Source : The Business Times, May 29, 2008
LONDON - Cash-thirsty investors are being forced to abandon plans for investment in emerging property sectors because of persistent problems in global money markets, the Royal Institution of Chartered Surveyors said on Thursday.
In its quarterly Global Commercial Property Survey, RICS said investor appetite for risk had plunged since the onset of the credit crunch, squeezing transaction volumes in emerging Europe, Asia and Latin America.
'A beacon of credit crunch resilience in the second half of 2007, it seems investors are now less sure of the potential higher returns on offer in emerging markets,' the report said.
Respondents were also less than confident about resilience of commercial property values in developed Asia, North America and Australasia in the second quarter of 2008, with prices forecast to fall at almost double the pace of western Europe.
'With prime yields across some emerging European cities now on par with those in developed markets, it is little surprise that investors have turned cautious on a relative valuation basis when risk is factored into the equation,' said RICS Senior Economist Oliver Gilmartin.
'Tenant demand is still rising across emerging markets although at a more muted pace as multinationals feel the pinch from tougher economic times,' Mr Gilmartin said.
RICS said African and Middle Eastern markets were likely to buck this trend as fast-growing petrodollar businesses based in cities such as Dubai and Doha spurred demand for commercial property space. -- REUTERS
Thursday, May 29, 2008
US Equity Funds Building Up War Chest To Target Hotels
Source : The Business Times, May 29, 2008
They anticipate fire sales by those who bought properties a year ago at the peak
(NEW YORK) A US$200 million resort hotel does not exactly resemble a suburban home. But scratch the surface of the sales market for each property category, and they look remarkably similar today.
Choice trophy: The fundamentals of the hotel business will worsen over the next two years, say analysts
The number of hotel deals in the United States during the first quarter plummeted by more than 40 per cent, to 127. There is a gaping spread between what sellers are asking for hotels and what buyers are willing to pay. And lenders are writing much smaller mortgages at higher interest rates than they were a year ago.
And yet several private equity firms have quietly managed to raise cash to buy hotels in recent months, said Warren Marr, a hotel consultant at PricewaterhouseCoopers. 'It may take a bit longer than it did two years ago, but the money is there,' he said.
Some hotel industry experts contend that this is an excellent time to raise cash, because they see fire sales on the horizon. Mr Marr said that some investors who bought hotels a year ago, at the peak of the market, and used financing to cover as much as 85 per cent or 90 per cent of the purchase price, might be forced to sell soon.
'You could call these distressed assets - not physically distressed, but financially distressed,' he said.
HEI Hotels and Resorts, based in Norwalk, Connecticut, is the latest company to raise cash for a new private equity fund.
This is the third fund raised by the company, which also manages the hotels in its portfolio. The new fund has more than US$500 million to invest in hotel properties.
Gary Mendell, chief executive of HEI Hotels and Resorts, said that across the industry, it is harder to raise capital now than it was a year or two ago. But he attributed his ability to raise US$500 million now to the number of repeat investors.
The company focuses exclusively on raising money from university endowments, and six of the 16 investors in the new fund also invested in both of HEI's earlier funds, which closed in 2004 and 2006.
There is little doubt that hotel sales have plummeted since the credit squeeze took hold late last summer. For example, buyers spent US$4.1 billion on hotels in this year's first quarter, less than half of the US$8.6 billion spent in the first quarter of 2007, according to Real Capital Analytics.
There are also far fewer big spenders. Only eight investors bought more than US$100 million worth of hotels in the US in the first quarter, down from 27 buyers who did so a year earlier, the firm reported.
Buyers are also starting to demand a little better return on their investment. Capitalisation rates - or the initial rate of return on a property, expressed as a ratio of the current income relative to the purchase price - are rising for all types of commercial real estate.
But Dan Fasulo, the director of market analysis at Real Capital Analytics, wrote in a report about hotel sales last week that the 'large gap between asking prices and current bids indicates that buyers think cap rates should be even higher.' Mr Fasulo said the average cap rate for all US hotel deals in the first quarter was around 8 per cent.
Mr Mendell said the HEI fund would probably buy fewer hotels than it might have two years ago, simply because lenders are demanding more equity.
