DTZ Distressed Debt Report - November 2010

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The global commercial real estate debt gap as of November 2010 is $250bn globally, with the largest gap in Europe.


  • 1. DTZ Insight Global Debt Funding Gap New equity to plug into messy workout24 November 2010 The debt funding gap continues to be the biggest challenge to many international property markets. The debt funding gap is the difference between the existing debt balance as it matures over time and the debt available to replace it. In this updated andContents expanded analysis, we incorporate loan maturity extensions.Introduction 2Global debt funding gap 3 Over the 2011-13 period, we estimate the global debt fundingNew equity sufficient to bridge gap 4 gap to total US$245bn. Europe has the greatest exposure (51%)Current market status 5 followed by Asia Pacific (29%) and the US (20%).Market outlook 7Appendix 9 Relative to their overall market size, many European markets, such as Ireland, Spain and the UK, have big debt funding gaps.Authors Japan is the only Asia Pacific market with a significant gap. In contrast, the US relative funding gap exposure is modest.Nigel AlmondForecasting & Strategy Research+44 (0)20 3296 2328 The global US$245bn debt funding gap can be bridged as therenigel.almond@dtz.com is US$376bn of equity capital available. But, there are regional differences, with Europe trailing (Figure 1).Konstantinos PapadopoulosForecasting & Strategy Research Currently, market participants and governments are going+44 (0)20 3296 2329 through a messy workout in a wide range of different solutions.kostis.papadopoulos@dtz.com Banks have moved on from pure extend and pretend to extend and amend - amending terms, such as margins and cash trapping. Banks are getting tougher on borrowers, but due toContacts swap breakage costs foreclosure is not always feasible.David Green-Morgan In future, we expect regulators and lenders to take cues from theHead of Asia Pacific Research US lending markets. The diversity of funding channels in the US+61 2 8243 9913 highlights the need for more non-bank lenders elsewhere.david.green-morgan@dtz.com Longer loan maturities, scheduled amortisation and fixedMagali Marton (unhedged) rates provide the US with significant advantages.Head of CEMEA Research+33 1 49 64 49 54 Figure 1.magali.marton@dtz.com Debt funding gap and available equity by region, 2011-2013 US$bn US$bnTony McGough 400 160 376Global Head of Forecasting & 145 350 140Strategy Research 126 300 116 115 120+44 (0)20 3296 2314 245tony.mcgough@dtz.com 250 100 200 70 80Hans Vrensen 150 49 60Global Head of Research 100 40+44 (0)20 3296 2159 50 20hans.vrensen@dtz.com 0 0 Global (LHS) Europe Asia Pacific US Available equity Debt funding gap Source: DTZ Research www.dtz.com 1
  • 2. Global Debt Funding GapSection 1: Introduction Changes to methodologyThis report provides an update to our previous paper, the Since our previous report there have been a number of 1European Debt Funding Gap , which we published in changes which have necessitated revisions to ourMarch this year. We subsequently extended our analysis to approach in this report. Some of this reflects new 2009 2Asia Pacific in our Money into Property report . In the data for the UK, which was reported in De Montfortcurrent report we provide an update of our analysis and Universitys updated report on the UK lending market.extend it to include the United States. We have also made These key changes are outlined in Table 1. We discusssome refinements to our analysis to reflect market changes our methodology in more detail in the Appendix.and improvements to data. Table 1In this research we continue to define the debt funding gapas the gap between the existing debt balance and the debt Comparison of new data and original analytical inputsavailable to replace it. We consider the debt funding gap to New market March 2010be the biggest challenge to many international property Data data assumptionmarkets. It is a relevant issue because a lack of funding atmaturity is the most likely trigger of a loan event of default. Loan Two-thirds of loans maturing in No extensionsDefaults during the loan term have, and are expected to be, extensions 2009 were extendedlimited. Only at loan maturity is the borrower forced to find Extension 2009 extensions were 2.5 n/aan alternative refinancing source. maturities years on average Origination Actual LTV of 72% in 2009This is all the more important when we consider the 60% LTV was ahead of expectationsamount of outstanding debt to commercial real estateglobally, which we estimate to be US$6.8trillion. The Loan Year end 2009 figure (50bn) 17bn* originations above previous estimatesmajority of collateral is located in Europe and the US(Figure 2). Of this global debt, over a third (US$2.4 trillion) Capital


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