(Bloomberg) — Roiled by rising borrowing costs and falling valuations that wiped out $148 billion of shareholder value, European landlords are bracing for a new wave of pain.
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Property companies have about $165 billion of bonds maturing through 2026, while banks are reducing their exposure to the industry and credit costs are at their highest since the financial crisis. That’s left some of the firms at risk of being downgraded to junk status, making it even more expensive for them to borrow.
The headwinds include a crash in office values from the City of London to Berlin, leaving property as the least popular industry among fund managers for the third straight month, according to a Bank of America Corp. survey. Bloated with debt, many landlords will have to turn to asset sales, dividend cuts and rights issues in an attempt to rightsize the firms for a more turbulent future.
“The maturity wall could be a catalyst for transactions to happen because if borrowers are not able to refinance, they will have to exit,” said Jackie Bowie, head of EMEA at Chatham Financial. “You’ll have more assets sold in the market, I suspect, at distressed levels.”
Debt Millstone
The poster child for the rout has been Swedish property firm Samhallsbyggnadsbolaget i Norden AB, which has plunged more than 90% since its all-time high.
Its debt pile of $8 billion, used to build up a portfolio of more than 2,000 properties, has turned into a millstone following the end of the cheap money era. The company’s efforts to shrink have attracted interest from the likes of Brookfield Asset Management, causing the share price to rally on Friday.
The landlord has already been downgraded to junk, leading it to abandon a planned rights issue, and the market is pricing in the prospect that others will follow. The majority of real estate bonds on the euro high-grade bond index were issued by companies that now have credit quality more typical of those with junk status, according to a quantitative model run by Bloomberg.
Unless they can shrink their debt piles or borrowing rates fall again, these so-called fallen angel candidates will probably have to pay higher rates for their credit when they eventually come to refinance.
‘Strong Incentive’
“There will be a very strong incentive for many of these issuers to get back to investment-grade. We’ve already seen them trying to defend that line in the sand as their business model is not naturally a high-yield one,” said Viktor Hjort, global head of credit strategy and desk analysts at BNP Paribas SA.
Maintaining the rating, however, may prove unaffordable for some, not least because landlords’ hybrid bonds have tanked on the secondary market.
Some money managers are losing patience, selling notes back to the real estate firms that issued them, including Aroundtown SA and Sweden’s Heimstaden Bostad AB. The attraction of the liability management for landlords is obvious: prices for high-grade euro-denominated notes have fallen by almost a fifth since the start of 2022.
“Large, and sudden moves in nominal rates create uncertainty and it’s important to maintain financial discipline to navigate such periods,” said Heimstaden AB Chief Investment Officer Christian Fladeland. “We consider this to be reflected in our strong balance sheet, hedging policy, and the balanced maturity profile of our debt.” Aroundtown and SBB did not reply to requests for comment.
Other firms will turn to rights issues or expensive alternative forms of debt to reduce their burden, eating into earnings over time.
That’s left corners of the equity market flashing red flags not seen since the financial crisis. Forward price-to-book multiples suggests these stocks are trading at the cheapest levels since 2008. The metric measures the value of a company’s shares against the value of its assets.
The peak-to-trough selloff since August 2021 is nearing 50%, or $148 billion, leaving the Stoxx 600 Real Estate Index at a record low relative to the benchmark European stocks index.
The wider turmoil cost British Land Plc its place in the FTSE 100 after more than two decades while the owner of the Canary Wharf financial district in London was downgraded deeper into junk. A spokesperson for British Land declined to comment. Canary Wharf Group did not respond to a call for comment.
British Land Loses FTSE 100 Spot After Two Decades in Index (1)
It’s also left real estate markets almost frozen with buyers demanding higher yields to compensate for the risk of rising interest rates and tenants leaving. The price of prime office buildings in Paris, Berlin and Amsterdam dropped more than 30% in 12 months, according to broker Savills Plc.
“Sentiment is still pretty bad and that’s what’s reflected in this market pricing,” said Bowie at Chatham Financial.
It’s part of a global trend that has seen the amount of property bonds and loans trading at distressed prices exceeds $190 billion. That contrasts with other industries, where it’s shrunk in recent months.
Further Falls
There may be worse to come. Commercial real estate values in Europe could fall by as much as 40% because of the extent to which debt markets have been upended, Citigroup Inc. analyst Aaron Guy wrote in a note earlier this month.
In addition, he wrote, landlords may have to provide about 50% additional equity when they refinance an asset in order to satisfy metrics that banks and private credit funds lend against. That’s based on a refinancing rate of 6%.
