In the 1990s many changes were seen in the UK standard institutional leases. The lease normally had the lengthy-term, ranging from 20-25 years or more; the landlord had more control over the disposal of the lease by the tenant, lease payments were subjected to upward revisions on a periodic basis depending on how the open market rents moved. Earlier responsibilities vested with the landlord were transferred to tenants either in physical form or via monetary charges. These included insurance, repairs, and maintenance, or any other replacements. These changing trends led to larger developments in the area.
But today, the trends are largely changing – modern businesses no more have huge planning horizons, in fact, these have shortened to three to five years. Thus, the increase in lease terms for twenty to twenty-five years brings in huge costs and ties the business for a very long time and brings in larger inflexibility. This nature of lease diverts attention from the main business operations and the clause for one direction (only upwards) was in favor of landlord whereas, the tenant was devoid of taking any advantage in times of falling market prices; highly affecting the business profitability.
To resolve such problems many products were introduced then such as securitization which led to the development of asset-backed issues. An example can be seen in Trafford Centre Finance Ltd which issued notes backed by Peel’ s Trafford Centre regional shopping center spread over 130,000 square meters and was arranged by Deutsche Bank. 610mn pounds were raised from this issue. Similar to this Canary Wharf Group issued two major secured debts – one was a 550 mn pound Eurobond issue (proof of property market going global) and was underwritten by Morgan Stanley and secured by rental income of the property; a stepped coupon bond and a floating rate note were issued.
The three office buildings, retail space and car parking at Canary Wharf were structured from this huge financing.
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