Can corporates get over the real estate hangover?
Operating company securitizations had to take a back seat to real estate as UK corporates rode the real estate boom in recent years. But with commercial property valuations in free-fall and the hybrid CMBS market dead in the water are opco/propcos about to make a comeback?
SECURITIZATION OF THEIR property portfolios has been a no-brainer for corporates in recent years. From supermarkets to pubs, company treasurers swiftly realized that the leverage they could achieve by monetizing their real estate was far higher than anything on offer elsewhere. The corporate securitization market therefore morphed into a hybrid CMBS market, with tenant quality and operating cashflows taking a back seat to ballooning property values. But UK commercial property has had a catastrophic start to the year, and this logic has been turned on its head. "In this environment it may well be the case that you can get higher leverage through a whole-business securitization than through an opco/propco deal," says a CMBS banker, with an air of weary resignation.
This is a complete reversal of the dynamics that have driven the corporate securitization market for the past five years. "Previously, corporates with real estate assets could use them to repeatedly refinance the business," says Andrew Currie, managing director at Fitch Ratings. "Sentiment has now completely switched. On the basis that it is a hard asset, real estate should be as good a form of collateral for corporate finance as anything else.