We are “operating under the assumption that valuations still need to adjust downwards. This means that there is still more pain to come,” said Max Berger, credit portfolio manager at DWS Investment GmbH. “Some of these business models are no longer viable. Bond markets are quite aware of that.”
The uncertainty has left money managers wary.
“We are staying out of the sector,” said Lucas Maruri, a fund manager at MAPFRE Asset Management, which manages about €40 billion. “We estimate that there are still risks that prevent the good performance of the shares of real estate companies, REITs and European developers over the coming months.”
–With assistance from Macarena Muñoz.
(Updates with scale of real estate distress in paragraph above subheadline Further Falls)
MONTREAL – Two Quebec real estate brokers are facing fines and years-long suspensions for submitting bogus offers on homes to drive up prices during the COVID-19 pandemic.
Christine Girouard has been suspended for 14 years and her business partner, Jonathan Dauphinais-Fortin, has been suspended for nine years after Quebec’s authority of real estate brokerage found they used fake bids to get buyers to raise their offers.
Girouard is a well-known broker who previously starred on a Quebec reality show that follows top real estate agents in the province.
She is facing a fine of $50,000, while Dauphinais-Fortin has been fined $10,000.
The two brokers were suspended in May 2023 after La Presse published an article about their practices.
One buyer ended up paying $40,000 more than his initial offer in 2022 after Girouard and Dauphinais-Fortin concocted a second bid on the house he wanted to buy.
This report by The Canadian Press was first published Sept. 11, 2024.
MONTREAL – The Quebec Professional Association of Real Estate Brokers says Montreal-area home sales rose 9.3 per cent in August compared with the same month last year, with levels slightly higher than the historical average for this time of year.
The association says home sales in the region totalled 2,991 for the month, up from 2,737 in August 2023.
The median price for all housing types was up year-over-year, led by a six per cent increase for the price of a plex at $763,000 last month.
The median price for a single-family home rose 5.2 per cent to $590,000 and the median price for a condominium rose 4.4 per cent to $407,100.
QPAREB market analysis director Charles Brant says the strength of the Montreal resale market contrasts with declines in many other Canadian cities struggling with higher levels of household debt, lower savings and diminishing purchasing power.
Active listings for August jumped 18 per cent compared with a year earlier to 17,200, while new listings rose 1.7 per cent to 4,840.
This report by The Canadian Press was first published Sept. 6, 2024.
In the quest to find cities where renters can enjoy the best of all worlds, a recent study analyzed 24 metrics across three key categories—Housing & Economy, Quality of Life, and Community. The study ranked the 100 largest cities in Canada to determine which ones offer the most to their renters.
Here are the top 10 cities that emerged as the best for renters in 2024:
St. John’s, NL
St. John’s, Newfoundland and Labrador, stand out as the top city for renters in Canada for 2024. Known for its vibrant cultural scene, stunning natural beauty, and welcoming community, St. John’s offers an exceptional quality of life. The city boasts affordable housing, a robust economy, and low unemployment rates, making it an attractive option for those seeking a balanced and enriching living experience. Its rich history, picturesque harbour, and dynamic arts scene further enhance its appeal, ensuring that renters can enjoy both comfort and excitement in this charming coastal city.
Sherbrooke, QC
Sherbrooke, Quebec, emerges as a leading city for renters in Canada for 2024, offering a blend of affordability and quality of life. Nestled in the heart of the Eastern Townships, Sherbrooke is known for its picturesque landscapes, vibrant cultural scene, and strong community spirit. The city provides affordable rental options, low living costs, and a thriving local economy, making it an ideal destination for those seeking both comfort and economic stability. With its rich history, numerous parks, and dynamic arts and education sectors, Sherbrooke presents an inviting environment for renters looking for a well-rounded lifestyle.
Québec City, QC
Québec City, the capital of Quebec, stands out as a premier destination for renters in Canada for 2024. Known for its rich history, stunning architecture, and vibrant cultural heritage, this city offers an exceptional quality of life. Renters benefit from affordable housing, excellent public services, and a robust economy. The city’s charming streets, historic sites, and diverse culinary scene provide a unique living experience. With top-notch education institutions, numerous parks, and a strong sense of community, Québec City is an ideal choice for those seeking a dynamic and fulfilling lifestyle.
