Landlords: Its Their Lenders' Turn To Get Splattered. A Sunday Perspective

Posted on Sep 20, 2020. by NTI

News and Views for a Sunday from the NTI Newsroom Whilst You Wait for the Sun to Come Out; Always Free on the NTI App

The New Look CVA and its fallout was splattered all over the news last week, like seagull droppings over a picnic. Landlords, already reeling from the Government extension of the moratorium on taking action against non-paying commercial tenants until December, could be seen queuing outside therapists' offices the length and breadth of Britain as they took in the implications of their colleague's cave-in under coercion by the retail fashion group.

Landlords' struggles to collect rent from retail tenants have had a knock-on effect of multibillion-pound writedowns for their lenders. It is as hard to feel sorry for banks as it is for Paul Gadd (aka Gary Glitter) arriving at London Gatwick from Thailand to a hail of bad eggs and rotten fruit, but it looks as they are the next pin in line in the bowling alley concussion caused by the pandemic. After the value of Britain’s shopping centres dropped by 31 per cent to £18.5 billion in just two years, Bank of England officials met senior retail property figures to ask where the risk lies. According to one person at the meeting, the unanimous answer was the banks that had lent against them, although to be fair if Barbara who cleans the meeting room and re-stocks the fizzy water had been in there when the question was asked they would probably have pointed at her, so hot was the buck they held in their hands.

It is estimated that a large proportion of approximately £15 billion of impairments that Lloyds, Barclays and NatWest are making will be attributed to the commercial property sector. If landlords are taking haircuts in virtually every deal with retailers and the casual dining sector reported by the media, the razor could be aimed 30 centimetres or so south of the average hairline as far as bankers are concerned.

While, until at least December, landlords are constrained from collecting what is owed to them, there is nothing to stop banks being more aggressive. “Our banks are only waiving our covenant breaches if we prepay the interest on our debt,” said a senior source at a listed retail property company. “We are the meat in the sandwich," and it is well known that bankers like to make a meal of such things.

It is only 12 years since the people, popular comedians and media of the UK sent bankers to sit on the naughty step at the entrance to hell, and some commentators think they have learnt lessons from this experience by limiting some of their exposure to the position they find themselves in now with many of their landlord clients. But there are still some hair-raising numbers to wrestle with if you work at NatWest, Barclays, HSBC, as they stand to lose hundreds of millions of pounds from Intu’s collapse, and dozens of shopping centres are thought to be de facto owned by banks that lent mortgages against them.

You would think it would be a particularly bad time to look extremely cheerful about accepting a new role to succeed an exhausted David Atkins at Hammerson, owner of The Bullring in Birmingham, as well as even less glamorous locations. However, Rita-Rose Gagné, looks remarkably perky in this morning's (Sunday 20 September) Times. Do you think it was mentioned in her interview at Hammersons that the company has suffered an 85 per cent collapse in its share price since January, or was it glossed over with promises of a company car and Sunday off every six weeks?

We know that Rita-Rose reads keenly the NTI news bulletins, so she must have remembered that many of Hammerson's retail clients have gone belly up since March, and the rest are refusing to pay rent. But maybe she is not aware that Hammerson's shares closed at 21p on Friday, valuing it at £32 million, ironically the same as her last bonus at Ivanhoé Cambridge, a subsidiary of Canadian pensions giant Caisse de Dépôt et Placement du Québec, from which she was head-hunted. £32 million is, coincidentally, the cost of a fully-loaded new Rolls Royce Ghost with titanium back scratcher and cashmere wellies liner ... and sources tell NTI that Rita-Rose asked for two of those (one in hat black and the other in Icelandic white) as part of her golden hello.

Those most royal of landlords and no stranger to the back of a Rolls Royce, the Crown Estate, reported a profit of £345 million during the 12 months ending 31 March. But the value of Her Majesty's land and property decreased by 1.2 per cent to £13.4 billion, mostly as a result of a £552.5 million (17 per cent) write down of its regional portfolio due to the challenging retail market, including falling rental values.

Dan Labbad, chief executive of the Crown Estate said: "Our resilient structure, established to operate in perpetuity and with no debt, coupled with our diverse portfolio, provides us with the means to navigate this current crisis, while continuing to invest for the long term." The Estate's investment policy can be traced back to 1146 and the annexure of Wales and it makes such a difference to one's portfolio if one can sell Salisbury to pay for the annual staff get together.

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