AbstractFollowing
the US model, the UK has seen considerable innovation in the funding, finance
and procurement of real estate in the last decade. In the growing CMBS
market asset backed securitisations have included $2.25billion secured
on the Broadgate office development and issues secured on Canary Wharf
and the Trafford Centre regional mall. Major occupiers (retailer Sainsbury’s,
retail bank Abbey National) have engaged in innovative sale & leaseback
and outsourcing schemes. Strong claims are made concerning the benefits
of such schemes – e.g. British Land were reported to have reduced their
weighted cost of debt by 150bp as a result of the Broadgate issue. The
paper reports preliminary findings from a project funded by the Corporation
of London and the RICS Research Foundation examining a number of innovative
schemes to identify, within a formal finance framework, sources of added
value and hidden costs. The analysis indicates that many of the gains claimed
conceal costs – in terms of market value of debt or flexibility of management
– while others result from unusual firm or market conditions (for example
utilising the UK long lease and the unusual shape of the yield curve).
Nonetheless, there are real gains resulting from the innovations, reflecting
arbitrage and institutional constraints in the direct (private) real estate
market.
|