Ultra-rich pull cash from mansions to buy beaten-down assets

London

FROM London townhouses to Parisian apartments, some of the world's richest homeowners are turning to their real estate holdings to access cash.

Enness, a mortgage broker that caters to the wealthy, said more clients are seeking loans backed by real estate to help them repay other debt, invest in businesses and snap up cheap assets in the wake of a pandemic-driven rout of global markets.

One Asian family drew down about £40 million (S$70.4 million) against a collection of homes in London's upscale Knightsbridge neighbourhood to fund property purchases and private equity investments in the UK.

A Middle Eastern client borrowed £15 million against a plot on the city's north side to acquire other sites. An owner from Eastern Europe is tapping liquidity from his Paris home.

"We have individuals from all over the world contacting us for this very purpose," said Islay Robinson, chief executive officer of London-based Enness.

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"There is an abundance of mortgage finance available, and using real estate to secure a funding line can open plenty of opportunity - especially if you are borrowing at record low rates."

Quentin Marshall, head of private banking at Weatherbys, said many of its clients are doing the same. They are borrowing to diversify holdings and to avoid dismantling existing portfolios when markets are down.

"People have got other investment assets that they don't want to disturb," he said. "Rather than seek to do anything on that side of their balance sheet, they are looking to borrow."

Real estate is one of the largest asset classes held by rich families, comprising more than a fifth of holdings at family offices, according to a survey by UBS Group and Campden Research.

They are often not heavily mortgaged - if at all - making it an attractive asset to leverage.

The ability of the wealthy to unlock home equity contrasts with the wider housing market, where new lending has dried up because in-person property valuations, a cornerstone of the process, have ground to a halt.

UK home sales plunged by two-thirds in the week ended April 4, compared with the five-year average, according to real estate consultant Knight Frank. The decline has been more muted at the top end of the market, where bespoke deals and lower loan-to-value ratios are common.

"We are operating as normal," Mr Marshall said.

For those with sizeable property empires, real estate is a cheap source of capital. Mr Robinson said interest on a five-year loan is generally 1.5 per cent to 3 per cent over the Bank of England's base rate, currently 0.1 per cent.

While global equity markets have tumbled - the MSCI All-Country World Index is down 18 per cent this year - property values may fare better.

Knight Frank forecasts London house prices will decline just 2 per cent in 2020 before growing 6 per cent in 2021.

That relative stability has encouraged some of Mr Robinson's clients to restructure their debt by raising money against property to pay back loans secured by stock, avoiding potential margin calls.

An ability to access cash is proving key in the current climate, where some investors are seeing opportunities after weeks of falling equity prices.

A variety of assets have been collateralised. Art-financing firms have made loans against works by Jean-Michel Basquiat and rare diamonds. Like property, valuations for fine art do not necessarily correlate with equities.

In some cases, wealthy families have even started lending to banks. Credit Suisse turned to its own wealthy clients to bolster its ability to lend as markets sank last month.Investors with large real estate holdings have plenty of flexibility in times like these, according to Mr Robinson.

"We have more options than you would expect at this stage of the cycle," he said. BLOOMBERG