At­tract­ing ma­jor real es­tate in­vestors

Financial Mirror (Cyprus) - - FRONT PAGE -

Lenders are pro­ceed­ing with dis­pos­als of prop­erty, as well as with swap deals (debt ex­change for prop­er­ties), hav­ing so far ac­cu­mu­lated sev­eral mil­lions worth in real es­tate. One of the prob­lems is that lenders can­not hold on to them as their own prop­erty for be­yond a 3-year pe­riod, al­though I ex­pect that the Cen­tral Bank will al­low for this pe­riod to be ex­tended to 6-9 years to al­low the mar­ket to ab­sorb the im­pact with­out caus­ing ad­di­tional prob­lems in the real es­tate sec­tor. This is to the ben­e­fit of the lenders and the real es­tate mar­ket. Even though the lat­est mea­sure for the adop­tion of Leas­ing (hire­pur­chase) will as­sist in the dis­posal of prop­er­ties, how­ever, it re­mains a prob­lem how the fi­nanciers will ac­quire that 6070% of the prop­er­ties that they will un­der­take.

Al­low me to sub­mit some thoughts which can es­pe­cially help soothe the de­mand from in­ter­na­tional in­vestors, con­sid­er­ing the cur­rent de­posit rates (in Cyprus it is now around 1.5% and abroad 0.50% to mi­nus 1% a year).

Let’s con­sider that lenders charge in­ter­est on ar­rears of 713%, so the loss is not ex­pected to be that what they show in their an­nual ac­counts, but far lower if th­ese over­charges are re­moved.

• Col­lec­tive Sales - Some prop­er­ties can cer­tainly be of­fered on their own, such as ho­tels, com­mer­cial projects, res­i­den­tial blocks, etc. But in most cases prop­er­ties will not be at­trac­tive enough to raise the in­ter­est of in­vestors, even at any price (eg. small farm­ing plots in purely ru­ral ar­eas, shares, etc.). There­fore, some at­trac­tive prop­er­ties (APs) could be in­te­grated with unattrac­tive prop­er­ties (UAPs) as a whole sales pack­age. Thus, an of­fice com­plex with a good yield, could be bun­dled with an agri­cul­tural UAP, even at a rate of 80% (AP) vs 20% (UAP).

• Rev­enue earn­ers - It is clear from the ex­pe­ri­ence so far that large in­vest­ments are pur­chased by for­eign­ers and based on our ex­pe­ri­ence ex­pect a yield of 6 -6.5% (ini­tially) and now closer to 4-5% a year. There­fore, such in­vest­ment prop­er­ties, if sold to­gether with UAPs might yield a lower 3-4% which again is an at­trac­tive yield based on cur­rent cir­cum­stances.

• Own­ers / Ten­ants - In some cases the “pur­chase” by the lender of a project with the owner re­main­ing as a ten­ant is an al­ter­na­tive. This par­tic­u­larly re­lates to of­fice com­plexes and ho­tels where the ex­ist­ing own­ers show a will­ing­ness to pay “rent” even 7-8% a year on the cost. But this sub­ject to the lenders be­ing per­suaded that the cur­rent owner / ten­ant can meet its obli­ga­tions. If it is found that af­ter the lapse of 2-4 years it can, then it is eas­ier to find an in­vestor to re­place the lender as owner (es­pe­cially ho­tels that show an im­prove­ment due to tourism).

• Build­ings owned by lenders - If in group sales in­clude cer­tain prop­er­ties of the lenders them­selves, this will not be wrong, in an at­tempt to off­load UAPs. As­sum­ing that on their ini­tial cap­i­tal, lenders have a per­for­mance of at least 10% a year (presently at 7%) and this to­gether with the UAPs is re­duced to 4.5-5%, it is rea­son­able to in­clude prop­er­ties owned by the lenders as well, since that will yield a dou­bling in per­for­mance.

• Prop­erty su­per­mar­ket - I have re­ported on this is­sue in a pre­vi­ous ar­ti­cle and this pro­posal is an ex­ten­sion of that.

• Guar­an­teed per­for­mance - De­pend­ing on the pace of real es­tate sales, lenders may con­sider the pos­si­bil­ity of of­fer­ing partly guar­an­teed re­turns to po­ten­tial buy­ers for a pe­riod of at least 3-5 years. There­fore, in the dis­posal of a prop­erty with a ten­ant or not, the lender can of­fer a cer­tain in­come even at 3-4%, and in case that higher ren­tal in­come is found, the lender will ben­e­fit from the big­ger re­turn. In this case the fi­nancier’s risk may grow by sub­si­dis­ing the ten­ant, does not ap­pear to be a bad idea in prin­ci­ple.

• Lenders’ Losses - The whole idea with th­ese pro­pos­als is to pro­vide help to lenders to re­duce their losses by at­tract­ing cash rather than prop­er­ties that pro­duce a lower yield. Such ag­gre­gated and other sales will help at­tract for­eign in­vestors (even lo­cals).

• Gov­ern­ment Build­ings – I have pro­vided a sim­i­lar sug­ges­tion to the pre­vi­ous idea to the re­spec­tive Fi­nance and In­te­rior min­is­ters that rent­ing is more ad­van­ta­geous than the use of owned build­ings. The use of ren­tal re­lieves the own­ers from the Mu­nic­i­pal / prop­erty taxes, ma­jor re­pairs and main­te­nance, while of­fer­ing the ten­ant (now owner) flex­i­bil­ity to leave due to new re­quire­ments and/or tech­nol­ogy.

• Pub­lic / Pri­vate Com­pa­nies - The best ex­am­ple of of­fer­ing the prop­erty for cash with the owner re­main­ing as a ten­ant is the Sha­co­las Group with its Wool­worth prop­er­ties. The cre­ation of pub­lic com­pa­nies that could of­fer good man­age­ment even on be­half of the lender for an ini­tial pe­riod of 3-5 years should not be re­jected con­sid­er­ing the ex­pected yields, pro­vid­ing ad­di­tional cer­tainty to share­hold­ers and in­vestors.

But what do we know as we are trapped on this is­land, and some­times some not so rel­e­vant peo­ple of­fer ad­vice that is out of this world.

About 15 years ago, while man­ag­ing a sin­gle large-scale project, the owner of­fered 5% an­nual guar­an­teed re­turn for five years (to be de­ducted from the in­stal­ments even if the deal failed). At the time, the bor­row­ing in­ter­est was 9%, while there was an an­nual in­crease in the val­ues ??of 5-10%. The whole com­plex was sold in 12 months.

A good idea which we copied from a Bri­tish de­vel­oper in cen­tral Lon­don.



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