Trois-Rivières, QC
Trois-Rivières, nestled between Montreal and Quebec City, emerges as a top choice for renters in Canada. This historic city, known for its picturesque riverside views and rich cultural scene, offers an appealing blend of affordability and quality of life. Renters in Trois-Rivières enjoy reasonable housing costs, a low unemployment rate, and a vibrant community atmosphere. The city’s well-preserved historic sites, bustling arts community, and excellent educational institutions make it an attractive destination for those seeking a balanced and enriching lifestyle.
Saguenay, QC
Saguenay, located in the stunning Saguenay–Lac-Saint-Jean region of Quebec, is a prime destination for renters seeking affordable living amidst breathtaking natural beauty. Known for its picturesque fjords and vibrant cultural scene, Saguenay offers residents a high quality of life with lower housing costs compared to major urban centers. The city boasts a strong sense of community, excellent recreational opportunities, and a growing economy. For those looking to combine affordability with a rich cultural and natural environment, Saguenay stands out as an ideal choice.
Granby, QC
Granby, nestled in the heart of Quebec’s Eastern Townships, offers renters a delightful blend of small-town charm and ample opportunities. Known for its beautiful parks, vibrant cultural scene, and family-friendly environment, Granby provides an exceptional quality of life. The city’s affordable housing market and strong sense of community make it an attractive option for those seeking a peaceful yet dynamic place to live. With its renowned zoo, bustling downtown, and numerous outdoor activities, Granby is a hidden gem that caters to a diverse range of lifestyles.
Fredericton, NB
Fredericton, the capital city of New Brunswick, offers renters a harmonious blend of historical charm and modern amenities. Known for its vibrant arts scene, beautiful riverfront, and welcoming community, Fredericton provides an excellent quality of life. The city boasts affordable housing options, scenic parks, and a strong educational presence with institutions like the University of New Brunswick. Its rich cultural heritage, coupled with a thriving local economy, makes Fredericton an attractive destination for those seeking a balanced and fulfilling lifestyle.
Saint John, NB
Saint John, New Brunswick’s largest city, is a coastal gem known for its stunning waterfront and rich heritage. Nestled on the Bay of Fundy, it offers renters an affordable cost of living with a unique blend of historic architecture and modern conveniences. The city’s vibrant uptown area is bustling with shops, restaurants, and cultural attractions, while its scenic parks and outdoor spaces provide ample opportunities for recreation. Saint John’s strong sense of community and economic growth make it an inviting place for those looking to enjoy both urban and natural beauty.
Saint-Hyacinthe, QC
Saint-Hyacinthe, located in the Montérégie region of Quebec, is a vibrant city known for its strong agricultural roots and innovative spirit. Often referred to as the “Agricultural Technopolis,” it is home to numerous research centers and educational institutions. Renters in Saint-Hyacinthe benefit from a high quality of life with access to excellent local amenities, including parks, cultural events, and a thriving local food scene. The city’s affordable housing and close-knit community atmosphere make it an attractive option for those seeking a balanced and enriching lifestyle.
Lévis, QC
Lévis, located on the southern shore of the St. Lawrence River across from Quebec City, offers a unique blend of historical charm and modern conveniences. Known for its picturesque views and well-preserved heritage sites, Lévis is a city where history meets contemporary living. Residents enjoy a high quality of life with excellent public services, green spaces, and cultural activities. The city’s affordable housing options and strong sense of community make it a desirable place for renters looking for both tranquility and easy access to urban amenities.
This category looked at factors such as average rent, housing costs, rental availability, and unemployment rates. Québec stood out with 10 cities ranking at the top, demonstrating strong economic stability and affordable housing options, which are critical for renters looking for cost-effective living conditions.
Québec again led the pack in this category, with five cities in the top 10. Ontario followed closely with three cities. British Columbia excelled in walkability, with four cities achieving the highest walk scores, while Caledon topped the list for its extensive green spaces. These factors contribute significantly to the overall quality of life, making these cities attractive for renters.
Victoria, BC, emerged as the leader in this category due to its rich array of restaurants, museums, and educational institutions, offering a vibrant community life. St. John’s, NL, and Vancouver, BC, also ranked highly. Québec City, QC, and Lévis, QC, scored the highest in life satisfaction, reflecting a strong sense of community and well-being. Additionally, Saskatoon, SK, and Oshawa, ON, were noted for having residents with lower stress levels.
For a comprehensive view of the rankings and detailed interactive visuals, you can visit the full study by Point2Homes.
While no city can provide a perfect living experience for every renter, the cities highlighted in this study come remarkably close by excelling in key areas such as housing affordability, quality of life, and community engagement. These findings offer valuable insights for renters seeking the best places to live in Canada in 2024.
