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 are pleased to report that we have closed the acquisition of a senior loan in partnership with Development Securities. Given there are various confidentiality issues associated to this, I will simply quote the stock exchange announcement that Development Securities made this morning. We will tell you more as and when appropriate.

“Development Securities announces acquisition of property backed senior loan for approximately 
£10.0 million

Development Securities, in conjunction with Ellandi LLP (’Ellandi’), announces the acquisition of a senior loan secured on a neighbourhood shopping centre in South West England. The loan was acquired at a significant discount from a leading UK high street banking group. Development Securities have invested approximately £10.0 million in the transaction and own 100% of the loan at closing. The loan is currently performing and interest payments are being met by the borrower in full. The Company will initially receive a yield in excess of 10% per annum in relation to the investment.

Notwithstanding its performance, the loan is presently subject to a loan to value covenant breach which has precipitated the decision for the UK banking group to dispose of the loan.  The acquisition was financed out of the proceeds of the Company’s recent equity fund raising, completed in July 2009.

Development Securities consider the loan to be well secured and given the discounted purchase price, offers numerous potential management options. Due to confidentiality constraints, the Company is not able to provide further information at this stage but hope to make further announcements in due course.

Ellandi is a specialist investment manager focused on UK commercial property. Ellandi specialises in acquiring property related debt, recapitalising distressed property situations and investing in direct real estate. Subject to the future performance of the investment, Ellandi may receive a carried interest as part of the management arrangements.”

We are delighted to have been asked to help Aitcheson Raffety, who have been appointed as receiver by Dunbar Bank plc, with asset managing of a retail development site.

Being a closet communist, as some friends and associates would have you believe, you would not be surprised to learn that I wholly endorse the new upper rate tax band for people earning wages over £150k.

At least now we have a proper higher rate that “the little people” can at least aspire to.  During the noughties, it used to be rather dispiriting to know that the average estate agent, mortgage broker and even deputy head teacher was considered so successful that they should pay the highest tax band like us entrepreneurs.

Of course by now setting a differentiation between the top marginal rate of tax at 50% (plus NI, of course) and a capital gains tax of only 18%, darling Darling has given an even greater incentive to those of us who can organise our tax affairs, to evade (or is it avoid?) even more tax.  

Good work HMRC, talk about the laws of unintended consequences……….

Given this obvious loop hole though, it is at best disingenuous that the those most corpulent of “fat cats”, Guy Hands and Crispen Odey, have said that they will be driven from this sceptered isle by this punitive rate, that they are very unlikely to pay.

This becomes even more odious when you consider that Mrs Odey was a non-exec of Northern Rock, the cost of the demise of which is being met by all of those inreased taxes.

At Ellandi, we always strive to make the most of our intellectual capital and bring incisive market insight to the market in these troubled time.

We have worked tirelessly over the last few months to analyse the Government Asset Protection Scheme (GAPS) and are pleased to provide you with a briefing paper.

Please do not hesitate to contact either of us, if you require any further explanation.

Regards

Mark and Morgan

GAPS Explained

We have recently obtained planning in respect of the Victorian police station in Beckenham.   We now have consent to partially demolish the ground floor and then extend it to provide a restaurant unit of 2,200 sqft and an adjacent retail unit of 1,500 sq ft.

The existing accomodation at first floor will be converted into four, loft style flats, all with their own secure car parking space.

Cormac McNabb at Savills is the letting agent CMcNabb@savills.com.