Harm Meijer, MD and co-founder of ICAMAP, has expressed his fears of potential covenant breaches given what property stocks imply.
Meijer, whose fund management firm invests in European real estate including shares in listed property companies, has said in an online post to contacts, ‘I sound the alarm! I think it would be wise if more policy makers, especially in the UK, look at what property stocks are implying today: generally speaking, property values could fall up to 20-30% for malls and offices, resulting in potential covenant breaches.’
Meijer goes on to say one large mall operator is already in administration, while another is ‘doing a (rescue) rights issue; more will follow.’
Based on EPRA data, the UK commercial property market is worth $1.1 trn (€956 bn) and in Europe $8.1 trn.
These numbers, he says, are big. ‘Who are the major investors in this space? Pension funds, insurance companies, ordinary people on the street…banks will soon become owners if we are not careful...If policy makers continue to put pressure on this sector and cannot come up with any relief I fear these declines could happen (less so for prime) and result in a domino effect impacting pensions and banks.'
Unfair treatment of landlords
Meijer's main point is the unfair treatment of landlords versus tenants.
He continues, ‘Tenants are enjoying high levels of protection, but landlords not at all. They are hit with CVAs, business rates, taxes and the moratorium on enforcement for non-payment of rent… and now there are even healthy tenants not paying the rent. And finally, this on/off advice to work from home structurally challenges the sector on top of everything. All at the expense of your pension. Time to act before it is too late.’
Meijer’s points drew responses from advisors and those from inside and out of the property sector.
Frederic Caumon, former head of m&a at Banco Santander, says, ‘Politicians are generally not great fans of financials. They can live with Reit bankruptcies. Even with banks to some extent.’
Former Bain & Company consultant, Adrià Marquès Casasayas, says, ‘About rent - contract renegotiation will be needed in every sector, but more urgently in the real estate one, it is better to get a smaller rent than no rent at all. About the property price decline - here you are, that's the market, and we all knew this could happen.’
Geraldine Davies, co-founder of Pernenna Capital Management, says, ‘This is a structural issue that’s been in the making for a long time. If not the pandemic, it would have been something else. Landlords do not have all the answers. Housing businesses have failed to identify trends and adapt to competition. That’s why Bezos continues to ratchet billions by the day.’
PS: for an in-depth analysis of Europe's listed sector, check out Dominic Gover's special report in the September edition of PropertyEU.
