LaSalle: Nordics become more attractive for investment

LaSalle Investment Management recently published their annual European Regional Growth Index (EREGI), which seeks to rank the best cities for real estate investment opportunities.  The Index is a function of quantitative and qualitative macroeconomic and business factors.  The key inputs are broken down into three categories:  growth, wealth and business environment.  Alongside common metrics such as GDP growth are more detailed factors such as R&D as a % of GDP and EU participation.

Of the 98 cities ranked in the index, the top five were Munich, Paris, Stockholm, Oslo and Luxembourg.  The surprising change in this year's index is the fall of London--historically ranked at the top of the Index--to the #8 spot.  In this market, the general sentiment seems to point to London as the best opportunity for real estate investment in Europe.  

The Nordics continue to gain in the Index, with Stockholm moving up one spot to #3 and Oslo moving up 5 spots to #4.  The region clearly scored well based on their relatively strong performance during the financial crisis and high concentration of wealthy and highly-skilled workers in the capitals.  Despite weaker exports in the Swedish economy, Stockholm remains strong due to its relative importance to the region.  Oslo, on the other hand, is the core to the Norwegian economy, which is buoyed by the country's oil reserves. 

A detailed summary of the EREGI can be found on LaSalle's website here.

UK Farthest into the Downturn Cycle (Partners Group)

A new report out from Partners Group clearly outlines where along the economic cycle they perceive the worlds largest economies.  The report (available in PDF here) separates out three phases of declining economic activity:  early downturn, when the market is deteriorating and indicators do not yet show widespread distress;  advanced downturn, when participants know the market is in a correction and credit is scarce; and late downturn, when the transaction market shows signs of life and many uncertainties about price levels are eliminated.

The only economy in the "late downturn" category is the UK, where cap rates are at historical highs and many opportunities to purchase relatively safe properties are available.  In the "advanced downturn" category, they place the USA, France, India and Japan.  Ireland and Spain, however, are in the "early downturn" phase, indicating that much more distress may be around the corner for these economies. 

According to the report, identifying the stage of downturn should help investors select the appropriate strategy.  In the early downturn stage, investors should sell their assets (if possible) or position their portfolio to avoid a distressed sale later.  In the advanced downturn stage, investors are likely to find the best opportunities in the debt and secondary equity markets.  Only when an economy reaches the late downturn stage should investors consider making pure equity investments in properties.

Mid-Year Fundraising Update from Preqin

Preqin recently released their mid-year report on real estate private equity fund raising efforts.  The second quarter of 2009 saw the weakest activity since 2004 with 21 funds closing with a total of $10.3 billion.  This is a massive drop from the levels seen in the second quarter of 2008, when private equity real estate funds raised $37 billion.  So far in 2009, funds have raised $26.3 billion, down from $69 billion in the first half of 2008 and $57 billion in the first half of 2007.

To compensate for the lower fundraising activity in the market, fund managers have begun to adapt by implementing interim closes to lock in investors yet keep options open for future capital raising later.  Of the 374 funds on the road, 138 have already had interim closes.  It's worth noting that the fundraising figures above only include final closes, not interim closes.

Distressed and debt investing is a very popular theme in the real estate private equity market today, with 134 of the 374 funds in the market focused on this strategy. 

Capital raising activity in funds targeting Asia and Rest of World accounted for 25% of all real estate private equity fundraising in 2008, but so far in 2009 funds targeting this geography account for only 9% of capital raised.

Overall, fundraising is expected to increase in the medium to long term.  According to Preqin's survey, a "significant number" of investors plan to return to the market in late 2009 or early 2010.

Blackstone closes EUR 3.1 billion European real estate fund

Blackstone Real Estate Partners Europe III recently closed, topping out at EUR 3.1 billion, far above the EUR 2.5 billion intended target. After five years of avoiding commercial property--as opposed to operating properties, such as hospitals and hotels--Blackstone's return to the sector clearly indicates that the firm believes that opportunities will be strong over the next few years.

The Fund will take advantage of over-leveraged traditional real estate assets that are in desperate need of restructuring, recapitalizing or deleveraging.  With a large amount of debt maturing over the next two years, the Fund will acquire properties from distressed sellers or banks that are looking to offload assets taken over from investors.  The Fund's management has indicated that the main opportunities will most likely be found in the UK and Germany.

Financial Times Article

Scandinavian Property Development (SPDE) offers 60 percent discount on rights issue

As a condition of its refinancing efforts, Scandinavian Property Development has been forced to issue NOK 700 million new shares priced at NOK 1.00 each, a 60% discount to recent market levels. The company, which is listed on the Oslo Børs under the ticker symbol SPDE, was started in March 2007 with the acquisition of the Fornebu development project and has nearly 700,000 sqm of development potential in its portfolio.

The company's stock closed on June 24th, 2009, at NOK 2.52 with 80 million shares outstanding and a market capitalization of NOK 201.6 million. The NOK 1.00 share issue price is below the 52-week low of NOK 1.50 and dilutes the existing shareholders down to 10% of the equity ownership.

Though the subscription period for the share issue lasts only a few hours, the company reports that it has already secured "significant pre-commitments" from large shareholders such as Orkla (who owns 33% of the company), OBOS (12.4%) and Canica (2.9%). The rationale for the private placement, led by SEB Enskilda, is outlined in the Private Placement Presentation.

Company Announcement: English Norwegian