Meridiana in London

 

August 2009 – Meridiana in London

 

During the last week of July, company director Albert Castro and a small team from Meridiana made a trip to one of its core investment markets, London, UK.

 

The trip was organized so that the four person team could meet with a number of its UK based clients, business associates, investors and banks.

 

Each member took the time to meet with managers at international financiers such as Barclays Bank, DEKA Bank, Calyon Bank, and Deutsche Postbank. They also met with fund managers at Alpha Real Capital, LSI Management, Strategic Capital Solutions and WP Carey.

 

The trip allowed the Meridiana to obtain a deeper understanding of the economic environment within one of the world’s finance and real estate capitals. In additon, the team also wanted to achieve the following objectives:

 

1. To understand the investment appetite of its investor and bank contacts.

 

1. To re-inform its contacts of the Meridiana’s commercialisation capabilities, it’s competitive advantage and how the company may be useful during the start of the economic recovery.

 

The meetings also provided a platform to present some of the company’s portfolio and current investment opportunities.

 

The time is the city was informative and the the team was able to gain fresh insight and knowledge about current investment activity, speculative investments, and future markets.

 

The information obtained largely concurred with general economic news and items which may be obtained from the press and financial publications.

 

Investors are choosing to invest in mature markets, that are transparent and have good historic investment practice. London represents such a market with the focus here being on property revaluations and the profitablitity opportunities that this now presents. Prime locations and Class-A assets remain in demand and yield sizes of 7,5% or higher provide the optimal investment conditions. Long term investments with good clients are very important, they will be clients who have foreseeable trading and long term sustainability. The focus is on investor - client relationship.

 

In terms, of  new business opportunities, there are fund managers who may be studying up to 50 deals per week. They are attempting to locate opportunities that will add considerable value to their portfolios. But, even though they maybe actively studying such deals, their positive liquidity position allows them to pick and choose the only best opportunities. Therefore, if investors are not desperate to invest, they will only do so if the opportunity will bring value to the company.

 

 

Banks have since returned their traditional lending practices. For Calyon Bank, balance sheet lending has been a full comeback. Understanding the client, its business and its operations is paramount when they are considering a financing opportunity.  LTVs of 50 – 60% remain the safest ratio, in addition to lending at 6 – 7 ½ times the EBITDA . Some institutions may be even more conservative and consider lending at 8, 9, 10, or 11 times the EBITDA.

 

During the meeting with DEKA Bank, Director of Acquisitions, Mr Mark Titcomb, took time to explain the bank’s current appetite and its intentions for the remainder of 2009.

 

Although the economical outlook from DEKA was bleak they still have the appetite to lend and they continue to look for opportunities that will add value to their current portfolio.   

 

The bank is primarily involved in large property transactions within the office, industrial, logistic and possibly the commercial centers sectors.

 

Their investment focus, corroborates with the sector sentiment as both industrial and logistics, are areas which offer investors the advantages of a high yet stable income return. There is obviously less dependence on the a prospect of variable increase in the portfolio performance.

 

It was reported that earlier this year, Deka purchased the Sainsbury’s distribution warehouse at Enfield, London from Aviva from €73m (let on an 18.5 year lease).

 

In addition to this, CB Richard Ellis reported that there were also a number of large logistics transactions in the second half of last year, including the €28.5m acquisition of a logistics investment in Milton Keynes, UK let to a subsidiary of food manufacturers Cadbury until 2017.

 

Viewed in a longer term context, investment in industrial and logistics property in Europe is changing markedley. The sector shared in the rapid growth in turnover that took place in the period 2003-07. Over these five years, investment turnover in the sector rose by 170% from just under €7bn to nearly €19bn before declining in 2008. Despite this contractio, it still accounted for 10% of European real estate investment last year, up from around 7% in the three years 2005 – 07.

 

CB Richard Ellis also noted the following value changes and drivers within the industrial and logistics sectors:

 

• A number of major markets including Madrid, Vienna, Milan and Stockholm have seen increases of 125 basis points or more.

 

• The main German markets have so far seen relatively  little change.

 

• On some of the larger larger and more mature marktes such as London, Paris and Barcelona yield have increased by 200 basis points or more.

 

These movements have left yields in a number of key markets at or close to their highest levels in the post 2000 period. Munich, Vienna, Amsterdam and Stockholm are within 50 basis points of their previous highs while yields in London and Barcelona area as high as they have been at any point in this decade.

