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.