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Retail Property Lending: Financing Retail Property Investments

This presentation by Harvey Kasin from Hypo Real Estate Bank International AG provides an introduction to property lending and its application in the retail property sector. It covers key terms, potential risks, investment opportunities, and the current state of the European retail investment market.

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Retail Property Lending: Financing Retail Property Investments

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  1. Presentation by Harvey Kasin, Hypo Real Estate Bank International AG Bank Funding of Retail property November 2008

  2. Introduction • What is Property Lending? • Retail Property Lending • An Example • Property Stats

  3. What is property lending? Lending a proportion of the cost of construction or value of a property • Senior lending 0 – 75% • Mezzanine lending 75 – 85% • Stretched mezzanine 85%+ How we earn money • Margin • Fees • Profit share Key Terms • LTV • LTC • ISC • DSC • Exit Yield • Amortisation / Bullet What happens when things go wrong? • Why? • LTV breach – market changes, income fall • ISC breach – centre / tenant failure, vacancy • More serious than other types of Real Estate • Receivership or administration

  4. Retail Property London Investment • Typical 75% LTV • Quality of Asset Manager / track record • Anchor tenants • Occupancy levels • Quality of scheme / mix of tenants • Retail hierarchy / competition • Rental income / value • Asset Management Opportunities Development • Development experience and design team • Design / layout location position of key tenants • Procurement route • Cost management • Cost overrun guarantees • Period of loan / stabilisation • % pre let Key Factors • Property on a ladder • Day 1 LTC/LTV • Cash flow assumptions made • Exit Yield

  5. Retail Property London Stand alone shop or parade • Quality of covenant • Rent & term of lease • Pitch & quality of town In town shopping centre • Lot size • Competition • Condition, capex • Quality of Asset Manager etc • Asset Management opportunities Out of Town • Planning • Environment • Car Parking FOC Factory Outlet Centres • Demographic Profile • Quality of management • Partnerships of landlord & tenant

  6. European Investment Market Prime Yields

  7. European Investment Market Prime Rental Growth

  8. An example A well experienced client approaches us to fund his purchase of the main shopping centre in well established strong town. The centre is considered by the market as a prime shopping centre.

  9. Development is proceeding faster in maturing/emerging markets

  10. Retail investment volumes have remained low into 2008

  11. 2008 Shopping Centre openings

  12. Change in buyer profile – low geared Opportunity Funds or Vulture buyers Due Diligence and decision making significantly slower Continued Outward shift in vendors price expectations Distressed vendors and ‘Off market Discussions’ Return to the market of some familiar names More attractive returns for property from lower Capital Value Base Re-pricing of risk-increased discount for Secondary Property Investment Market Summary

  13. Few buyers with access to significant equity Valuations generally continuing to fall Retailers Christmas trade will affect confidence in the sector Debt buyers unlikely to return in the very short term Opportunities exist for genuine buyers Retail Investment – The next Few Months

  14. Growth in shopping centre stock

  15. Major retail investment deals Q1-3 2008

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