Centro's on life support, and that's the good news

These bankers, who installed the insolvency expert Colin Nichol to oversee its work, would not have been at all surprised that the group's asset values had fallen.

And no one would have been concerned that this could have triggered potential breaches of the bank covenants, because the relationship between the banks and the company has moved beyond this. The banking syndicate has come to an agreement with the company.

The lenders have had opportunity to take formal control of Centro and have chosen to keep it on ice.

For Centro, being on life support means a fairly stable environment.

This company experienced the first-mover disadvantage. It was one of the first businesses to be hit by the global financial crisis.

It was one of the particularly overgeared members of its sector and had come to an understanding with its bankers back in 2007  one that was most recently revisited in January this year.

In 2007, when the global credit crisis reared its head, lenders were extremely keen to avoid taking provisions on troubled loans, and Centro was a beneficiary of this.

Other overgeared businesses that came unstuck later were not so lucky.

However, in the real estate investment trust and other sectors those that found themselves in need of balance sheet recapitalisation last year had the opportunity to go to shareholders to raise money.

The real estate investment trust sector has raised more than $14 billion since last September but nothing has been delivered to Centro. It collapsed before the capital-raising train had come into the station.

For others such as Westfield, GPT and Stockland, the shareholders  rather than the banks  retained control. So equity has remained king.

In theory, Centro shareholders may be concerned about the effect of the devaluation of the group's assets. But this has not been reflected in the share price because it now trades as a penny dreadful  as such, it cannot get much lower.

Even lawyers mounting a shareholder class action against Centro say the devaluations are not particularly germane to their case.

The recognition of the falling values of property assets is a far bigger issue. For other property trusts it highlights the fact that although the share prices of these businesses are rising, the value of their assets remains under pressure.

The property industry experts understand this. Dugald Higgins of Zenith Investment Partners says commercial real estate values are off 15 to 20 per cent from the peak of 2007.

He does not see the commercial real estate market hitting the bottom until next year and recovering until 2011. At the start of the cycle there was a view that rental growth would shield property companies from falling values, he says

This has not happened.

All this suggests that property values, here and in the US, have further to fall. And this is not good news for real estate investment trusts. Investors who have pumped in capital and have been riding the capital gain in the share price may be in for a rude shock.

There is probably going to be another round of property devaluations in the upcoming reporting period. This has nothing to do with overgearing  rather, it is about rental incomes coming under pressure on all but the best properties.

But none of this matters for Centro. This is the good part about being on life support. The market does not dictate when the machines are turned off; that is up to the lenders.

And having infiltrated the ranks with some new management and an insolvency expert, the banks are comfortable enough that they do not need to announce an end to Centro. They are happy enough to wait until the cycle turns.