Although the US was chosen by more survey respondents than any other country as the market (other than their own) where ROI is expected to perform most strongly over the next two years, some experts are less convinced that property prices are stabilising.
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Many companies are looking at net leaseback, where they sell their property to an investor and lease it back from them.
Wayne Vandenburg, Chairman and CEO of TVO Groupe, an international property investment and management services company, says that the bottom of the market has not been reached in the US, and ongoing uncertainty is making some potential investors reluctant to jump back in.
Many major institutional investors have already written down significant losses. For example, Mr Vandenburg says that Calpers, the California Public Employees' Retirement System which manages $190bn in assets, is repricing its property portfolio from $17.9bn down to $11.2bn to reflect changes in capital values.
Other investors who are leveraged are simply handing the keys back to the bank. Mr Vandenburg describes a major developer who recently let go three large office complexes in a Texan city because the equity in the property was gone (due to falling prices) and the income the buildings were generating was insufficient to service the loans. Mr Vandenburg says this was the right business decision and highlights what the US is facing.
However, not all property investors are cutting their losses just yet, even when their preferential financing deals come to an end. “Say you owe $50m on a property but the bank now values that at $42m – $8m less,” Mr Vandenburg says. “You can write a cheque for that $8m but how many people have that liquidity these days? So the banks do something called ‘pretend and extend’, which means they give you a new deal at the old property value. But of course they hike up the rate to make it worth their while.”
Other investors are taking advantage of opportunities presented by cash-strapped corporates. Mr Vandenburg says that many companies are looking at net leaseback, where they sell their property to an investor and then lease it back from the investor. This gives the company a source of financing – which they may need to fund their company in these credit-crunched times ¬¬– and provides the investor with a property with a guaranteed tenant. “This is just gearing up,” says Mr Vandenburg. “Transactions of these kinds are at 10 per cent of what they will be in 24 months.”