US investors swoop on British property

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The Independent Online
AMERICA'S top investment banks and property funds are launching a multi-billion-pound swoop on the UK's booming commercial property market.

The US assault, which will comprise billions of dollars of investment, looks set to dominate overseas interest in UK property following an investment shift by a number of tax-efficient US funds called Real Estate Investment Trusts (Reits).

They are scouring the UK for direct investment opportunities after several successful years in the buoyant American property market. However, fund managers are concerned about too much domestic exposure and are looking to spend up to 10 per cent of their money in the UK and continental European markets which are behind the US in the property cycle and offer good investment prospects.

At the same time American lenders are expanding loan portfolios for UK property. US investment banks are unleashing a multi-billion-pound European debt financing programme. Lehman Brothers, JP Morgan and Morgan Stanley are planning to increase their indirect exposure to UK property by lending hundreds of millions of pounds to property companies to finance development and acquisitions.

The US banks plan to parcel the loans and securitise them before issuing bonds at a lower interest rate than that of the original loan.

It is understood this will enable US banks to compete with German mortgage banks, which have dominated property lending in the UK since the early 1990s.

US property funds threaten to spend similar sums on UK property by investing directly in fixed assets or taking stakes in property companies. The charge is being led by Security Capital, a $5bn (pounds 3.05bn) investment group, which runs six of the biggest property funds in the US. Security Capital has set up a $2bn global property fund to buy stakes in UK and European property companies.

The predatory US group has already bought up some of UK property's brightest talent. It has pumped pounds 450m into a new venture with leading London developer Patrick Despard, which it will float as a pounds 1bn property company in three years' time. It has also taken a majority stake in a joint venture with the innovative office developer Akeler, run by chief executive Mark Glatman. With the deal in place Akeler recently looked closely at buying British Aerospace property subsidiary Arlington, valued at pounds 300m. And two weeks ago, US Reit CarrAmerica paid pounds 22.4m for serviced office provider HQ Holdings run by Eighties developer Peter Kershaw.

Peter Shaw of London property consultants Saxon Law, who works closely with Security Capital, said: "The Americans have the potential and I think the intention to invest a great deal more in UK property than the Swedish, Japanese and German investors of years gone by."