Ratings agencies set to play bigger role in property sector

Ratings agencies like Standard & Poor’s and Fitch are set to play a bigger role in the European property market, in both the listed and non-listed sectors, panelists agreed at the annual Inrev conference in Vienna last week.

As banks continue to reduce their exposure to property investment, alternative sources of financing will become increasingly important in the listed sector, noted Bart Gysens, Head of Property Research at Morgan Stanley. ‘Rated debt securities are one source,’ he added.

Michael Morgenroth, Managing Director of Signa Holding, also sees more bond structures evolving in the non-listed real estate market in the next few years. ‘Listed companies are a few steps ahead, but the situation is pretty much the same for non-listed companies,’ he said. He added that as ratings become more important, competition among rating agencies would also increase.

At present, confidence in rating agencies is at a low point. During an impromptu poll, almost 60% of the delegates agreed ratings agencies are to blame for some aspects of the current financial crisis. Another 29% said they were ‘somewhat’ to blame. Almost 80% of the respondents said ratings agencies did not understand real estate dynamics and failed to rate them fairly. Nevertheless, a majority agreed that more listed real estate investors would seek credit ratings in the next three years, with 53% providing an outright ‘yes’ to the question and another 24% voting ‘maybe’.

Gysens pointed out that the European real estate credit rating market was still immature and that large differences existed between ratings for listed property companies. He called on real estate vehicles to seek greater transparency to achieve the highest possible ratings levels in order to be able to borrow on bond markets and for other debt securities at the lowest possible spreads.

‘Familiarity with, and interest in, the credit rating market needs to grow...But as we move from an emerging to a developed market, this will change and the science will get better.’

Inrev is the European association for the non-isted real estate sector. The full article appears in the next issue of PropertyEU. Click on the following link to subscribe: