9.8% total return for Commercial Real Estate in 2011

Commercial Property has delivered a return of 9.8% globally in 2011, Please read article below for the full story...

Global commercial property delivered a 9.8% total return in 2011; Irish returns in Q1 2012 were at 0.6%

Relevant economics of the past week (for intermediaries)

- Tesco, the world's third-biggest retailer by sales, has priced the initial public offering of its Thailand property fund at Bt10.4 per unit, at the top of an indicative range, according to people involved in the deal, the FT reports. The IPO is set to raise Bt18.4bn ($602m), which would make it Thailand's largest property fund and its biggest offering since Rayong Refinery's $710m listing in 2006.

- UK manufacturing performance was 'good in parts' in February. The Purchasing Managers' Index (PMI) survey of UK manufacturing showed that the sector expanded for the second month in a row, but the rate of growth slowed. Factory production increased, leading to a rise in employment, but this is due to work on backlogs rather than new orders. Less good news is that UK domestic demand is still low and the boost from better exports to
Asia and the US has been offset by poor Eurozone demand for UK goods. News on prices wasn't good either. The surge in oil prices caused input prices to rise at their fastest monthly rate in over 19 years.

- UK housing market data were stronger. The price of a typical house in the UK increased by 0.6%m/m in February, which brought the annual rate of growth up to 0.9%. This may seem at odds with the current difficult
economic conditions, but it concurs with other recent data. Mortgage approvals for house purchases reached their highest level in more than two years in January, up 36%y/y. Some of this is due to particularly weak levels
in January 2011, but the improvement in prices and approvals is more likely
due to activity brought forward to beat the end of the stamp duty concession later this month.

- Eurozone banks were eager to take up the ECB's second dose of long-term funding. 800 banks took advantage of the ECB's liquidity operation, compared with 523 in December, as collateral rules were loosened.
The move has reduced tensions on bond yields in the most vulnerable countries. But it's unlikely ECB Chairman Mario Draghi will offer another dose. He is eager for banks to begin to operate 'normally' again by borrowing from each other. Jitters about bank solvencies in the face of the sovereign debt problems are preventing this happening at the moment.

- Inflation increased and Eurozone unemployment reached a record high rising 10.7% in January. Spain is suffering with an unemployment rate of 22.3% and a youth unemployment rate just under 50%. And Eurozone
inflation rose to 2.7% in February up from 2.6% in January. Oil is the main culprit as prices rise because of increased political tensions in the Middle East. This remains as another threat to economic recovery, in the Euro and globally.

- Savills expands list of property lenders - Savills today names 21 active "bigger ticket" property lenders, an increase of two in the last six months. The firm said the named lenders had completed at least three deals of more than £30m over the last six months or were well advanced in doing so. The four new entries to the list are AIG, Citigroup, Deutsche Postbank and Lloyds Banking Group, while Aareal and Eurohypo have disappeared.
Savills' list includes all the UK clearing banks (Barclays, HSBC, Lloyds and RBS), eight German banks and five insurance companies, AIG, Aviva, Axa, MetLife and M&G Investments. Other emerging insurance or life companies are Canada Life and Legal & General. William Newsom, Savills' UK head of valuation, said: "There is no shortage of organisations seeking to provide both senior debt and mezzanine. However, the real issues are firstly that lenders are very selective, and, secondly, tighter lending terms. "Of the lenders listed, they are looking to provide finance to selected borrowers with track record, secured against good quality commercial investment
properties, let to strong tenants on long term leases in good locations, preferably located inside the M25." Savills confirmed that loan to values had fallen over the past eight months and interest rate margins had increased by 100 basis points to 325 basis points for prime investment. Loan-to-value ratios against prime investment are around 55-60% with some banks having difficulty lending above 50%. Savills also identifies a further 50 senior debt providers, who are active at the small and medium-sized ends of the spectrum, and 30 providers of mezzanine finance. "The number of lenders in the market is encouraging to see, but the further reduction in loan to value ratios means that borrowers may increasingly access the mezzanine market in order to bridge the funding gap," Newsom added. The 21 bigger ticket lenders are: AIG, Aviva, Axa, Barclays Bank, Bayern LB, Citigroup, Deka Bank, Deutsche Bank, Deutsche Hypo, Deutsche Pfandbriefbank, Deutsche Postbank, Helaba, HSBC, ING REF, Landesbank Berlin, Lloyds Banking Group, Met Life, M&G Investments, Royal Bank of Scotland, Santander

- UK regulators and global banks are discussing a potentially far-reaching overhaul of the calculation and regulation of interbank lending rates, amid claims that the benchmark for $350tn contracts worldwide may have been subject to manipulation

