REAL ESTATE FINANCING BY PPP – THE ROLE OF CAPITAL MARKETS AND INTERMEDIARIES
||REAL ESTATE FINANCING BY PPP – THE ROLE OF CAPITAL MARKETS AND INTERMEDIARIES
||Book of Abstracts: 13th Annual European Real Estate Society Conference in Weimar, Germany
||In the context of real estate projects initiated by the public authorities Public Private Partnerships (PPP) have become increasingly important during recent years. Two main goals usually are strived for with such a scheme: to enhance operational efficiency and to make private financing available for public projects. As efficiency gains result from appropriate risk sharing and, on the other hand side, any financing essentially forms a risk transfer both goals are closely intertwined. A contract on risk sharing requires a risk assessment and a risk pricing both parties can agree upon. Risk pricing and risk allocation forms the core of what happens on capital markets where investment possibilities compete for investors and terms of financing. An efficiently working market reduces transaction costs by providing information and easing negotiations. But capital markets don’t work as a matter of course. As serious information and incentive problems are to overcome they rest upon the services of specialised intermediaries that facilitate and accelerate transactions. The hoped for private financing of PPP projects therefore will only be achievable efficiently and well-priced if the necessary intermediation service is available. The paper analyses what kind of intermediation seems appropriate for real estate PPP-projects and whether offering such services is attractive for banks and other intermediaries in the current market situation. The large-scale changes in intermediation such as the trend towards disintermediation and a stronger specialisation on parts of the value creation chain are considered in their retroaction to the projects financing conditions. A sound understanding of these influences is important for public authorities in order to reasonably structure the projects and address the financing partners. The analysis shows that the concrete structure of a PPP-project is relevant for the appropriate kind of intermediation. But as those projects are highly specific and complicated a bank-based intermediation presently seems predominant. For some but not many banks PPP financing could be an attractive field of product specialisation within a strategy towards reaching a competitive advantage in specific know how. The business field well fits into a modern understanding of banks as being facilitators of risk transfer and providers of risk management services. A sufficient number of available projects is a prerequisite to make the field attractive. Whether banks are the often hoped for ‘natural long term partners’ of the public authorities who offer evaluation and monitoring services is questioned by the increasing loan-trading activities by banks and the break up of the value chain in intermediation.
||Public Private Partnerships; financial intermediation; real estate financing
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