Question-and-Answer Session
Unidentified Participant
(Inaudible Question)
Gordon DuGan
Two very good questions, one a lot very little bit more about our global investment business and what has happened in the dynamics of that business with respect to cap rate etcetera, where are you invested, how you invested and what are you seeing? And the second is what happens when companies default on their lease?
The first question, we started investing in 1998 in Europe, we saw an opportunity where corporations were a much larger owner of commercial real estate in Europe then they are in the United States. And U.S. roughly, 40% of all commercial real estates owned by corporations.
In Europe the percentage is almost 70% of all commercial real estate is owned on corporate balance sheet and so what we knew from our experience is over time that tends to go down and European corporations would be in a position where they find it better use of their capital to sell off real estate and start to shrink the amount of real estate that they own on balance sheet and what has happened in the last 11 years has proven to be exactly that.
In fact the sale lease back market in Europe is four times the size of what it is in the United States in terms of volume. There were very large sale lease backs where companies were selling – there were very large real estate holdings in Europe and what we’ve seen in terms of the dynamic from a cap rate stand point is, there has been a world wide convergence of cap rate.
Cap rate in continental Europe are very similar to what they are in the United States. We are $9.5 billion of assets, roughly 3 billion of that is in Europe, almost none of it in U.K., a tiny bit in U.K. Most of it is in continental – all of the rest of it is in continental Europe, primarily Germany, Scandinavia, the Benelux countries, Poland, but in Poland we have a German company parent guarantor, and France.
Those were our major investment markets in Europe. We buy passed the hot markets of the U.K. and Spain at the top of the cycle and there maybe opportunity in those countries going forward, but what we have seen as a convergence of cap rates, as a convergence of interest rates and a convergence of cap rates.
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