The most accurate gauge of a global markets performance is the activity of the largest companies.
Overseas rental markets are doing well in some areas, but many real estate companies have been unable to weather the storm. Colonial, the Spanish real estate firm, is one such company that is being forced to sell. Rising costs and global property bubbles are by far the biggest contributor to Colonial’s money troubles. The company has amassed a mountain of debt leaving it at the mercy of more successful companies.
ICD (Investment Corporation of Dubai) has struck a deal with Colonial to buy its rental business. The framework of the deal calls for a restructuring of the debt and ICD assuming the rental business for about $2.9 billion (1.9 billion euros). The rest will be relisted.
Before the deal can go through, an agreement between creditor banks Goldman Sachs, Eurohypo, Royal Bank of Scotland and Calyon. The deal isn’t scheduled to close until October at the earliest, and nothing is set in stone as of yet. The negotiated price of 1.19 euros per share could even change before the deal goes through. The share price will ultimately be determined by how much debt has been cleared as well as land and development assets.
In order to ensure the agreement is legal, there are literally thousands of agreements that must be met. Because of the unknowns and the waiting period, analysts are recommending that shareholders sell their stock.
Despite this warning, investors helped the stock increase by 18%. By Monday the market began to doubt that the deal would ever solidify and the stock decreased drastically. Within days the stock had regained 14.3%.
It is still unknown how Colonial’s rental properties in Barcelona, Paris and London will be affected, but investors everywhere are watching, as this could set a precendent.