The Hotel Deal – Still Rolling Along!

Well, the on-going hotel deal that I first introduced you to here, and then updated you here, took another tentative step forward yesterday.

The prospective buyer emailed to say that they have now decided to move forward with the purchase, and would like to view the property next week. This came as a bit of a surprise, as they officially declared themselves “out” the day before, but no matter – we were able to recover the situation for them through our amazing powers of tact and diplomacy. I also have to honour them for asking for a viewing within a sensible timescale – you wouldn’t believe the number of times I’ve had buyers ask for a viewing “this afternoon” or “first thing tomorrow”, before there’s even a shred of paperwork in place.

So, I called up the sellers’ mandate, gave them a choice of two dates and times, and asked them to get back to me. They did, and what they said has the seeds of a Mexican standoff within it.

Basically, the buyer won’t produce a Proof of Funds until he’s seen the property. And the vendor won’t entertain a viewing until he’s seen a Proof of Funds. Uh-oh.

Actually, at this stage, I’m not too worried. The buyer owes me a couple of favours, and they can see how they’re looking to the vendors at this stage, what with the delays and vacillations. Plus, I’ve negotiated a compromise, in that their POF will go to an intermediary lawyer, not to the vendor. The vendor can then be reassured that the funds are there, by the lawyer, while the buyer doesn’t have the concern that his POF will be misused or see by too many parties. The vendor will only actually see the POF once the viewing has taken place, and the buyer decided to purchase the hotel.

I’ll speak with the buyer later today – I’m sure we can get around this small procedural issue and get on and close the deal.

Watch this space…

 

Who Still Thinks the Global Financial System is Recovering?

So Portugal is a basket case, financially.

Ireland is a basket case, financially.

They’re rioting in the streets in Greece as the country begs more euros from the reluctant German taxpayers to bail it out yet again. If that effort fails, it could default, and could exit the euro.

On Friday, Moody’s announced they were placing Italy’s Aa2 rating on review for a downgrade, and yesterday they turned their attentions to a series of Italian state controlled companies, warning that these, too, could be downgraded. You can get the view of the Economist (slightly illicitly, which fits the subject matter nicely) here – check out the downloadable file at the bottom, which gives you the report illustrated…

So much for Europe.

Meanwhile, in America, they dodged the last time their debt ceiling loomed large, and put the new date out to August when…

“the Treasury has reached the limit of its ability to shuffle accounts and literally can no longer pay its bills. Secretary Geithner will at that point make an announcement that in three days there is an X billion payment on Treasury bonds coming due. He will say that the government does not have the money in the bank and will, therefore, have to miss this payment.”

It is somewhat partisan, but this post nicely lays out the ‘endgame’ that is currently being played out over there.

We thought the autumn of 2008 was bad, when Lehman Brothers collapsed and the world financial system came, by some accounts, within 72 hours of total systemic collapse.

Could it be that we’re heading for an even worse year-end this year? And this time, it’s not just banks collapsing – it’s entire countries, bringing banks down with them.

 

Would You Buy This Asset?

Over at Ningaloo Reef, we source large, off-market property assets for hedge funds, family offices, private equity firms and the like.

We get new stock coming in from our sourcers every week – sometimes several a day – and it’s part of my job to sift through them, discard the ones that we can’t use, and do first-level due diligence on the rest.

I might discard something because we don’t have a buyer for it, or because it’s on-market with a large agent, or because it’s over-priced, or the yield is too low, or deliverability is suspect, or for a host of other reasons. We take pride in only showing clients assets that fit the criteria they’ve given us, and only working on assets that can be delivered. We don’t always get it right, but most of the time, we do.

I have one requirement at the moment that I’m finding quite hard to fill, but something came in today that might just do the trick.

It’s a large retail building in a major UK city. (I can’t say to much as this is a discreet, off-market transaction, after all, and I can’t run the risk of it being identified). It’s let to a Big Household Name (BHN) for over 70 years, of which there’s still 40-odd years left to run. The BHN has guaranteed the lease for it’s entire duration.

The price is £72m, and the yield is 7.5%.

