Sunday, January 06, 2008

U.K. Real Estate Losses May Be Biggest in 25 Years 

Bloomberg.com: Worldwide

Wary of investing in property in the United States? Well, beware of across the pond, too.

Jan. 7 (Bloomberg) -- LaSalle Investment Management put Condor House, a seven-story office building facing London's St. Paul's Cathedral, on the market for 130 million pounds ($256 million) six months ago. The building sold last month for about 117 million pounds, 10 percent below the asking price.

Appraisal values fell at a record rate in November and commercial real estate derivatives contracts indicate owners of British offices, shopping malls and warehouses may suffer their biggest annual losses in more than a quarter century.

``The U.K. market is falling apart,'' said Peter Hobbs, London-based head of research at RREEF Real Estate, a Deutsche Bank AG unit that manages about $100 billion. ``There's a risk that this cyclical downturn turns into something worse.''

Britain's 700 billion-pound commercial property market will perform worse in 2008 than the rest of Europe, the U.S. and Asia, Hobbs said. The slide is accelerating as banks tighten lending standards across the globe after losses of more than $90 billion from U.S. mortgage investments. Jones Lang LaSalle Inc., the world's second-largest commercial real estate broker, estimates transactions in the U.K. slumped 60 percent during the final quarter of 2007 to about 5 billion pounds.

Building owners may record losses of at least 11 percent in 2008, according to prices of derivatives contracts pegged to indexes compiled by London-based research firm Investment Property Databank Ltd.

The decline would be the largest since IPD introduced its annual total-return index in 1981, which combines data for rental incomes and changes to appraisal values. The benchmark index covers 200 billion pounds of investments and excludes debt, which can multiply property gains or losses.

`Element of Hysteria'

``There's an element of hysteria'' in the market, said William Hill, head of London-based Schroder Property Investment Management, which oversees 10 billion pounds. As funds are forced to sell buildings to meet investor redemptions, finding a buyer at a high enough price is like ``grasping an eel,'' he said.

Westfield Group, the world's largest mall-owner, canceled plans last week to sell the remaining 33 percent of the 530 million-pound U.K. Shopping Centre Fund. The fund owns 25 percent of the shopping centers in Belfast, Derby, Dudley and Tunbridge Wells.

British Land Co., the U.K.'s second-biggest real estate investment trust, abandoned efforts in October to sell a stake in Meadowhall Shopping Centre on the outskirts of Sheffield in northern England. It cut the value of the property by 79 million pounds to 1.58 billion pounds a month later.

Appraisers lowered commercial values by an unprecedented 4 percent in November, increasing the cumulative 11-month decline to 7.8 percent, IPD reported. In the last property crash, values dropped 27 percent from 1989 through 1993.


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