08/13/2012 | by
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European Property Companies Slow to React to Crisis

European commercial real estate companies have witnessed a "slow burn" in terms of their response to the eurozone crisis and trouble in the region's financial markets, according to Andrew Parsons, managing director with Resolution Capital.

"I think they're all trying to hope it goes away," Parsons told REIT.com in a video interview in New York at REITWeek 2012: NAREIT's Investor Forum. "A lot of them have got some fairly deep issues that they're just not, in fact, addressing. The market is waiting for some action."

Parsons noted that "select" mergers-and-acquisitions activity has surfaced this year. On the whole, though, the response from market players has been muted, he said.

"Generally speaking, management themselves have been very slow to react and respond in terms of trying to resolve some of the internal issues in their real estate companies," Parsons observed.

In Australia, REITs have been forced to deal with what Parsons referred to as "onerous" debt covenants, according to Parsons. The circumstances have led a number of companies to raise equity at an inopportune time.

"Nevertheless, they did raise their equity. They have resolved balance sheet issues. They've also addressed dividend payout ratios to make their dividends sustainable," Parsons said. "Australian REITs are now on a very secure, solid footing, albeit investors did pay a price. Now that they've made the hard decisions, they're ready to get on with life."

Parsons dismissed the notion that a specific market or subsector is substantially outperforming its competitors in Australia.

"Unfortunately, we've got a two-speed economy," Parsons said. "The resources industry is going very well. The rest of the country is effectively being strangled by the success of the resources industry, so there aren't many real estate plays focused on the resources part of the market."

Parsons pointed out that the Australian government has kept interest rates relatively high, constraining real estate investment on the whole.