A perfect storm for the real estate sector
Funding costs of Nordic real estate companies have leapt over the past several months, reflecting growing investor caution amid high inflation, rapid interest rate increases and slowing economic growth prospects. Higher funding costs have in turn reduced issuance by commercial real estate (CRE) companies, and some are likely to turn to the banking system or alternative sources of financing to cover sizeable upcoming bond maturities. Although banks are likely to take on some of these “flow back” amounts, they will selective, pressuring other CRE companies to seek out alternative sources. Refinancing risk will therefore increase, even if companies can use revolving credit facilities to refinance some of their debt maturities. In the longer term, some may have to reduce or cut dividends, issue equity or divest assets. We expect leverage could increase as widening yields and a weaker economy weigh on asset values. Higher interest rates, hedge maturities’ refinancing needs and new debt due to capital expenditure will reduce EBITDA interest coverage. Against this unsettled backdrop, we ask whether this confluence of factors represents a “perfect storm” for CRE companies and whether it marks the “beginning of the end” of the current real estate cycle.
Registration & networking breakfast
Moody’s real estate property outlook: Credit quality is rapidly weakening (Swedish)
- Are real estate companies facing a perfect storm and what does it mean for credit quality?
- Inflation is soaring and central banks are hiking interest rates
- Bond and equity are penalising real estate, companies are turning to secured debt funding
- Property yields are increasing, lowering valuations and raising effective leverage
Panel discussion: Status of the property market and key risks (English)
- Is a crash in both the commercial real estate and housing sectors on the cards?
- How will the Riksbank and other central banks act?
- How will property market values develop?
- Will households be able to cope with high inflation and interest rates at the same time as high energy prices?
- Do households and property companies pose a financial systemic risk?
Panel discussion: Financial systemic risk - banks’ exposure to property companies (Swedish)
This panel will start with a short presentation from Riksbank, followed by a short presentation from the Swedish Financial Supervisory Authority.
- Will banks be able to digest property companies’ upcoming bond maturities?
- Will the Riksbank take households’ indebtedness and property markets’ leverage into account when considering interest rate rises?
- In what situation would the Riksbank purchase bonds on the secondary market?
- Does the real estate market pose a financial systemic risk?
- Will property companies’ refinancing risk lead to a change in regulations for banks and commercial real estate?
- How does today’s situation compare to the property crash in the 90s?
Networking & Coffee Break
What are real estate companies doing to reduce risk and protect credit quality? (Swedish)
- What are real estate companies’ views on what is happening in the property market and what will follow? Will financial policies of real estate companies change?
- Are there still buyers of assets out there? How do they refinance such purchases?
- What is needed to “open” the bond market again?
- Is the stock market overreacting?
- What is the appetite of banks to lend to property companies?