ULI trends conference sees more pain ahead

While politicians and commentators have been heralding 'green shoots' of recovery in recent weeks, the expert consensus at the ULI trends conference organised by ULI Europe in London last week was that most banks remain 'in paralysis' and that further corporate pain, decreasing values and downward pressures on rents are to be expected before a slow global recovery can begin.

Keynote speaker Bridget Rosewell, chairman of Volterra Consulting and Chief Economist of the Greater London Authority (GLA), predicted 'a nasty and long-lasting hangover' while 'public sector borrowing is to hit a post-war peak' that will inevitably slow recovery.

In her address, Rosewell played down the cause of the recession as being solely attributable to the recklessness of banks. She presented a compelling quantitative argument with an analysis of UK, German, US and Japanese economic data, contending that the worldwide downturn was initially driven by high commodity costs rather than the credit crisis. 'Even had the banking crisis not come along we would still be having a downturn in the world economy,' Rosewell said.

Despite the fact that the global economic recession has entered its third quarter (a longer period than 75% of all recessions on record), with further job losses and gross domestic product (GDP) declines expected, Rosewell was confident that the world economy is not headed into a depression. She reminded attendees that the 5% drop in GDP experienced as yet 'means 95% business as usual'.

The spectre of tighter regulation and greater political involvement in all aspects of the real estate industry was characterised as an unwelcome but inevitable result of the recession. Rosewell warned against protectionism, noting that 'capitalism is a resilient beast and is still being developed in important countries'.

Bernd Knobloch, member of the supervisory board of Hypo Real Estate injected a note of optimism that tougher government scrutiny might help spur investor confidence in the industry. 'I’m not against regulation. Regulation helps us to get back trust,' he said.

In later sessions, panels addressed debt, equity, insolvency, restructuring and pan-European investment opportunities. Panellists were clear on the source of the problem: Bill Benjamin, Partner, AREA Property Partners pointed out that unlike the early 1990s, when the real estate downturn was caused primarily by overbuilding, the current recession is attributable in large part to over-valuation of properties.

Russell Platt, managing director and CEO of Forum Partners, pointed out that smaller firms with ample flexibility are in an excellent position to take advantage of the radically changed business environment. 'There are more opportunities than I've ever seen in my career, but we need to deliver (creative investment) solutions as well as money,' he said.

Knobloch maintained an optimistic view, stating: 'The long-term investors are back and they will need real estate as the only real hedge against inflation, not so much in the UK but very much in Europe where rents are linked to CPI.'

There was some discussion of recent efforts by the UK government to encourage investors to buy residential property, already a major asset class in Germany and France. Peter Pereira Grey, Managing Director of the Investment Division, Wellcome Trust, described the residential sector as 'a huge opportunity...we like the cash-flow characteristics.'

Addressing the global context, some panellists pointed to what appears to be a pullback in the overall global expansion of the industry, at least for the short-term. Conference co-chairman Jos Short, founding partner and Chief Investment Officer of Internos Real Investors, highlighted the 'massive pullback from emerging markets to developed economies, and even a (greater) focus on home markets.'