Noble Investment Group, which is based in Atlanta and owns and operates hotels through similar private equity funds, raised its latest fund in early 2007. Mit Shah, the chief executive, said the company had invested about 40 per cent of this US$310 million fund so far and was focused on investing the rest, rather than on raising capital for a new fund.
Mr Shah said he thought the main reason so few hotels were on the market today was that most sellers were unwilling to part with their properties at current prices. 'If you don't have to sell, you won't sell in this market,' he said.
But he added that the pool of buyers was much shallower than it was a year ago, so he hoped to pick up some good deals soon. 'There is a significant amount of capital on the sidelines,' he said.
David Loeb, a hotel analyst at Robert W Baird & Co, an investment bank in Milwaukee, predicted that the fundamentals of the hotel business would worsen over the next two years.
He said this was only partly because of the lagging economy. He said a significant amount of new hotel construction was in the works, which had been financed before the credit markets soured.
He estimated that the number of hotel rooms in the United States would increase 2.5 per cent this year, and possibly another 2 per cent to 2.5 per cent next year.
Mr Loeb said he thought this was a smart time to be raising money to buy hotels. 'There will be owners who can't afford to keep their hotels anymore,' he said, because they bought them in highly leveraged deals a year or so ago.
He added that some trophy properties might even change hands.
'Luxury properties do not come on the market often,' he said. 'But in this market, you will absolutely see some of them sell.' - NYT
They anticipate fire sales by those who bought properties a year ago at the peak
(NEW YORK) A US$200 million resort hotel does not exactly resemble a suburban home. But scratch the surface of the sales market for each property category, and they look remarkably similar today.
Choice trophy: The fundamentals of the hotel business will worsen over the next two years, say analystsThe number of hotel deals in the United States during the first quarter plummeted by more than 40 per cent, to 127. There is a gaping spread between what sellers are asking for hotels and what buyers are willing to pay. And lenders are writing much smaller mortgages at higher interest rates than they were a year ago.
And yet several private equity firms have quietly managed to raise cash to buy hotels in recent months, said Warren Marr, a hotel consultant at PricewaterhouseCoopers. 'It may take a bit longer than it did two years ago, but the money is there,' he said.
Some hotel industry experts contend that this is an excellent time to raise cash, because they see fire sales on the horizon. Mr Marr said that some investors who bought hotels a year ago, at the peak of the market, and used financing to cover as much as 85 per cent or 90 per cent of the purchase price, might be forced to sell soon.
'You could call these distressed assets - not physically distressed, but financially distressed,' he said.
HEI Hotels and Resorts, based in Norwalk, Connecticut, is the latest company to raise cash for a new private equity fund.
This is the third fund raised by the company, which also manages the hotels in its portfolio. The new fund has more than US$500 million to invest in hotel properties.
Gary Mendell, chief executive of HEI Hotels and Resorts, said that across the industry, it is harder to raise capital now than it was a year or two ago. But he attributed his ability to raise US$500 million now to the number of repeat investors.
The company focuses exclusively on raising money from university endowments, and six of the 16 investors in the new fund also invested in both of HEI's earlier funds, which closed in 2004 and 2006.
There is little doubt that hotel sales have plummeted since the credit squeeze took hold late last summer. For example, buyers spent US$4.1 billion on hotels in this year's first quarter, less than half of the US$8.6 billion spent in the first quarter of 2007, according to Real Capital Analytics.
There are also far fewer big spenders. Only eight investors bought more than US$100 million worth of hotels in the US in the first quarter, down from 27 buyers who did so a year earlier, the firm reported.
Buyers are also starting to demand a little better return on their investment. Capitalisation rates - or the initial rate of return on a property, expressed as a ratio of the current income relative to the purchase price - are rising for all types of commercial real estate.
But Dan Fasulo, the director of market analysis at Real Capital Analytics, wrote in a report about hotel sales last week that the 'large gap between asking prices and current bids indicates that buyers think cap rates should be even higher.' Mr Fasulo said the average cap rate for all US hotel deals in the first quarter was around 8 per cent.
