Retail Investment Market - JLL Investment Market Is the Party Over? Robin Coady Director, Retail...

Retail Investment MarketIs the Party Over?

Robin CoadyDirector, Retail InvestmentJones Lang LaSalle

Investment Market

Some BAFTA Awards

Sub PrimeNINJA MortgagesCollateralized Debt Obligations (CDO’s)SIV’s, Super SIV’s & SIV LitesCredit Default SWAP’sMonoline InsurersMaster Liquidity Enhancement Conduit

Defining Events of 2007

Collapse of Bear Stearns Hedge FundsBoots leveraged buy outMoney market freezeNorthern RockCitigroup rescueCo-ordinated central bank bail-out2008More Bank Losses, World equity markets slide, Fed rate reduction, Soc Gen, US Fiscal Stimulus package

Retail Investment Market 2007

-10.0

-5.0

0.0

5.0

10.0

15.0

20.0

25.0

30.0

Dec-

02

Mar-0

3

Jun-

03

Sep-

03

Dec-

03

Mar-0

4

Jun-

04

Sep-

04

Dec-

04

Mar-0

5

Jun-

05

Sep-

05

Dec-

05

Mar-0

6

Jun-

06

Sep-

06

Dec-

06

Mar-0

7

Jun-

07

Sep-

07

Dec-

07

All Property Retail

12 Month Total Returns

16%

-5.5%

IPD All Property - 16% June 06 – June 07

Q1 & Q2


-10.0

-5.0

0.0

5.0

10.0

15.0

20.0

25.0

30.0

Dec-

02

Mar-0

3

Jun-

03

Sep-

03

Dec-

03

Mar-0

4

Jun-

04

Sep-

04

Dec-

04

Mar-0

5

Jun-

05

Sep-

05

Dec-

05

Mar-0

6

Jun-

06

Sep-

06

Dec-

06

Mar-0

7

Jun-

07

Sep-

07

Dec-

07

All Property Retail


16%

-5.5%

IPD All Property - 16% June 06 – June 07Shopping Centre's £2.325bn (up 6.5% on 2006)Some huge prime deals

Metro Centre (£426m), Telford (£442m), East Kilbride (£387m), West Quay (£294m), Canterbury (£253m), Westfield Portfolio (£380m).

Overseas dominated – GIC, CPP, ABP, ApolloOOT Retail £2,737Bn (up 55% on 2006)Cracks appearing – Single bids, secondary, failing dealsIPD predicted Total Return of 8% for year end.

Q1 & Q2


-10.0

-5.0

0.0

5.0

10.0

15.0

20.0

25.0

30.0

Dec-

02

Mar-0

3

Jun-

03

Sep-

03

Dec-

03

Mar-0

4

Jun-

04

Sep-

04

Dec-

04

Mar-0

5

Jun-

05

Sep-

05

Dec-

05

Mar-0

6

Jun-

06

Sep-

06

Dec-

06

Mar-0

7

Jun-

07

Sep-

07

Dec-

07

All Property Retail


16%

-5.5%

IPD All Property - 16% June 06 – June 07

Q1 & Q2

The music stoppedYields moved out for all sectors!! Large lots in market

Kingston, Centre.mk, Midsummer Place, MK; Crawley, Ealing.

Retail Investment Market 2007, Q3 & Q4,



Shopping Centres DealsQ1 & 2 ‘07, £2.325Bn (+ 6.5% on 2006)Q 4 ‘07, £0.733Bn (- 69% on 2006)!


Shopping CentresMonthly Transaction Value 2005-2007

0

200

400

600

800

1000

1200

1400

1600

1800

2000

Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec

Valu

e of

Tra

nsac

tions

200520062007

Shopping Centres



Shopping Centres DealsQ1 & 2 ‘07, £2.325Bn (+ 6.5% on 2006)Q 4 ‘07, £0.733Bn (- 69% on 2006)!07 54 no £4.76Bn (-23% CV, -34% no)


Capital Values and Number of Transactions 1995-2007

0.00

1,000.00

2,000.00

3,000.00

4,000.00

5,000.00

6,000.00

7,000.00

8,000.00

9,000.00

10,000.00

1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007

Value (£m)

0

20

40

60

80

100

120

140

160

Number of Transactions

Value of all transactions (£M) No. of transactions

Shopping Centres



Shopping Centres DealsQ1 & 2 ‘07, £2.325Bn (+ 6.5% on 2006)Q 4 ‘07, £0.733Bn (- 69% on 2006)!07 54 no £4.76Bn (-23% CV, -34% no)

OOT Retail Deals Q1 & 2 ’07 £2.737 (+ 55% on 2006)07 90 no £3.2Bn ( -33% CV, -41% no)Q4 ’07 £0.753Bn (-70% CV -57% no)


Retail Investment MarketThe Banks

New loan origination Lending to very best clientsLimited syndication & no CMBS market / Securitisation.Margins increased to c.110 -140bpLTV 80-90% 65-75% = equity requirementAmortisationEmphasis on covenant strength / expiry profilesInterest cover 110% -130%Arrangement fees c 75 -100bpShying away from larger lot sizes and equity release

