Real estate convertibles are the hot ticket

by Hans Vrensen, securitization research, Barclays Capital.

GE began acquiring real estate in earnest in the 1990s at the suggestion of its commercial lenders. It has acquired so much that it now derives 10% of its earnings from property. Jeffrey Immelt, GE’s chairman and chief executive, has an unexpected problem: if he does not want GE to be cast as a property company, he may need some nimble balance sheet management. Michael Pralle, GE Real Estate’s CEO, tells Peter Lee how it feels to own so much.

Standard Life Investments, one of the largest property fund managers in Europe, announced on May 1 that it has made its first direct investment in the Asia-Pacific property market with the acquisition of a property in Perth, Australia, for A$47 million ($38.9 million).

Claudio Miguel Lagemann, 48, is the new global head of HSH Nordbank AG’s real estate division. On April 1 he succeeded Bernhard Visker, who was in turn promoted to HSH Nordbank’s management board at the beginning of the year.

Morgan Stanley’s former head of securitization, Craig Phillips, re-emerged in March as the chairman, CEO and founder of a new alternative asset management firm called Ptarmigan Capital.

Morley, a UK property fund manager, has increased its European capability with three hires and one internal reshuffle. Andreas von Gossler joins as head of acquisitions for the European property fund. Previously he was a fund manager at the German real estate group Union Investment. Lorenzo Segre, comes from Italy’s Pirelli Real Estate, and will become a manager on the Morley European fund. Also joining is analyst Matthew Hills who comes from HDG Mansur Investment Services, a US property group that specialises in Islamic Shariah-compliant products. All three report to Julian Taylor, lead manager of the European fund.

Fidelity has appointed Alison Puhar to its real estate senior management team as director of UK real estate. Puhar joins from Cordea Savills, where she was head of UK institutional pooled funds, her last step in a 15-year career in property fund management. In her new role, Puhar will lead Fidelity’s UK real estate business and be the principal driver of new property acquisitions in the UK.

So far 2007 has been an eventful period in the world of property derivatives as a second wave of banks push to enter the ever-growing market.

Raymond Mikulich, co-head of real estate at Lehman Brothers with Mark Walsh, is to leave at the end of the year. Mikulich and Walsh manage one of Wall Street’s best-performing real estate funds, whose investments include the Chrysler building and 1 Times Square. It is expected that Walsh will become sole head.

"Islamic finance has only popped up onto people’s radar screens in the West in the last five years or so," says Jeremy Beswick, head of asset management at European Islamic Investment Bank (EIIB). Despite its youth, though, Islamic financing is spreading around the globe and in recent months there has been a rapid increase in the range of real-estate-related products that banks have to offer.

Morgan Stanley’s real estate investing business has grown explosively by backing its founders’ ballsy, counter-consensus calls in Germany, Japan, and hotels and developers in emerging markets. While the firm seeks to implant this can-do spirit into its other investing businesses, the real estate arm wants to continue its outperformance in tougher market conditions. Peter Lee reports.

Departing president of the British Property Federation Nick Ritblat in conversation with Peter Lee.

European real estate achieved record volumes of investment in 2006. Some €242 billion flowed in, representing a 39% increase on 2005. That increase, of €68 billion, was another record. In 2007, real estate markets are expected to remain strong, and could well grow further.

ABN Amro and Merrill Lynch have executed the property market’s first ever industrial sector swap. The two banks have taken a position of £10 million. The trade is the latest development in a continuously evolving swaps business. For ABN Amro, it completes the set of sector-specific property swaps.

For a region that has had a long-term love affair with property, Asia’s first property derivative could mean the start of a beautiful new relationship. In February, ABN Amro and Hong Kong broker, Sun Hung Kai Financial executed Asia’s maiden property derivative based on Hong Kong residential properties.

Marks & Spencer’s innovative deal to use the value of its real estate to fund its pension deficit without relinquishing control of any properties will intrigue many companies. Many are carrying more hidden value in their property than in their core business. And while they all want to cash in on that, most would rather not cede ownership of the buildings that they need to operate from and which are rising in value. Peter Lee reports

Sam Zell is full of surprises. Having just realized huge returns for shareholders in his Reit by selling it in the biggest ever LBO, he says that if he had owned the whole thing he would have kept it. He argues that the take-private deal is a vindication of public indirect share ownership of real estate, not a retreat from it. He warns new leveraged buyers to be careful when the property market turns, and extols the defensive qualities of Reits. And even while their shares are being de-listed, he predicts the sector will only get bigger. Peter Lee reports on how Zell’s vision for the business has been fulfilled.

String of hires made to take on the big players.

Until recently, the commercial property market remained virtually untouched by the derivatives revolution that has taken place in other asset classes.

Liquid real estate: What's next in Sam Zell's sights