Mr Mendell said the HEI fund would probably buy fewer hotels than it might have two years ago, simply because lenders are demanding more equity.
Noble Investment Group, which is based in Atlanta and owns and operates hotels through similar private equity funds, raised its latest fund in early 2007. Mit Shah, the chief executive, said the company had invested about 40 per cent of this US$310 million fund so far and was focused on investing the rest, rather than on raising capital for a new fund.
Mr Shah said he thought the main reason so few hotels were on the market today was that most sellers were unwilling to part with their properties at current prices. 'If you don't have to sell, you won't sell in this market,' he said.
But he added that the pool of buyers was much shallower than it was a year ago, so he hoped to pick up some good deals soon. 'There is a significant amount of capital on the sidelines,' he said.
David Loeb, a hotel analyst at Robert W Baird & Co, an investment bank in Milwaukee, predicted that the fundamentals of the hotel business would worsen over the next two years.
He said this was only partly because of the lagging economy. He said a significant amount of new hotel construction was in the works, which had been financed before the credit markets soured.
He estimated that the number of hotel rooms in the United States would increase 2.5 per cent this year, and possibly another 2 per cent to 2.5 per cent next year.
Mr Loeb said he thought this was a smart time to be raising money to buy hotels. 'There will be owners who can't afford to keep their hotels anymore,' he said, because they bought them in highly leveraged deals a year or so ago.
He added that some trophy properties might even change hands.
'Luxury properties do not come on the market often,' he said. 'But in this market, you will absolutely see some of them sell.' - NYT
Japan's property industry downgraded by Morgan
Source : The Business Times, May 29, 2008
Condominiums put up for sale in the Tokyo region dropped in April
(TOKYO) Japan's real estate industry was downgraded to 'in-line' from 'attractive' by Morgan Stanley, which cited credit tightening after the sub-prime market collapse in the US and a slowdown in the national condominium market.
Mitsui Fudosan Co and Mitsubishi Estate Co, Japan's two biggest developers, also were cut to 'equal-weight' from 'overweight' by Tomoyoshi Omuro, an analyst at Morgan Stanley.
The collapse of the sub-prime market in the US has made it harder for Japanese developers and funds to borrow.
Condominiums put up for sale in the Tokyo region dropped for an eighth month in April, as rising prices discouraged potential buyers.
'We believe office rent hikes ahead and higher margins on construction of new buildings are already in share prices for the three majors, leaving little good news to come,' said Mr Omuro in his report.
'Credit tightening due to sub-prime issues, correction in property prices and a worsening condo market must also be weighed.'
Mitsui Fudosan has gained 2.5 per cent and Mitsubishi Estate has risen 2.6 per cent so far this year, compared with a 7.4 per cent decline for the six-member Topix Real Estate Index. -- Bloomberg
Condominiums put up for sale in the Tokyo region dropped in April
(TOKYO) Japan's real estate industry was downgraded to 'in-line' from 'attractive' by Morgan Stanley, which cited credit tightening after the sub-prime market collapse in the US and a slowdown in the national condominium market.
Mitsui Fudosan Co and Mitsubishi Estate Co, Japan's two biggest developers, also were cut to 'equal-weight' from 'overweight' by Tomoyoshi Omuro, an analyst at Morgan Stanley.
The collapse of the sub-prime market in the US has made it harder for Japanese developers and funds to borrow.
Condominiums put up for sale in the Tokyo region dropped for an eighth month in April, as rising prices discouraged potential buyers.
'We believe office rent hikes ahead and higher margins on construction of new buildings are already in share prices for the three majors, leaving little good news to come,' said Mr Omuro in his report.
'Credit tightening due to sub-prime issues, correction in property prices and a worsening condo market must also be weighed.'
Mitsui Fudosan has gained 2.5 per cent and Mitsubishi Estate has risen 2.6 per cent so far this year, compared with a 7.4 per cent decline for the six-member Topix Real Estate Index. -- Bloomberg
Stansfield Wins Tenancy Auction Of Its Premises
Source : The Business Times, May 29, 2008
STANSFIELD Group yesterday won a Singapore Land Authority (SLA) tenancy auction, allowing it to continue leasing its existing eight-storey premises at 11 Penang Lane from SLA for a further period of up to nine years.
