Cash Rules As Listed Trusts Feel The Pinch
Sydney Morning Herald
Saturday March 15, 2008
CASHED-UP private players and unlisted wholesale funds are tipped to take advantage of any fall-out if property owners find themselves having to sell assets to repay margin calls or spiralling debt.
Listed property trusts (LPTs) already looking at asset sales to save the business include Centro Properties, Allco and MFS. The sector has been hard hit in recent times and more turmoil is expected as credit markets tighten. JP Morgan said in its latest report that the LPT sector looks over-geared relative to this year's reality of credit markets. The broker said Centro Properties, Centro Retail Trust and the Rubicon stable, among others, had already suffered from the LPT liquidity squeeze. But Macquarie Group's co-head of Real Estate Capital, Simon Jones, said at a recent presentation that the property market had been through this cycle and the group should focus on restoring value to its trusts. "It's a real confidence issue," he said. "But these problems are not a real-estate issue such as the early 1990s; it's a capital and debt market issue. "This is not the time to dispose of assets in a panic. Returns are still an average 10-15per cent and market fundamentals remain strong. We will look at all opportunities to buy and sell where we see we can enhance investors' return." In Perpetual's latest property outlook report, its head of direct property, Goran Ujdur said cash buyers with limited or no debt, who did not rely on raising capital through the equity market, were in the box seat. "Cash is king, so superannuation funds, sovereign wealth funds and cashed-up private investors who sold major portfolios in the last two years - Lang Walker, Kevin Seymour and the Besen/Berger families - will be in a strong position and they will have less competition," Mr Ujdur said. "Our current view is that opportunities will emerge in both global and and domestic markets."Already some are appearing, and one interesting observation is the convergence of private and public ownership of property. "It is likely there will be more merger and acquisition activity as the cycle plays out."Mr Ujdur said for some new, larger players, this was the perfect time to participate."However the depth of the global credit crisis is likely to subdue general investor sentiment for some time." He said that those who would survive the turmoil would be the managers who adopted less complicated structures, more transparency and lower gearing. While property investors ride out the financial and debt market storm, the underlying markets look strong. That was demonstrated by Thursday's news that Mirvac is to demolish and rebuild its Goodsell Building at 8 Chifley Square, on the corner of Hunter and Elizabeth Streets. The company lodged a Stage 2 development approval with the City of Sydney for a joint project with AustralianSuper. It will feature a design from Rogers Stirk Harbour+Partners and Lippmann Associates. The building will rise 30 storeys, with a net lettable area of 19,000square metres, and will incorporate 21 office levels, with retail and car parks beneath. The building is planned to open in about three years. The leasing campaign will begin by the end of next year. Mirvac's site will be the second development within the CBD after the Dexus Space 1 Bligh tower in Bligh Street. The 29-storey tower will be built by Grocon when the existing buildings are demolished. Other major works will be the vast East Darling Harbour project and Darling Walk, which is at the southern end of Darling Harbour on the former Sega World site.Mr Ujdur said with solid fundamentals there was enthusiasm for projects in central business districts. "Despite rising labour/material costs, higher borrowing costs and cycle-spanning lead times, many developers believe continuing strong rental growth will make these projects viable," he said.
© 2008 Sydney Morning Herald
