Which Property Camp are You in?

Highly leveraged ("Debt") or high asset to loan ratio ("Money")?

At TMP we are seeing a widening gap between these two camps - those in debt and those with money.

This is particularly true for our property clients, some of which have seen their financial position radically improve over recent months. Rental income has remained the same (in most sectors) and the cost of borrowing has reduced in line with interest rate reductions. Simply, this has the effect of improving the yield on already yielding property.

This is most noticeable for some of our highly leveraged property development clients who were previously struggling on a cash flow basis. Although overhead costs and capital depreciation may result in negative total returns, in the short to medium term the prospects for the long term are promising. Importantly, they now have cash positive business models to see them into the future. If current cash requirements exceed existing cash we are assisting those clients with corporate restructuring and turnaround finance to further boost their prospects.

The net effect of falling real estate prices and increased yield potential is having a marked effect. Auction houses and banks are now seeing an increased interest from willing investors. As expected, London and the South are leading the way.

Investors are not only looking for new opportunities to maximise rental yield they are also looking to take advantage of those landlords who may be distressed.

Many landlords negatively affected by the economic downturn have been forced to sell their properties. Some have taken the "first loss is the best loss" approach to dispose of properties. The principle being that the sooner you sell in a falling market the more you protect yourself against the ongoing fall. When those properties are yielding it provides a real opportunity for the acquisitive landlord. When properties have little or no yield (i.e. partially completed developments) then a formal insolvency procedure is often the only way forward and we have been called in to unravel the situation.

For the year to December 2008 there was an annual increase of 357% of buy to let mortgages with arrears of greater than 3 months. The National Landlords Association, which receives 30,000 calls a year, estimate that 74% of those calls are landlords seeking advice on how to deal with tenancies with growing rental arrears.

It is important for a landlord to protect himself as much as possible from tenant default. Reportedly, 62% of the working population are fretful that they or their partner will lose their job. The correlation between landlords in financial difficulty as a consequence of a defaulting tenant is very close. This is especially true where rental income is supporting further developments. We have assisted a number of clients recently in just this situation and anticipate more in the coming year.

At TMP we pride ourselves in that we transact on both sides of the investment /debt camp. Working alongside those willing to make investments, we apply the right techniques, procedures, commercial solutions and experience. Importantly, we also determine the best ways to minimise any exposure which would negatively affect yields. This is doubly important when the investor is opportunistic and may not be a seasoned property investor.

For businesses with cash flow difficulties or those heading for the debt camp we bring our turnaround skills to the fore. Using formal insolvency procedures as tools for recovery or informal deals (where appropriate) we assist clients back to a positive outlook.

TMP has specialised in recovery and turnarounds for over 16 years and regardless of which camp you, or your business is in, we may be able to assist you. Our initial assessment meetings are free of charge. Discussing the options and investigating the routes forward is a key part of the early meeting stage so please do not hesitate to contact us if you believe we may be able to assist you.