European Real Estate Debt

ERES 201024th June 2010

Iryna Pylypchuk, Associate Director, EMEA Research & Consulting, CB Richard Ellis

Investment market turnover in Europe

€ Million

Source: CB Richard Ellis, Property Data, KTI

0

25

50

75

100

12/29/95August-9707/16/98 10/21/99 01/29/01 05/13/02 08/19/0311/22/2004February-06

November-07

09/16/200812/22/2009

4.5

5

5.5

6

6.5

º

The “Perfect Calm”

Oct 97Asian Debt

Autumn 98Russian Bonds

Sept 019/11

Aug 02Enron

2000/1Dot Coms

VIX (Daily Close) and CBRE EU-15 Office Yield

Source: CBOE VIX (21st May 2010), CB Richard Ellis

Sept/Oct 08Lehmans &

Banking Crisis

VIX Prime Office Yield (%)

96 97 98 99 00 01 02 0703 04 05 06 08 09 10 11

Mid 07Sub-Prime

Lending drives values … drives lending … drives values!

0

50

100

150

200

250

300

350

2001 2002 2003 2004 2005 2006 2007 2008 2009

90

100

110

120

130

140

150

160

European Debt Lending

EU All Property Capital Value

Source: CB Richard Ellis, De Montfort University

New lending/refinancing, € billion

Year of loan origination

Capital Values (Index, 2001 = 100)

Bank Lending to UK Real Estate

0

50,000

100,000

150,000

200,000

250,000

Mar

-94

Mar

-95

Mar

-96

Mar

-97

Mar

-98

Mar

-99

Mar

-00

Mar

-01

Mar

-02

Mar

-03

Mar

-04

Mar

-05

Mar

-06

Mar

-07

Mar

-08

Mar

-09

Mar

-10

3%

6%

9%

12%

15%

18%

Lending to real estate, amount outstanding £m (LHS)

Proportion of all bank lending

Source: Bank of England

Only includes banks required to report to the Bank of England

£ million

European CRE debt maturity profile

€970 billion of debt maturing in the next 10 years Almost half in the next three years alone

€ million

Source: CB Richard Ellis, De Montfort University

Germany24%

Rest of Europe

42%

UK34%

Total Size: €970 billion

European Commercial Real Estate Debt

Source: CB Richard Ellis

Outstanding European Commercial Real Estate Debt

Source: CB Richard Ellis, De Montfort Study

€ Billion

Year of Loan Issuance

By Year of Issuance

Long-term Debt (post 2015 maturity),

€258 billion, 27%

Poor Quality Property,

€207 billion, 21% Good Quality Property High

LTVs, €185 billion, 19%

Good Quality Property Low

LTVs, €185 billion, 19%

Old Debt (pre 2005 issuance),

€130 billion, 14%

Total Size: €970 billion

Outstanding European Commercial Real Estate Debt

Source: CB Richard Ellis

Segmentation of European Commercial Real Estate Debt

€ Million

Source: CB Richard Ellis

European CRE debt maturity profile

0

25,000

50,000

75,000

100,000

125,000

150,000

175,000

200,000

2010 2011 2012 2013 2014 2015 2016 Post 2017

UK Germany Rest of Europe

€970 billion of debt maturing in the next 10 years Almost half in the next three years alone

€ million

Source: CB Richard Ellis, De Montfort University

Debt Market Outlook: Lengthy Workout

• Large backlog of un-refinanced debt

• Over €200 bn of the most troubling category

• High initial LTV, Poor quality property

• Support mechanisms will prevent a flood of distressed property, but…

• Unwinding of bank positions will result in a steady flow of secondary property on to the market

Question 6 – “Which of the following poses the greatest threat to the emerging European property market recovery?”

32%

20%

17%

13%

8%

4%

4%

3%

0% 5% 10% 15% 20% 25% 30% 35%

Property has becomeoverpriced

Development/vacancy

Forced sales bybanks/others

Interest raterises/inflation

Shortage of debtfinance

Government fundingdeficits

Weak occupier demand

'Double dip' economicrecession

Percent (n = 271)

Source: CB Richard Ellis

European Real Estate Debt

ERES 201024th June 2010

Iryna Pylypchuk, Associate Director, EMEA Research & Consulting, CB Richard Ellis