Land Securities, British Land and Grosvenor are all in the frame for the biggest new property game in town: advising and forming joint ventures with banks.
By Giles Barrie
At the same time, executives such as former Tishman Speyer UK chief Mark Kingston are being recruited to work in house at banks.
Why are these relationships being formed now, two years after the downturn began, and how will they work?
The timing gives the clearest indication yet of the mess the banks are in. Most spent six months re-organising their own teams after being caught in the post-Lehman maelstrom, and have spent another six understanding their property problems and helping troubled clients service their debt.
With those clients’ equity wiped out, it has now dawned on the banks that, while they are the UK’s biggest owners of property, the expertise on how to manage those assets resides in another place: property companies.
Agents and accountants may be able to advise, but they cannot be trusted as much as a property company, with which a bank may already have a strong financial relationship in place.
Moreover, property companies are good organisers of teams: the agents, architects, contractors and lawyers that can help the banks out of their hole.
Working with banks holds an appeal for property companies because many began to specialise in the asset management needed in the overheated latter days of the boom, as they withdrew from bidding for new properties.
Property companies also need to put very little money into these arrangements, although at this point, the two parties’ wishes start to diverge.
Banks may indeed want property companies to put equity into new joint ventures to show their commitment, but property companies are more likely to ask for a “promote” payment for their asset management work.
So, on a distressed portfolio worth £100m, they might now ask for 25% of the uplift in value if it is worth £115m in three years’ time, plus a fee on the way through — an easy £7m-£8m, potentially.
There are two possible problems with this.
How will a bank know whether the property company has driven up values, or if it is simply a function of the market?
And how can a bank be sure if it is getting truly independent help on the £100m portfolio if the property company has a rival asset or development down the road?
But these are details: the property companies hold all the aces, and the quicker the banks get into bed with them the better for the sake of UK plc. (Giles Barrie, Property Week). http://www.propertyweek.com/story.asp?sectioncode=38&storycode=3152120
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