Ellandi and K&L Gates hosted a restructuring lunch on 20th November. The objective was to create a forum for discussion in regards to how banks should approach distressed property loans. We were delighted to be joined by representatives of Barclays Capital, Bank of Ireland, Houlihan Lokey, National Australia Bank, Nationwide and Grant Thornton.

There was wide ranging and at times passionate debate but the general conclusion was that there is very little consensus between banks. Some organisations are taking a proactive stance and looking to enforce covenants whilst others are willing to show patience to borrowers providing that interest is serviced. Some banks view LTV as a “technical default” that can be waived whilst others take the view it is a key contractual term that must be enforced. Certain people thought that the loan servicer model applied in the CMBS market is a robust structure whilst others argued it was incapable of making decisions and would lead to paralysis following a loan default.

The only universal opinion was that we are in uncharted waters and that 2009 will be see the banking and property industries having to learn how to cope with major challenges and a new environment. Although, it seems that lenders will address these issues in very different ways.

No, not the classic Bee Gees hit from 1977, masterfully reworked by Take That in 1996, but a question of how deep and what shape will the recession be?

Will we bounce in and out, the classic “V” shape, as most economists predict? Or will we scrape along the bottom for a while, before a vertiginous recovery?

Clearly “L” is the ugly option with no recovery n sight.

The answer, I’m sure, won’t be simple, hopefully the general economy will follow a “V” shape as a result of the governments massive fiscal and monetary easing.

Housing and commodities could well be a “U”. New supply in housing and investment in capacity of commodities has fallen off a cliff as their price has plummeted, there might be no swift recovery, but once demand does recover, in line with the general economy and the slack taken up, the lack of new building or investment in refineries, say, could lead to a sharp recovery in asset prices.

But what of commercial property investment?

People in the industry forget that this is a discretionary activity and a case for it, especially in light of its recent catastrophic performance, will need to be made again, based on no guaranteed yield compression, low gearing and poor rental growth.

Until that case is compellingly made, we could be in for a “L” of a time.

Despite growing up in Measteg, not even Morgan is hard enough to join the real SAS, but Ellandi has been pleased to once again sponsor the Shop Agents Society annual dinner.

Mark’s luxury Ibizan villa (availableto rent next year at very reasonable rates) has been donated as the main auction lot, which will hopefully raise some money towards the very worthwhile nominated charity, Touching Tiny Lives Campaign

Ellandi has completed a financial review of a major developer that operates in the high end residential market.

The business, with assets of £180m, brought in Ellandi as a consultant to undertake an emergency analysis of its liquidity position. It feared it would shortly be unable to meet its debt obligations, as sales volumes and asset prices fell during H2 2008.

Ellandi worked intensivle to review the business’ cashflows, future projections and ongoing liabilities. We were then able to provide strategic advice in regards to how the business should operate in order to conserve cash and access new funds. This enabled the company to approach its banks with a comprehensive restructuring proposal that were supported by a disparate group of banks.

The press is now full of articles extolling the virtues of the simple life and how “The Credit Crunch Brings Career Changes”:

http://www.timesonline.co.uk/tol/news/uk/article5062778.ece

Even a bad assed hedgie, like Andrew Lahde, wants to turn his back on the lucrative career that “destroyed his health” to grow hemp (his resignation letter is well worth a read):

http://ftalphaville.ft.com/blog/2008/10/17/17194/andrew-lahde-bows-out-in-style/

Given the non-stop barrel of laughs that is the world of commercial property and finance, I quite fancy jacking it all in to be the man that oils the thighs of the virgins that roll Cohiba cigars, but I doubt it would cover the school fees.

Like many things in this crazy, mixed up world, I feel that the concept of downshifting is yet another example of woolly ideas and a lack of joined up thinking.

My local organic deli (North St SW4, very good) is already full of posters and flyers for individual yoga tuition, children’s pottery classes, aryudevic massage, toddler acting classes and Chinese stool therapy (OK I made that one up).   It would now appear likely that it will be impossible to get in the front door for further adverts extolling the virtues of “lifestyle” businesses set up by former bankers.

Call me a cynic, but these self indulgent pursuits were just as symptomatic of the credit boom as second homes, flash cars and Christmas in the Caribbean; moreover rely just as heavily on there being a large amount of highly paid idiots with too much money to spend.

Alas those times gone and in The Great Deleveraging (new expression for the post Credit Crunch world) people are going to be focused a little further down Maslows “Hierarchy of Needs” and will be more worried about the basics such as food and shelter.