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…..

Well it looks like in the case of losses on commercial property loans it does.

I’ve known John Fraser-Andrews for about 15 years, and I hope he would not be too offended to hear me say that he was a pretty average agent and a very average scrum-half. 

However about 12 years ago, he quit surveying to “do something in the city”.

It is only fairly recently that I realised that he is actually of of the country’s leading equity analysts at HSBC, strangely enough covering the REIT sector.  He is also one of the industry’s main bears, billions seem to be wiped off the value of British Land et al., whenever he puts pen to paper.

His latest prognosis can be downloaded here, it is not quite as rosy as Mike Prew’s analysis that I commented on below.

There is one statistic, hidden away on page 33, that really is worth focusing in on.  That following an expected further fall of 32% in values (which is not much worse than the consensus view) that £91bn “of UK bank commercial property debt” will be in negative equity, that’s out of a total of £247bn.

Now obviously this loss would only be generated once the debt becomes non-performing; either the interest not being paid or the full amount not being repaid on expiry, as most banks are not obliged to mark to market.

However, given the likely unprecedented level of tenant default and the fact that 80% of this debt will have to be refinanced by 2011, it doesn’t bode well.

These losses will either take the form of further write offs at banks, or may be covered by the governments “insurance” scheme, that hopefully will be announced within the next few weeks.

Makes rescuing the car-makers look cheap.

If you’re feeling down in the dumps, sat at your desk thinking that 2009 looks a bit bleak, Mike Prew, Nomura’s real estate analysis has some seasonal cheer for you.

His latest Panglossian missive on the UK REIT sector is entitled “the-end-of-the-big-freeze“; it does exactly what it says on the tin.

Now Mike probably has a brain the size of a planet, but there are a few points I can’t quite agree with:

“Low real estate prices are a symptom of economic conditions, not the cause”; so this world wide recession wasn’t kicked off by collapsing housing prices in the US then?

“trading buildings with attached debt to give some valuation visibility”; trading buildings with attached debt only gives valuation visibility for valuations of buildings with attached debt, not the underlying real estate.  Without the NU debt, what price would the Dawnay Day portfolio have sold for, if at all?

Well that’s the first paragraph of a 23 page paper critiqued.  I won’t go on, well OK, only a little bit. 

On a more general note most of the paper discusses the relative value now provided by the property yield over cost of finance, a well understood argument.  However this is somewhat undermined by the observation that “interest rates could go up as quickly as they went down”; this will hardly help sustain yield compression and values over the medium term.

On a more general note I find it odd that a paper who’s main, and correct, thesis that the recent driver of real estate pricing has been “the overwhelming effect of capital flows”, then makes little or no attempt to address the likely availability of debt finance or lets face it, even equity, to sustain a recovery. 

Actually he does suggest that UK commercial lending will “deleaver” from £250bn to “£100-150bn”; this process has hardly even begun and look at the effects.

To put it in analyst speak, I agree that to date we have a felt the “denominator effect” on values, however this year we will have the further negative feedback of the “numerator effect” which will further increase bad debt provision, which in turn will effect the availability of finance and destroy yet more equity (page 17, if you need a translation). 

But what do I know, I’m a humble surveyor.

On the other hand Mike’s a long established equity analyst, in his last position at Lehman’s, he called the bottom of the property market on the 12th September last year, I forget what happened on the 15th……