“Compounding is the most powerful force in the universe”Albert Einstein

The Lenders Conundrum

4.0

4.5

5.0

5.5

6.0

6.5

7.0Se

p-06

Oct-0

6

Nov-

06

Dec-

06

Jan-

07

Feb-

07

Mar-0

7

Apr-0

7

May-

07

Jun-

07

Jul-0

7

Aug-

07

Sep-

07

Oct-0

7

Nov-

07

Dec-

07

Jan-

08

% 3 m LIBOR10yr Gilt 5yr Swap

LIBOR De-couples

Base rate

Still de-coupled

3.50%

4.00%

4.50%

5.00%

5.50%

6.00%

6.50%

7.00%

7.50%

Jan-0

5

Mar-05

May-05

Jul-0

5

Sep-05

Nov-05

Jan-0

6

Mar-06

May-06

Jul-0

6

Sep-06

Nov-06

Jan-0

7

Mar-07

May-07

Jul-0

7

Sep-07

Nov-07

Jan-0

8

Regional Dominant

Town Centre Dominant

Secondary Centre UK 5Yr SWAPSPrime ShopsOOT parks - Open A1 Planning UseOOT parks - Restricted Planning Use

Retail Consensus Equivalent Yield Trends

-22%

-17%

-5%

-23%

-11%

-16%

2007

3

4

5

6

7

8

9

10

1995

Q1

1995

Q3

1996

Q1

1996

Q3

1997

Q1

1997

Q3

1998

Q1

1998

Q3

1999

Q1

1999

Q3

2000

Q1

2000

Q3

2001

Q1

2001

Q3

2002

Q1

2002

Q3

2003

Q1

2003

Q3

2004

Q1

2004

Q3

2005

Q1

2005

Q3

2006

Q1

2006

Q3

2007

Q1

2007

Q3

2008

Q1

Initial Yield Trend (IY) Swap5 Trend (swap5)(%)

Shopping Centre Average Initial Yields v 5 Year Swap Rates

Positive yield gap opens

Yield curves cross! Q2 06

Q1 ‘08

Reverse yield gap

5% 5 yr swap

6% in

7 – 7.5% in

Yield gap closes

Retail Investment MarketContext

There is a market - Deals are still happening / DD much slower The phones are quiet but growing requirementsVolumes downCorrection still taking place

- valuations not yet fully reflective but value returningOff market discussionsThose with known money seeing numerous opportunities

Shopping Centres – Selective opportunities and lot size, No prime or large lotsOOT – Market very slow, very selective. Yield opportunitiesShops – 5% + but few deals, portfolios busy, auctions found levelSupermarkets – requirements RPIIndirect vehicles– No market , large discounts available

Retail Investment MarketWho are the Buyers?

Type of Purchaser - by Capital Value 2007

42%

3%

3%

10%

39%

1%2%

Private PropertyCompanyInstitution

Public PropertyCompanyN.Irish

S.Irish

Bank

Overseas

Shopping centres

Retail Investment MarketWho are the Buyers?

UK Life Funds 5% - Net disinvestment a continuing trend

Unit linked 5% - Under most stress – redemptions

Plc Prop Co 3% - Significant discount NAV – Buying dilutive

Privates 45% - Roy England, Andrew Creighton, Propinvest

Overseas 43% - Redevco,GIC, Australians, Canadians, Germans

Opportunity - Resolution, Delancey, REIT, Catalyst, UKV, etc

Retail Investment MarketIssues to consider

Large lots £100m +…..very difficult.Leasehold gearingsRent Guarantees, Vacant rates, Legal / Physical impedimentsCovenant strength, expiry profilesControl – who has it?Asset management and the costs of ownershipCompeting developmentsCorrection still taking place. The desire or need to sellPolarisation of investor views

Retail Investment MarketSpeedbumps?

Frozen lending marketsInflation?Interest rates ? Or ?Economy and retail sales The internetConsumer debt in UKHousing market ?Corporate shock….another Northern RockAlternative high yielding opportunities for capitalProperty casualtiesSupply of new shopping centre stockConstruction costs

Retail Investment MarketThe Positives

Retailer take up and requirements still active Consumers are still spendingMarket more transparentExtent of correction feeding through quickly5 yr SWAP rates are down to 5% from 6.5%, Q3, 07Property traditionally a great inflation hedgeLarge and growing pool of capital – domestic and overseasCould this be the best buying opportunity for the last 5 years?

Where from here?Recovery

Economic stability / growthInterest Rates (5yr Swap at c4.9%)

Liquid banking sectorContinued consumer spending

Soft LandingStable but flat economyModest inflation and rate cutsRobust retail performanceSlow but cautious lending

Further SlippageUS & UK recessionHigher than expected inflationUnemployment risingInterest rates held or riseFailing retailersNegative rental growthFailing property companies / Insolvencies

About here!

“ Be greedy when others are fearful” Warren Buffett

Retail Investment Market - JLL Investment Market Is the Party Over? Robin Coady Director, Retail...

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