Birmingham’s Mailbox development could be facing significant change over the coming years, owners Brockton Capital have hinted.
Speaking at a meeting of the Investment Property Forum at Barclays’ Latitude Club in Snowhill, David Zimmermann, a partner in the private equity real estate investor, accepted: “The capital structure was completely broken when we bought the estate.
“We bought it at a level that reflected the good underlying income in part of the building which we were able to leverage off. We also saw great upside in the flexibility of the space and new uses and occupiers that could be added.”
Brockton Capital was not averse to risk where it could see an opportunity and commensurate returns, said Mr Zimmermann.
He added: “Walk through the Mailbox and you will see what is good about it. Walk through the shopping part and you will see what needs to be fixed.”
Questioned after his speech about Brockton Capital’s vision for the Mailbox, Mr Zimmermann said a plan has been formulated but the company was not going to launch publicly, but start implementing changes which the public would notice over time.
Asked whether the building and its constituents were likely to remain the same physically, he remarked: “Unlikely.”
Mr Zimmermann told the meeting that opportunities still existed in tough times, but emphasised: “We are pickier than we were before. For us it is all about the real estate fundamentals on an investment.”
The days when office towers could be bought “with zero equity” at 100 per cent loan to value were well and truly gone, with values down more than 30 per cent from their peak.
And he warned that some operators who had done well in the good times “might never see it quite as good again”.
Mr Zimmermann said banks continued to be under “enormous pressure”, particularly with increased regulation.
He voiced his concern at the Financial Services Authority’s intention to introduce a “slotting” regime, risk-weighting for income-producing real estate loans under the Capital Requirements Directive.
And he cautioned that some regulators appeared to want to “punish” the sector for all that had happened.
“They are effectively chopping the banking sector off at their knees.”
Tony McGough, global head of forecasting and strategy research at DTZ, said the sector should not rely on overseas investors to come to the rescue.
Outside London, many international investors knew about Manchester, for example, because of the football connection, and to some extent Birmingham and Edinburgh, but that was about it. They also generally look for large lot sizes and noteworthy investments – big shiny buildings.
“Consequently, the regions are a hard sell internationally,” he stated.
As to the banks’ attitude to further extending troubled loans, Mr McGough suggested many were still “hiding” their losses, hoping against hope something would change to improve the situation. But the issues surrounding such loans “could not be put off for ever”.
Of the debt overhang, he suggested secondary property could prove a major worry even after prime had eventually been sorted out, which would itself take time.
Pam Craddock, research director at the Investment Property Forum, set the scene in the UK by briefing members on the results of the Lending Intentions Survey the IPF conducted at the start of the year. This indicated around £34 billion to be the likely amount of capital that could be made available for senior debt lending in 2012 by the 30 organisations that contributed. However, appetite to lend is being constrained by increased regulation in the banking sector, as well as being adversely affected by the continuing uncertainties in the Euro-zone.
The recently released De Montfort University survey, UK Commercial Property Lending 2011, estimates the level of property debt secured against UK commercial property to be approximately £299 billion in total, with £153 billion due to mature by the end of 2016.
For 2012, around £51 billion worth of loans will be maturing and a further £3.54 billion of commercial mortgage-backed securities. Applying the De Montfort analysis, with 20 per cent of total debt at loan to value ratios above 100 per cent and a further 20 per cent lying between 70 per cent and 100 per cent, plus the fact that the banks will only lend up to between 59 per cent and 64 per cent against prime assets, this suggests more than £20 billion of the 2012 total is incapable of refinancing on current market terms.