 

The news obtained from DEKA echoed alot of the recent interest, current activity and future investment strategy of many players within the industrial and logistics sector.

 

For the Meridiana team, it was good to learn that the market is showing some signs of life. The team met with banks and investors who are not only actively looking for opportunities but also have the liquidity to invest now. Whereas 12-24 months ago such investors would have been priced out of entering certain locations, the dramatic decreases in property values now present the opportunity to penetrate market locations and sectors. This is present the opportunity to acquire prime assets at discounted prices or adding a trophy asset to ones portfolio.

 

Like DEKA’s long term investment in Sainsbury’s distribution warehouse. The market is now presenting some interesting distressed opportunties.

 

Meridiana’s next trip to London will take place in October 2009.  

CEE Retail Market: Concept of Sustainability

From 22nd to 24th April 2009, Meridiana took the opportunity to show its presence at one of the biggest conferences for Retail Shopping Centres worldwide. The ISCS conference took place this time in Barcelona and presented some very interesting trends of the real estate and retail shopping markets. Event attendees were able to obtain new market knowledge, listen to the showcase about future markets trends or simply to network with potential contacts.

 

The overall feeling about the current market was not very optimistic. The financing of big retail shopping centres depends strongly on old established contacts, the right tenants and the right asset. Location, quality, securities (less risk) are the key elements to closing a deal during this time. The desired yield for retail properties in the UK in 2007 was around 17.5%. Now we are talking of 6.4% in 2008/2009, a percentage changes of 63%. In Germany, there was not that much change but figures decreased by 21% from 6.8% in 2007 to 5.4% in 2008/2009. The big opportunity is seen by the majority of the investors in the diversity of risk through a large number of tenants and in less saturated markets.

 

On the other hand, the majority of the speakers look to the future very optimistically. The main future trend for retail properties is the concept of sustainability and the comeback of lifestyle shopping centres in the city centres.

 

Concept of Sustainability

 

The biggest future trend will be the development of environmentally sensitive  buildings. Recycling, energy efficiency and proximity to public transportation are also some of the most important aspects for retail centres in the future.The future will bring energy problems, climate issues and the expansion of communication channels.

 

Therefore, the opportunity will be in the upgrade of the old shopping centres in regards to water use, waste disposal, lighting and climate control. The new links of public transportation are also of high importance. What is the big advantage? The upgrade of the old shopping centres can reduce operating costs and offer increased  tax incentives. There is also the prospect of a higher resale value at which time higher rents will be justified. Now it is possible to brand your shopping center as a new commodity because of its added value.

 

Lifestyle Shopping Center in prime locations (City Center)

 

The increase in the amount of online shopping, is very important when retailers are trying to attract and entertain its target audience. The objective is for the consumer to spend more time and money in the shopping centre. The idea is the creation of a fun interactive shopping centre concerning music, visualisation and individualisation. The company Apple stands out for their outstanding interactive digital entertainment stores. The Shopping Centres of the future are destinations to meet, they are community oriented places, social centres designed to be relaxing. Therefore, the integration of    non-retail elements is highly required, for example, Food courts, quality restaurants, cinemas, theatres, art galleries, nightclubs, and child friendly locations for the entertainment. Sport facilities, green parks, landscapes, water features, modern lighting and furniture designed for relaxation. There should be hotels, offices and apartments present to guarantee activity over evenings, during the week and on the weekend. Therefore, the new trend is to entice people to come back to the city centre, attracting users with its mixed use ability.  There is the belief that high street retailing will once again be booming. Prime examples, of this new type of Shopping Centre innovation and competence are the shopping centre in Liverpool, Liverpool One or the new shopping centre in Lisbon, Portugal. The idea is that the revitalisation of the city image: regeneration, modern centre, cultural places and public spaces to possibly attract increasing numbers of investors.

 

Potential Markets

 

Some of the most exciting markets for retail properties are located in Russia,   Germany, Spain and UK. By the end of 2009, 5,6 million m2 (vacancy less 1%) additional space are planned by the end of 2009. There are also some very interesting shopping outlets. Germany can offer 1.09 million m2 by the end of 2009 with Spain and UK both offering 1 million m2.But the main source of growth during the next 5 years will be found in the emerging     markets of India, Malaysia, Russia and the Ukraine.