- Lloyds Banking Group is lining up its second loan sale in the space of six months, PropertyWeek.com can reveal, with a £600m portfolio being put together. A sale would come on the back of the successful disposal
of £923m of loans to Lone Star in December, the Project Royal portfolio. Lloyds has not yet given the final green light to the sale, but is understood to be working with adviser JP Morgan Cazenove, which handled the
Royal sale, to decide which loans to put into the portfolio, in a process some in the market are calling Project Launcelot. A sale would be part of the range of options being considered by Lloyds to reduce its property
exposure. It is understood that this portfolio will eventually total around £600m, and that the loans will have similar characteristics to those in the Royal portfolio, where the average lot size was around £4m, and the loans
were secured against office, retail and industrial properties around the country. If the Launcelot portfolio does come to market, it will likely be bought by one of the large US private equity firms which have raised tens of
billions of dollars of equity to buy loan packages. The final two bidders on Project Royal were Lone Star and Cerberus Capital Management, both of which are looking to step up their European distressed loan acquisitions.
Blackstone has also recently set up a new division, Blackstone Real Estate Debt Advisers, to manage the £1.4bn Isobel portfolio in which it bought a stake from Royal Bank of Scotland last year, alongside other loan portfolios
Blackstone is looking to buy. It is expected that Launcelot will be the last UK loan portfolio sale undertaken by Lloyds in the medium term, because it will then have exhausted the type of loan which can be packaged up and sold. Loans that can be sold in a portfolio need to have a certain characteristic, such as no change of control covenants and minimal swap liabilities. Lloyds has a portfolio of more than £21bn of loans that are managed by its business support unit, headed by Richard Dakin, that need to be restructured or sold. Last year Lloyds achieved the difficult task of reducing its property exposure by £13.5bn to £68bn while at the same time nearly halving its losses on property to £1.3bn. This process was partly due to loan sales like Royal. Lloyds sees the Royal sale as a success, having sold the portfolio completely, without providing vendor finance, at a discount of around 40% in a process that took roughly six months. But it is thought that it is not wedded to the idea of a loan portfolio sale, having used other workout strategies in the past three years such as putting together portfolios of
assets for sale, and setting up platforms to asset manage properties over the longer term.

One Hyde Park: £60m apartment sold and luxury retail on the market

One Hyde Park: £60m apartment sold and luxury retail on the market

6 February 2012 | By David Doyle.

One Hyde Park's last five bedroom apartment has been sold, bringing the
total volume of sales in the London luxury residential scheme to more than
£1.5bn.


The five bedroom apartment, the largest size beneath penthouse, sold to an
unnamed buyer at the end of last week. Another £40m of apartments are also
said to be under offer.


It is the last of eleven five-bedroom apartments, which are almost 9,000 sq
ft in size, to be sold in the scheme.

At the same time Project Grande, the joint venture between the Prime
Minister of Qatar's Waterknight's and Christian Candy's CPC, has bought the
last retail unit in the development to the market.

The unit, which is the first UK premises for Abu Dhabi Islamic Bank, is
being marketed by Savills for in excess of £21m, a net initial yield of
3.6%.

Project Grande said the yield is predicted to rise to 4.35% and 4.99% with
indexed rent reviews. The property is let for 14 years off an annual rent of
£800,000.

One Hyde Park's other retail units, let to Rolex and McLaren, were sold for
more than £13m and £11.5m respectively, reflecting yields of 2.91% and 3.3%.

Rising Investment In French Commercial Property

During the final three months of 2011, France recorded its highest commercial property transaction volume since the third quarter of 2007.

Figures released by CB Richard Ellis (CBRE) revealed that investment in French commercial real estate climbed by 65 per cent between the third and fourth quarters of last year.

In total, €6.5 billion (£5.4 billion) was transacted between October and December 2011, making it the second most popular market in Europe after the UK.

The CBRE report stated: "Investment activity in France was heavily biased towards the Paris office sector and included large portfolio and single-asset deals."

According to the Savills European Office Markets bulletin released in autumn last year, yields for Parisian offices stood at just over five per cent in the third quarter of 2011.

The organisation noted that both demand and rents were on an upward trend at this time, while the supply of such real estate assets in the French capital was falling.

Head of Europe, the Middle East and Africa capital markets at CBRE Jonathan Hull stated that data from the final quarter indicates France, along with the UK, Germany and the Nordic nations, "are key to core strategies" among investors.

