costs us nothing and I have saved a fortune in therapy (although Morgan still struggles with even an iPhone).

However an obvious problem is that when you put your thoughts “out there” on record, for ever, it’s very easy for people to remind you when you are frequently proved incorrect by subsequent events.  A recent example being my prediction that a hung parliament would lead to financial armageddon; it’s nice to think that Ken Clarke now agrees with me, however the fact that 10 year bond yields are back below 4.00% probably means that we are both wrong.  There again, even a broken clock tells the right time twice a day.

In my defence, who could have predicted that Greece would make our fiscal incontinence look like the financial rectitude of a parsimonious Scottish ministers son (surely some mistake with this analogy too)?

A final apology to Nick Prew of Nomura, who I thought in the depths of the crash was being ludicrously bullish on property shares (see “Prew on Prozac”), although it is now worth noting that he has now gone all grizzly.

And in respect of the megolmania, I might need real therapy if we win the Newcomer of the Year award tonight…..

We were fortunate enough to be the subject of a major feature in property week….

http://www.propertyweek.com/story.asp?sectioncode=36&storycode=3158905

It initially focuses a little too much on the advisory side of our business, but all in all very flattering (apart from the photo).

I, like many other people, have remarked over the last couple of months, that the market feels very much like the last days of the Roman Empire, sorry, 2006 with higher and higher prices being driven by a huge wall of liquidity looking to buy what few assets are available.  Clearly a major difference is that this liquidity is equity driven, rather than debt driven, but the effect on pricing is much the same.

However increasingly I am starting to believe that this time it is very different.

If I recall correctly, back in the boom-time mania of 2006 everybody actually believed in what they were doing.  Those nice Candy boys genuinely believed that they could pay vastly more than anyone else for prime sites because they could add more value, Modus thought that the UK needed 35 additional non-prime town centre developments, Peter Cummings honestly believed that every tubby middle aged man he was introduced to was a property genius, Gordon thought that he had abolished boom and bust……

What is very different now is the level of open cynicism abounding in our industry.

No one seems to genuinely believe in the current bounce.  After a bottle of wine (or two) fund managers will admit that it is clearly quite embarrassing to be buying back assets at a premium of 20-30% over what they sold them for less than 12 months ago, despite rents falling; but they are paid to splash the cash.

One agent described doing deals with them “like clubbing baby seals”.

Other, allegedly more savvy, investors are buying on a momentum trade, knowing/hoping, that they are clever enough to get the hell out of Dodge before the next inevitable correction.

However, should there be a double dip, the Nuremberg defence of “I was only obeying orders” or if “I don’t do it someone else will”, will ring doubly hollow and as Warren Buffet would put it, we really will see some horrible sights/sites as the tide goes back out.

Over the last week or so we have had number of meetings with our funding partners.  They have ranged from wizened old UK industrial investors, to fresh faced US opportunity funds, both of which suggested that the current liquidity problem is certainly not driven by a lack of equity.   To be fair even debt is now available to to investors who are able to buy assets that fit the pfandbrief model or the idiosyncratic credit models of the UK banks who are now lending,

The Ellandi view is that lack of liquidity is largely supply side phenomena, nevertheless matched by an insane level of yield seeking capital, which as my Oxford Poly economics tutor Marion pointed out nearly twenty years ago, will have only one effect on prices.

Bizarrely both investors used the phrase “constipated” to describe the log jam (if you will excuse their unintended scatological pun) to describe the lack of distressed assets that are coming to the market.

In principle I couldn’t agree more and it occurred to me that the children of Barcelona have similar frustration every Christmas with Caga Tio.

The big questions then, perhaps, for UK property market, is what is the stick and who is going to wield it?

This rather grandly titled event takes place on the 25th and 26th March. Mark and I will be speaking. If that does not put you off and you have an interest in this sort of thing then take a look at the attached brochure (euro-distressed-real-estate) and contact the good people at IMN for tickets. I can’t promise we will be worth the admission price but some of the other speakers may be?

Having worked solidly on a financial restructuring since the autumn, we are delighted to have successfully closed a financial restructuring on behalf of the Soroya Family.

Ellandi worked very closely with the family, its existing bankers and a new senior lender to structure, fund and close a simultaneous restructuring and refinancing.

The deal saw HSBC provide a new £16.6m loan facility secured on a portfolio of hotels and retail assets. The proceeds of this loan were used to partially refinance the existing senior lender who also made available a new subordinated loan facility. The new financial structure will significantly reduce the borrowers funding costs, make free cash flow available for refurbishment of their hotel portfolio and replaces maturing loans with new term loan facilities. Furthermore, this was achieved without the need for the borrower to commit significant additional equity.

Ellandi acted as restructuring adviser to the Soroya family and were able to work closely with the banks and their advisers to achieve a restructuring that worked for all parties.

We live in strange days.

The most left wing American president in my lifetime lurches so for to the left that he declares open warfare on the banks; the reaction from our labour government is appeasement, George Osborne agrees to join in the crusade unconditionally.

You would have thought that British politicians would have learnt recent lessons about declaring unswerving support for our American friends when they get all jingoistic, but plus ca change, as the cheese eating surrender monkeys would say…..

No one knows the details that these hostilities will take;  but it won’t be the shock and awe of our bonus tax, rather, it seems, more the returning of the lucrative pastures of “prop trading” to hedge funds and private equity that had been annexed with the overthrow of Glass Steagall Act in 1999.

But there is always the danger of the law of unintended consequences, or to overdo the military analogy, collateral damage.  Although, what is “prop” trading?  Put simply it is using the bank’s cash to bet alongside, or even against, the activities of it’s customers.  But it’s never that simple, General Volcker’s surgical strike at casino capitalism, could also nuke quite legitimate activities that are needed now more than ever to work through all of this bad debt.

For example, if a bank is banned from private equity participation, how does it undertake and manage a stake acquired through a debt for equity swap?  Where does this leave a bank who wants to take non-performing property loans onto it’s own balance sheet?  If that is not “prop” trading what is?

I am sure the next government will think these issues through before sending the boys over the top, but their biggest enemy could be the two banks it already largely owns.