Source : Business Times - 30 Apr 2009
The fund will wait till banks arrive at a valuation for their problem assets
US fund manager Franklin Templeton is looking to raise about US$700 million for real estate investment this year as it braces for a flood of distressed sales from banks, its managing director for European property, Raymond Jacobs, said.
‘We are going towards a distressed sales situation, but we’re not there yet . . . banks are still trying to figure out what to do with their problem assets,’ Mr Jacobs told Reuters in an interview.
The commercial property sector has been ravaged by the credit crisis causing waves of mortgage breaches, but most banks have so far been hesitant to dispose of repossessed assets due to a lack of clear market valuations, he said.
‘We still need transactional evidence, which will come as soon as banks have a clear feel of what to do with the properties . . . that will trigger forced sales, and when it happens we will get to a market bottom,’ said Mr Jacobs.
The company’s global-focused Franklin International Real Estate Fund 3 is currently raising US$300 million, he said, while the Franklin Templeton European Real Estate Fund of Funds 2 will launch by the year-end and target 300 million euros (S$586 million).
The New York-based fund manager sees British commercial property as the most attractive among developed markets, as it has seen the sharpest drop in values in the current downturn compared with continental Europe and the United States.
The main difference in the repricing, said Mr Jacobs, is because UK property owners such as real estate investment trusts are required to regularly provide ‘mark-to-market’ valuations, even when no transactions have taken place.
‘We haven’t seen a lot of that repricing take place yet in continental Europe, partly because of a different way of valuing assets there, which is more of valuations based on transactions,’ said Mr Jacobs, a Dutch national.
The current lack of transaction data in Europe has caused valuations to be higher than they should really be, he argued, comparing it to a previous European property bust two decades ago, where banks had refused to accept lower prices.
‘Our hope is that it won’t be in the same situation as in the late 1980s where a number of participants in the European market put their heads in the sand and hoped that this would resolve by itself,’ Mr Jacobs said.
‘There were good examples in markets like France and Spain where things took much longer to recover, because of inability to act by banks and distressed owners,’ he added.
While some real estate funds have spied rich pickings from the carnage in commercial property lending and are stockpiling cash to buy discounted debt from banks, Franklin Templeton is still waiting to see how the market plays out.
‘It is the flavour of the month because currently it’s much easier to put a price on the debt of something that was historically set, than it is on the value of something in the future,’ Mr Jacobs said.
While the company is adopting a wait-and-see stance before investing in real estate debt funds, it has no interest in more complicated, bond-like products such as commercial mortgage-backed securities (CMBS).
‘(CMBS) does not have the control element of real estate investments. We are real estate investors and we like to have a certain control over the assets.’
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