Stansfield's winning bid was for $270,000 monthly rental for a three-year lease term, with options to renew for another two terms of three years each.
However, lease renewals for the second and third terms will be at market rentals at the time.
The $270,000 monthly works out to $7.96 per square foot (psf) based on the building's gross floor area of 33,905 square feet.
Stansfield leased the building from SLA in May 2003 after the group won a public tender for a 3+2 year tenancy.
Before that, the building had been used by National Council of Social Service.
Knight Frank conducted the auction for the tenancy on behalf of SLA.
The $270,000 monthly rental that Stansfield will pay SLA for the next three years is over six times the $40,000-plus it was paying SLA under the lease that has just expired.
The group was prepared to bid high to 'spare our students the inconvenience and disruption that would have resulted had we moved to new premises', Stansfield CEO Ramel Ang said when contacted by BT yesterday.
'We are committed to the students and want to ensure continuity for them,' he added.
Stansfield is suing the Consumers Association of Singapore over an alleged breach of an agreement governing insurance payments that hampered its ability to bring in foreign students.
Since Stansfield's existing 3+2 year lease for 11 Penang Lane expired on May 19 this year, the group has been occupying the building under a Temporary Occupation Licence issued by SLA.
Bidding for the building's tenancy at yesterday's auction began at a monthly rental of $76,000.
A total of 10 parties took part in the bidding, including other private schools and investors, some of whom were keen to convert the building into a hotel, BT understands.
Separately, Knight Frank also sold two properties at its auction yesterday at Amara Singapore.
One was a four-storey building at 466 Serangoon Road, which was sold on behalf of its liquidator, for $3.2 million.
The 999-year leasehold property, which is currently tenanted, has a shop on the ground level and apartments on the upper floors. The total net lettable area is 7,061 sq ft.
The other property sold was a 1,399-sq-ft ground-floor shop unit at the freehold Tembeling Centre in the East Coast area, that fetched $1.31 million.
STANSFIELD Group yesterday won a Singapore Land Authority (SLA) tenancy auction, allowing it to continue leasing its existing eight-storey premises at 11 Penang Lane from SLA for a further period of up to nine years.
Stansfield's winning bid was for $270,000 monthly rental for a three-year lease term, with options to renew for another two terms of three years each.
However, lease renewals for the second and third terms will be at market rentals at the time.
The $270,000 monthly works out to $7.96 per square foot (psf) based on the building's gross floor area of 33,905 square feet.
Stansfield leased the building from SLA in May 2003 after the group won a public tender for a 3+2 year tenancy.
Before that, the building had been used by National Council of Social Service.
Knight Frank conducted the auction for the tenancy on behalf of SLA.
The $270,000 monthly rental that Stansfield will pay SLA for the next three years is over six times the $40,000-plus it was paying SLA under the lease that has just expired.
The group was prepared to bid high to 'spare our students the inconvenience and disruption that would have resulted had we moved to new premises', Stansfield CEO Ramel Ang said when contacted by BT yesterday.
'We are committed to the students and want to ensure continuity for them,' he added.
Stansfield is suing the Consumers Association of Singapore over an alleged breach of an agreement governing insurance payments that hampered its ability to bring in foreign students.
Since Stansfield's existing 3+2 year lease for 11 Penang Lane expired on May 19 this year, the group has been occupying the building under a Temporary Occupation Licence issued by SLA.
Bidding for the building's tenancy at yesterday's auction began at a monthly rental of $76,000.
A total of 10 parties took part in the bidding, including other private schools and investors, some of whom were keen to convert the building into a hotel, BT understands.
Separately, Knight Frank also sold two properties at its auction yesterday at Amara Singapore.
One was a four-storey building at 466 Serangoon Road, which was sold on behalf of its liquidator, for $3.2 million.
The 999-year leasehold property, which is currently tenanted, has a shop on the ground level and apartments on the upper floors. The total net lettable area is 7,061 sq ft.
The other property sold was a 1,399-sq-ft ground-floor shop unit at the freehold Tembeling Centre in the East Coast area, that fetched $1.31 million.
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