Capital Advisors | Four Quadrants | Confidence in Uncertainty | August 2016
Capital Advisors Four Quadrants Report | August 2016 Edition
The Four Quadrants report provides a holistic analysis of the ‘Four Quadrants’ of institutional real estate capital – private equity, public equity, private debt and public debt.
The Four Quadrants Highlights
• High stock market volatility persisted throughout Q2 2016 following a difficult start in Q1
• The Brexit vote has led to more pronounced performance divergence which was already an established trend in 2016
• The immediate Brexit effect was an anticipated flight to safety, where London specialists registered the largest falls, as opposed to German residential REITs which have gained c.20% year to date
• Funds targeting Europe raised a healthy €15.8bn in H1 2016, consistent with the same period in 2014 and 2015, indicating significant dry powder
• Secondary market activity registered good volumes. Pricing has come in and units in UK funds have moved into discount NAV territory
• Brexit triggered a significant increase in redemption requests in UK funds with daily liquidity targeting retail clients. Suspensions and upcoming ongoing asset sales are watched for early re-pricing indicators
• Corporate credit spreads showed resilience with very limited widening in response to the Brexit result.
• UK CMBS were trading 50-60bps wider at the end of July in comparison with pre-Brexit levels indicating higher pricing for real estate debt.
• No new CMBS issuance during Q2 due to limited traction of this financing route with sponsors or investors.
• Lenders in the UK are showing a continued appetite for new business post-Brexit, although they have indicated a more prudent approach when considering new transactions.
• We have started to see an increase in the margins quoted on new transactions, although this has been largely offset by the decrease in the 5 year swap rate.
• Leverage for senior loans is expected to come in from 60-65% LTV to around 55% LTV.