All of which looks great. The only downside that I can see – apart from the fact it’s an ugly building! – is that said BHN has been in some financial difficulties in recent years. I think they’re more or less back on their feet now, with recent figures showing sales up by 4.1%, debt reduced by a third, and gross transaction value up 2.3%, year on year.

So…would you invest £72m on the basis of this information?

Political Point-Scoring and Bandwagon-Jumping Hits a New Low Today

It’s Fathers Day today.

Now, I’m not a big fan. It wasn’t really around when I was a kid. It’s only in the last decade or two that it’s turned up on these shores – from America, I’ve been told – and yet another invention that Hallmark, and other big greeting card makers, have gleefully embraced and encouraged, in order to extract further coins from the pockets of little (and big) children at what could otherwise be a rather dead time of year, business-wise.

Having got the Bah, Humbug out of my system, I do quite like the idea of the role of Father being celebrated – especially since becoming one myself, some years ago. My estranged daughter Kesri (9) and my beautiful Little Boy Sam, have taught, and continue to teach me much about myself and the world. Being a Father is an eye-opening experience, to say the least!

Regardless of personal attitude or experience, today is the one day in the year when Fathers are nationally recognised and celebrated and, in some cases, remembered.

So it struck me as super-cynical of David Cameron to choose this day to loudly proclaim that fathers who fail to support their children should be treated by society like drunk drivers – beyond the pale, in other words.

It’s like waiting until Easter to announce that chocolate causes cancer.

Why would Cameron say this, today of all days, if not for a bit of uber-cheap political point-scoring? Today is a national celebration of what fatherhood is and can be, and he picks this moment to focus media attention on the worst side of fatherhood, and vilify it for all he’s worth.

David Cameron has gone down in my estimations today. And he wasn’t starting from a particularly high point to begin with.

The Slippery Slope Gets Greece-ier

Greece is bust. Broke. Bankrupt. They don’t have enough money in the coffers to repay their existing debts, and default is looking almost inevitable.

They’ve tried a whole raft of austerity measures, and these have mainly led anger, erupting into violence in the streets.

This morning, the Greek Prime Minister is ‘re-shuffling’ his Cabinet – which, in this context, sounds a lot like re-arranging the deckchairs on the deck of the Titanic. He’s fired the finance minister who put the austerity package together, and is replacing him with some other poor sap. Talk about a hot potato!

On the Today programme on Radio 4 this morning, Norman (now Lord) Lamont, who was Chancellor of the Exchequer in the Major government, laid out two options, neither very pretty.

Option 1 – Greece defaults now. It’s pretty much inevitable, and they could just choose to get on with it, face the pain, and get it over with.

Option 2 – play for time. This is what Greece has been doing all along, and what the other European partners have been doing also. The problem with this option is that it will cost more money to keep Greece limping along. The strongest EU economy – Germany – gets lumbered with the bulk of any bailout bill, and the Germans are, understandably, getting a bit irate about the amount of money they’re pouring into a bankrupt country.

When asked, finally, what he expects to happen next, Lamont said that he expects us to all “keep kicking the can down the lane, but the trouble is, the can is going to get more and more battered”. (That’s a paraphrase from memory, not a direct quote, for all you pedants out there!) Option 2, in other words.

He also said during the interview that the Greek representative in the European parliament has openly said that the possibility of Greece leaving the euro and returning to the drachma is on the cards, and is being discussed. That would almost certainly spell the end of the euro as a currency (the ‘currency without a government’, as Lamont calls it) because it immediately raises questions – Is the euro in Portugal, or in Ireland, worth the same as the euro in Germany, or France?

Norman Lamont was always dead set against the UK joining the euro – it’s one of the few things he and I agreed on. He could be saying “I told you so” now, but he recognises how serious this situation is rapidly becoming. If Greece bails, and the euro collapses, it’ll have huge ripple effects across the entire world – just at a time when the global financial system is far from robust.

More and more people I talk to are getting out of fiat currency, of any kind, and getting into hard assets such as silver, gold and property. As the Greek situation continues to deteriorate, and QE3 looks ever more likely across the Pond, the need for such a move looks to be getting increasingly urgent.

Busy, Busy, Busy…

I haven’t posted for a few days as we’ve just been flat-out here.

