IFR Editor-at-large Keith Mullin
Bearing in mind that the last thing most people will recall about CA is the bank’s record 2012 loss – the culmination of years of shrinking, deleveraging, exiting businesses, Greek angst, offloading derivatives positions to BlueMountain; CLSA to Citic; European equity sales, trading and research to Kepler etc., etc. – it’s kind of nice to see something positive for a change.
I’ve got to say the CA story has all been a bit grim, but the bank was out this morning with a bit of zing around the launch of what it calls an innovative range of real estate financing solutions. Now in saying that, I’m choosing to ignore what I thought was its truly dreadful 42-page press pack; a fraught, over-engineered and poorly prepared piece of serial repetition that basically boiled to two to three pages of vaguely decent information.
On the plus side, CA-CIB did point to a decent advised and/or lead-managed dealflow plus a pipeline, and it postulated some pretty bullish signals around prospects for real estate.
When I read it, it struck me that alternative investments are back with a vengeance. For instance: Farallon launching a specialist real estate fund that with leverage will have firepower of around US$1bn, and more broadly the behemoth private equity sponsors on the road with mega-fundraisings – said to total around US$230bn-plus at an industry level.
Warburg Pincus, Apollo and CVC are all targeting US$12bn fundraisings while Silver Lake Partners is out with US$10bn, all presumably with accelerated disbursement plans and sporting projected internal rates of return that will put any mainstream asset-class to shame!
The great rotation story might be focused around the fixed-income-to-equity play, but I’m pretty pumped about the talk around rotation back into alternatives.
Private placements and mortgage bonds
One thing CA-CIB did mention in its effusiveness was real estate private placements as well as mortgage bonds, and the emergence of insurance companies and sovereign wealth funds as active trade counterparties. It also mentioned that the asset-class has been performing ‘quite well’ despite the economic climate.
The mention of private placements struck a chord as I’ve been thinking and speaking to people a lot about the creation and development of a pan-European private placement market. There are multiple pockets of private placement demand throughout Europe but there’s sluggish movement towards the notion of a European market, which is evolving on a slow-burn timeline. But it could be significant.
Back to real estate, Jones Lang LaSalle estimates that global direct investment volume hit US$443bn last year, slightly up on 2011. CA-CIB reckons annual estimated transaction volume in 2013 will be US$500bn. Not bad, considering. The gross funding gap is estimated to be around US$100bn, some of which will be taken up by a inflows from new non-bank investors, mainly through partnerships between banks and insurance companies.
This plays perfectly into the originate-to-distribute model that banks have been forced to adopt as a result of tough new capital rules, prudential risk management and efforts to keep a lid on risk and on RWA growth.
When it comes to commercial real estate, many of the banks are still stuck in the pretend-and-extend phase they’ve been in since the global financial crisis, providing ongoing support to real estate clients in preference to foreclosing and having to deal with the huge headache and expense to owning and being forced to manage physical real estate assets.
I’m glad to hear that insurance companies and other non-bank partnerships – anchored around real estate where the end-game is all about generating significant excess return – are firmly back on the table.
Beats Cyprus, right?
