Press release

IMPROVE GEARING, LIQUIDITY AND MANAGEMENT TO REPAIR PROPERTY'S REPUTATION

Date

12th March 2009

Description

Improve gearing, liquidity and management to repair property’s reputation

A debate at the MIPIM property convention in Cannes will today hear how increased liquidity, lower gearing and better asset management of property assets will be the driving factors in turning around the industry’s reputation.

The event, run by UK trade body the British Property Federation (BPF) and London consultancy RealService, will discuss whether the recession has damaged property’s image in the eyes of occupiers and investors.

The event’s chairman, Liz Peace, head of the BPF, has overseen a number of discussions with retail leaders in recent months to ease the plight of occupiers hit by the recession in a bid to maintain the close relationship property owners have developed with retailers.

Peace will say that the key to rebuilding the industry’s reputation is for it to be as transparent as possible, act fairly and treat its tenants like any other customers.

However, Peace will also stress that many large landlords have the interests of other customers – their investors – to protect at the same time as tenants. She will say that making large concessions over things like rent could damage pensions held and other savings.

Guests also include Gary Bond, chief executive of designer retail developer McArthurGlen European Developments, Amanda Balson, director of planning and design consultants Turley Associates and Vivienne Grafton, head of property for HSBC.

Liz Peace, chief executive of the BPF, said:

“The key to any brand is trust and the property industry is no different. It’s vital that landlords and agents act as transparently as possible, ensuring they are open with tenants and manage their assets effectively.

“However, we need a balance and we risk robbing Peter to pay Paul if we insist on cutting into property firms’ profits to shore up retailers’. We need to remember that many large landlords are actually the pension funds and financial institutions that manage the savings of the man in the street. Their customers are not faceless moneymen but members of the public who have their pensions and savings tied up in shops or offices.

“Demanding massive concessions will not only hurt future development but hit the financial well-being of the general public.

“The funding behind property acquisition and management is incredibly complex, meaning it’s simply not possible to just rip up a contract half-way and change something like a rent level without damaging the value of a firm’s asset and incurring other knock-on effects.”

Anthony Brown, chief executive, Lend Lease Investment Management UK & Europe, said:

“Clearly the downturn has taken the shine off property for investors in both the listed and the unlisted sector. We all know that the level of debt associated with real estate has become a major issue, particularly where leverage has been applied to illiquid structures. We have to question whether that level of gearing is ever going to happen again given the lessons of the last 18 months. The future success of the industry will be about how fund managers, property companies and other owners approach the way they manage risk and how they are incentivized and rewarded by doing so.

“The fact that property has fallen significantly in value will help attract investment back into the sector but a significant liquidity premium to the risk free rate is likely to exist for some time to come. So going forward as an industry we need to be a bit more realistic in what we offer the market.

“Much has been said around the landlord-occupier debate and occupiers, like investors, will increasingly differentiate between good and bad assets. However, assets won’t simply be judged on their quality, but also on the quality of the management. I would expect a much bigger differential between good and bad managers. The skill of managing property will come to the fore again and picking winners and losers will all be about skill in managing assets.”

Gary Bond, chief executive of McArthurGlen Group, Europe’s leading developer, owner and manager of designer outlet villages, said:

“Many of the issues around reputation come down to ensuring you offer value for money to your tenants. Our business works mainly around turnover rents as well as minimum base rents, which means that tenants pay more when they’re doing well. Our tenants seem to think we offer them good value and we have five developments with funding underway, some of which are set to open this year.

“While we are well placed to ride out the storm, like any business we are going to need liquidity in the market. Banks are starting to look for more pre-leasing – not something they have required from our business model in the past (and are questioning more about whether they can bring forward funding right away. I don’t think this has taken the shine off the industry’s reputation because it’s a problem shared by every business sector. There are equity investors out there, but banking and investor interest is understandably more cautious.”

Amanda Balson, director for property consultants, Turley Associations, said:

“Both planners and asset managers have roles to play in rebuilding the industry’s image. But there is also a need for planning authorities to respond quickly to changing development market conditions and the needs of applicants will be a challenge and opportunity over the coming months.

“There are measures that the planning system can contribute to more innovative asset management of existing and proposed developments. These can include more flexible planning permissions for example with extended time periods for implementation or scope to vary the use of a building within an agreed range.”

Howard Morgan, managing director of RealService, said:

"The reputation of the property industry has undoubtedly been tarnished in the eyes of investor, occupiers and the general public. Now is the time to return to the fundamentals - location, cash flow and customer service. Landlords who get focused quickly are likely to survive and come out of the downturn even stronger.

“Commendably, BPF president Francis Salway’s response to retailers’ calls for service charge transparency, which involved asking BPF members to constrain charges, was a clear statement of intent. Landlords are upping their game as competition for quality tenants looks set to build a stronger property industry for the future.”

For more information or photography from the event please contact:

Andrew Teacher, head of media, BPF on +44 7841 732 194 / ateacher@bpf.org.uk
Maddie Williams, press officer, BPF on 020 7802 0364 / mwilliams@bpf.org.uk

For more information see:

bpf.org.uk
real-service.co.uk
turleyassociates.co.uk
mcarthurglengroup.com
lendlease.com