That’s good, from a business perspective, but I’m hardly getting outside this week. I just have to content myself with the magnificent rural views out of the office window while I take call after call, write email after email. Could be worse, though. Could be in a real job…

So, what have we got cooking this week? We have…

• A fund looking at buying a large hotel in Manchester
• A developer is looking at a flat with PP for an extension at Chelsea Harbour
• Another fund is looking at a 5-star London hotel
• The hotel deal I’ve posted about before is still ticking along
• A few inquiries about the SBLC funding route

…and a couple of other things that are currently under wraps.

It’s been a good week so far. I’d love to see something go to the next level – to get more concrete, as it were. In the meantime, I’ll just hang with the tension…

 

Think America is Past the Worst? Think Again…

“Prior to the bursting of the credit bubble, the public was shocked to learn that our biggest investment banks were levered 30 to 1. When asset values fell, those banks were quickly wiped out. But now the Fed is holding many of the same types of assets and is levered 51 to 1! If the value of their portfolio were to fall by just 2% the Fed itself would be wiped out.”

This short article makes for a sobering read…

 

Renting is Now More Expensive Than Buying in 8 Out of Ten British Cities

This piece of research just in from Zoopla…

•           Average cost to rent now 9.7% higher than cost to own
•           Best to buy in Milton Keynes but renting rules in Poole
•           Even cheaper to buy in London, saving over £4,000 p.a.

Renting a home in Britain is currently 9.7% more expensive than owning on average. And it is cheaper to buy instead of rent in eight in ten of the 50 largest towns and cities across the country, according to the latest research from leading property website Zoopla.

The research looks at the current asking prices and rents of two-bedroom flats around the country and assumes interest-only mortgage payments of 5% p.a. to provide a comparison to the cost of renting.

The range of results by location provides some very interesting insight into where it is best to rent instead of buy and vice versa. Milton Keynes tops the list of places where renting is the far less attractive option with average rents exceeding the cost of servicing a mortgage by a staggering 43%, leaving renters there on average £2,964 per year worse off compared to owners. At the other end of the scale, it is currently much more cost effective to rent in Poole than buy with renting 27% cheaper and the average tenant better off by £3,240 per year by renting instead of buying.

Even in London, which has by far the highest property prices in the country and where the average 2 bedroom flat is going for £431,366, buying is still 16% more cost-effective than renting. With average rents at £2,137 per month in the capital versus an average cost of a 5% interest-only mortgage at £1,797 per month, renters pay an extra £4,080 annually compared to owners.

Nicholas Leeming, business development director of Zoopla.co.uk, said: “The relative cost of renting as opposed to buying has increased over the past 12 months as rents have risen and house prices and interest rates have remained flat. Almost 750,000 would-be first-time buyers have reluctantly ended up as renters over the past 3 years as a result of being unable to get a mortgage. With current house prices and interest rates where they are and with rents on the rise, for those who can get a mortgage, there may never have been a better time to buy.”

Full list of the top 50 locations, go here.

 

We Should Stop Worrying About Inflation

Nobel Prize winning economist Paul Krugman wrote yesterday…

Anyway, the bottom line for now is that neither the Fed nor the E.C.B. should be at all concerned about inflation. Unfortunately, the E.C.B. is not interested in having its orthodoxy challenged.

Read the full article here.

If this is true in the UK, too, then it may be some time before rates start to rise here. Which might be bad news for savers – are there any savers left now in the Western world? – but it’s good news for home owners and property investors with multiple mortgages.

Let the Govenor of the Bank of England keep writing his regular letters to the PM, explaining why inflation is hovering around double their target, and let us carry on paying low rates for our investments…

 

Letting Agents Are the New Estate Agents?

Someone on Property Tribes pointed this article out, and I quite like the madness and the faux-vitriol on display here, directed towards letting agents.

I love the idea of the company BadMove having a ‘Director of Deliberate Awkwardness’ who, after suggesting no one is getting a mortgage this side of the 28th century, goes on to say…

“Kneel before our awesomely demanding application process, which requires references from at least two dead family members, the leader of a global religion and a kestrel.”

It’s a very silly article on a rather mad site.

Enjoy!