Foreigners Snap Up Swiss Property - WSJ.com

By GORAN MIJUK

ZURICH—With average house prices nearing 800,000 francs, the Swiss residential real-estate market continues to boom. Market participants say there is no end in sight as cash-rich Europeans and Russians keen to protect their assets fuel demand.

"I'm getting calls from Greek investors almost every day who want to buy a house here," says Robert Ferfecki, managing director for Sotheby's International Realty Inc. in Zurich, who is selling luxury homes in the German-speaking areas of Switzerland, including Zurich and Lucerne.

"Had Switzerland no restrictive property laws that limit what foreigners can buy, I would probably be able to sell my portfolio within a week," Mr. Ferfecki says, noting that Germans and Britons are the top buyers.

Unlike property markets in the U.S. and many European countries, which are still smarting from the 2008 housing collapse, prices for all categories of Swiss real estate have risen steadily over the past three years, according to consultancy Wuest & Partner AG.

Prices for family homes, for example, have risen some 20% since 2008 to an average of 780,000 francs, or $830,000, the consultancy says. Also boosting the market are record-low mortgage interest rates, which hover at 2.7%, after the Swiss National Bank cut its key interest rates close to zero last summer.

Fanning the boom is a steady influx of foreigners attracted by the strong economy, Wuest & Partner says. Over the past four years, Switzerland has seen a net influx of about 330,000 foreigners, according to the national homeowners' association, HEV Schweiz.

Most are highly skilled workers from Germany, the U.K. and France, who are drawn by Switzerland's strong job market. Unemployment was 3.3% in December.

Mr. Ferfecki of Sotheby's says the financial crisis has also triggered interest from cash-rich Europeans and Russians, who want to park some of their assets in Switzerland to shield themselves from a potential breakup of the euro zone and benefit from the country's stability, as well as its low taxes, which can be less than 10% of a person's income.

In recent years, billionaires from the former Soviet Union, including Coalco Metals Ltd. owner Vasily Anisimov and Viktor Vekselberg, chairman of commodities company Renova Group, have moved to Switzerland. Dinara Kulibayeva, the daughter of Kazakh President Nursultan Nasarbeyev, reportedly paid 74.4 million francs for a villa at Lake Geneva in 2009.

"What really makes these people come to Switzerland isn't just the low taxes, but the quality of life and the stable rule of law," Mr. Ferfecki says. "They don't need huge security and can go shopping without being recognized."

But because Switzerland's property laws are restrictive for non-resident foreigners—only about 2,000 homes can be sold to non-residents every year—foreign investors who are unwilling to live in Switzerland but want to benefit from the market's strength have started to build up investments in Swiss real-estate funds and property companies.

Shares in Swiss funds such as PSP Swiss Property AG, Swiss Prime Site AG and Mobimo Holding AG, which own residential and commercial real estate in Switzerland, have sharply outperformed the Swiss stock market. Stocks overall have lost more than 7% over the past 12 months, while property stocks have gained between 1% and 4%.

"What our international investors like about us is the fact that we are a pure Swiss play," says Luciano Gabriel, chief executive officer of PSP Swiss Property. "Since we have no operations outside Switzerland, our business depends on the Swiss economy and investors have an almost pure Swiss franc investment that isn't linked to other risks." Because of the international interest, Mr. Gabriel says, PSP holds annual investor events in the Netherlands, the U.S. and the U.K.

This investor demand, coupled with Switzerland's still sound economic outlook—the government expects the economy to grow by 1.9% in 2013 after moderate growth this year—prompted Mobimo to seek 200 million francs in fresh capital last month to finance new projects. UBS AG and fund manager Swisscanto Holding AG both recently raised money for their respective Swiss real-estate-fund businesses, financing new projects in the country and spurring a building boom.

According to the Swiss government, real-estate projects worth 63.7 billion francs were launched last year, the bulk financed by private investors. This is up 3% from 2010, when 61.92 billion francs' worth of projects were planned.

"We are certainly in a boom phase," says Thomas Vonaesch, head of real-estate fund management at Credit Suisse Group, which controls around 14.4 billion francs of real-estate assets. "And demand is expected to remain sound as the financial environment with low interest rates is expected to drive demand."

UBS's Swiss Real Estate Bubble Index, which tries to measure signs of the market overheating, rose in the third quarter but showed no sign of a bubble, according to the bank. Bank Vontobel real-estate analyst Stefan Schuermann says prices will continue to rise "as investors have nowhere else to go."

He argues that Switzerland's housing market won't go the way of that of the U.S., as mortgages are usually backed by a 30% deposit. "This makes this market safe and price development stable," he says.

Write to Goran Mijuk at goran.mijuk@dowjones.com

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