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European CMBS forced to the brink

For those dependent on the European commercial mortgage-backed securities market for funding, the credit crunch has prompted a round of soul-searching. The market may be closed for the next six months, forcing some to look elsewhere. What will it take to prompt a revival? Laurence Neville reports.

Relationships count for investors


The financial crisis that has engulfed much of the world since July 2007 has hit the European commercial real estate market hard. Headlines have become ever more lurid, as property values falling by a quarter prompted some investment funds to bar redemptions – £1.65 billion was withdrawn in the fourth quarter of 2007 compared to £139 million in the third, according to the Association of Real Estate Funds.

To date, the only forced sale, according to market observers, involved the UK-based Westport Land, that was unable to refinance its highly leveraged £95 million loan with Capmark Bank Europe (the former GMAC) in September. Nevertheless, some institutions are known to be slimming down their portfolios through private sales rather than high-profile public deals that would realise lower values.

Unsurprisingly, this market environment is resulting in lower commercial real estate investment transaction volumes in Europe. Figures from Jones Lang LaSalle show a fall of 13% in 2007 to around €220 billion – with much of the fall occurring in the second half. Moreover, the real estate services firm estimates that transaction volumes will decline a further 20% in 2008.

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