EUROPE - A lack of prime real estate being placed on the market is forcing investors to consider secondary assets or to focus on opportunities arising from banks.
A new report by Jones Lang LaSalle (JLL) observed that the growing volume of investor capital chasing real estate opportunities in Europe has been frustrated by a lack of supply in recent months.
JLL estimated that £50bn (€55bn) of equity was targeting UK real estate alone, but the whole of Europe was experiencing a period of "pause and reflection" following an "exuberant" final quarter in 2009.
Investors have been focusing on prime property but may be forced to consider secondary assets because of the lack of opportunities.
The report observed that the definition of prime has become "increasingly elastic" and estimated approximately 40% of capital holders will be prepared to consider off-prime assets given the lack of prime product access.
JLL said the largest source of potential opportunity came from three lenders: the UK's Lloyds Banking Group and Royal Bank of Scotland (RBS), and Ireland's so-called ‘bad bank' NAMA.
JLL said it expected approximately €30bn "to fall out of their loan books" over the next 18 months, most of which will be based in the UK.
Opportunistic fund manager Delancey announced last week that it had made two acquisitions in the UK by working with RBS.
The acquisition of 40 Holborn Viaduct and a 28% interest in the Castlepoint Shopping Centre, from a subsidiary of bankrupt property company Castlemore, was arranged through RBS as it was the lender on both properties.
The deals enabled RBS to secure fully recovery of its original loans.
Delancy said the deals involved "complex legal and asset management issues that could not have been successfully overcome without a close working relationship with RBS's Real Estate Restructuring team based in London."
Jamie Ritblat, chairman and chief executive at Delancey said: "Castlepoint provides another significant example of us working alongside our long term partners to achieve innovative and flexible refinancing and restructuring solutions that meet all parties' objectives in a consensual framework, and where our ability to act rapidly and decisively have proved invaluable."
Castlepoint is one of the UK's largest shopping parks, comprising 645,000 square feet of retail space and benefitting from unrestricted open planning consent. It is the dominant retail destination for Bournemouth and the surrounding region, and home to 40 separate retailers.
The 28% freehold interest is held in a limited partnership alongside funds advised by Standard Life and Threadneedle.