The talk has been less about who’s here than who isn’t at MIPIM, the annual real estate gathering in Cannes.
HSBC and Bank of America Merrill Lynch declined to send staff to the South of France, according to The Telegraph, while Estates Gazette has reported Royal Bank of Scotland’s absence. There is talk of at least one other major bank giving it a miss this year.
Given that property industry partying has been in the spotlight after February’s Presidents Club scandal, it is perhaps not surprising that some organisations are avoiding an event known for its lavish parties on yachts and beachfront marquees.
Overall, though, this MIPIM feels more businesslike than previous years’ events. People are here to network, rather than to party.
The ‘MIPIM mood’ is probably best described as determined optimism. Capital providers – of equity and debt – intend to continue doing business. Transactional volumes remain high and underlying economies strong. But everyone knows we are late cycle and few can guess how long this phase will last. There’s positivity, mixed with an understanding that the market could be on borrowed time.
Lenders say there is a healthy year ahead, while admitting their jobs have got harder since the last MIPIM. Here are a few things they’re talking about along La Croisette.
1. Competition has forced loan pricing down. Most admit seeing downward pressure on senior lending margins during Q1. Pricing has probably reached a level where it cannot go any lower, remarked one optimistic lender. It’s a borrowers’ market and there is talk of some banks relaxing loan covenants to make sponsors happier.
2. Lenders are looking for more juice up the risk curve.While many alternative lenders pile into traditional banks’ territory to offer senior debt, there is also a trend towards senior lenders looking to supplement their regular business with higher-return lending. Development finance is increasingly spoken about, as lenders aim to finance their best sponsors’ ‘build-to-core’ strategies.
3. Debt volumes are ballooning. An increasing number of equity players are considering becoming lenders as their investors ask them to deploy greater volumes of capital. With fewer opportunities to buy the types of property they want directly, many see debt as a sensible way to access deals.
4. Value-add investors are keeping high-yield lenders occupied. Private equity sponsors are actively hunting Europe’s remaining pockets of value-growth, providing financing mandates for those lenders with flexible capital. Value-add investors are targeting markets experiencing structural shifts, such as logistics and healthcare. Borrowers report an adequate, if not abundant, volume of debt available for most value-add strategies in most locations.
5. Rising rates are being downplayed. Since last year’s MIPIM, a global sea change in monetary policy has become a real prospect, signalling the beginning of the end of the ‘lower for longer’ decade. However, it would be wrong to suggest there is widespread worry yet; even a moderate rate rise in 2018 would not significantly affect real estate’s relative value, many argue. For now, property lenders and investors are determined to do business while the fundamentals remain in real estate’s favour.