Leveraged Real Estate in Europe Faces Its Reckoning
The property sector is springing cash calls and dividend cuts on shareholders. But investors in the less indebted firms — especially in the UK — aren't all smiles.
Sinking property values are forcing Swedish developers into cash calls.
Photographer: Bloomberg/BloombergThe reckoning has begun for continental Europe’s highly leveraged real estate companies. With property values falling in response to higher borrowing costs, balance sheets are feeling the strain and bosses are taking defensive measures. Surely the risk-averse UK real estate sector, which avoided over-indulging at the debt punchbowl, must be feeling some schadenfreude? Well, not so fast.
Europe’s property firms keenly exploited ultra-low borrowing costs in the 2010s. Take German residential landlord Vonovia SE. It financed its bid for rival Deutsche Wohnen by selling bonds at rates unimaginable today. Some 1.8 billion euros ($1.9 billion) was borrowed at a zero percent coupon. The coupon on the 30-year tranche was just 1.63%.