careful, page-76

Haka,

I agree - some good thoughts. A number of sectors in the UK are showing signs of good value right now, although there will be further falls to June as you suggest.

I think the UK market fall is far greater than your 20% estimate. IPD report that UK commercial values are down 36% since the peak in June 2007 to the end of Jan 2009. But of course the IPD index is based on valuations which themselves rely on historic evidence, so the true market fall is probably in the order 40%+. Central London offices lead the pack which have been hammered.

Despite few transactions, I actually think there is a lot of money in the market, wisely sitting on the sidelines. 2008 was a record year for real estate fund raising and although far more challenging of late, cash is still piling up. I point to Benson Elliot's final close last month at EUR500m as an example. Ten weeks they reckon it took to raise that, although I don't believe it for a second.

Germans are having a good look around the market and I suspect the next wave of interest will come from dollar denominated investors. If you overlay the USD / GBP currency swing on top of the IPD reported fall since the peak (36%), it infers that an UK asset that could have been purchased for the equivalent of US$100m in June of 2007, can now be picked up for for the equivalent of US$46m. That is starting to turn heads, particularly when you can invest with a strong yield arbitrage into one of the world's most favourable lease structures on a close to zero (UK) tax basis.

Most funds do have LTV breaches. Luckily, the problem is so widespread that it has almost turned around to be the bank's problem. Accordingly the loans of active, established managers with LTV breaches that are keeping their interest current, are generally being kept in place by banks. Although it comes at the hefty price of cash lock up which means the fund manager often can't get their fees out. Which can make it tricky to run a fund management business.

Hmmmmm. I wonder if the latter might be an issue going forward for VPG on their 6 UK funds under management?

Also, since I'm here, I think that someone might have asked for the VPG '08 breakdown of EBITDA by segment:-

Rental Income: 39%
Dev & Trading: 24%
VCS: 20%
Funds Mangement: 17%