Commercial real estate debt is the most actively traded non-performing loan class with more than €15bn (£12.8bn) of transactions so far this year, according to new research from PwC.
The accountancy firm found that real estate accounted for the largest share of European loan portfolio transactions, with a face value of €46bn, that have completed in the first eight months of 2013 – exactly the same amount that traded in the whole of 2012.
Unsecured retail loans followed real estate with a total of £10bn traded this year.
UK banks top the 2013 transaction table with an estimated face value of €13bn in transactions in the year to date. This is up from €10bn last year for the whole of last year, boosted by €4bn of commercial real estate (CRE) loan transactions.
PwC expects UK deals to reach over €15bn for the full year. A large number of unsecured portfolio sales have also contributed to an increase in unsecured retail transaction volume.
The firm also analysed European commercial real estate loans pricing trends and found that the majority of non-performing European CRE assets were priced at 41-50c/€ range.
It added that most of these portfolios were secured by assets in the UK and Germany and it saw prices vary widely depending on the asset quality and specific property locations.
Irish assets have generally attracted a lower price of between 10-40c/€, with prominent difference in pricing between prime and non-prime properties.
Performing CRE assets were priced at a discount of around 10%.
The sale and purchase of non-core loan portfolios are made in the context of the continued and significant deleveraging challenge facing many of Europe’s largest banks – the majority having established non-core equivalent divisions or their equivalent to focus on selling or running down unwanted assets.
The firm said that European non-performing loans held by banks have increased to €1.2trn – up by nearly €100bn in 12 months – driven mainly by reported increases in Italy, Greece, Spain and Ireland.
Richard Thompson, a partner at PwC, said: “We don’t see a meaningful reduction in non-performing loans across Europe any time soon. Aggregate levels of NPLs could continue rise over the coming years, adding further to the already buoyant portfolio market.”
He added: “We are seeing extremely high levels of competition in the market at the moment. While the major US funds are the most active, we are seeing increased interest from other sources, including sovereign wealth funds and far eastern investors. We know of over 150 different investor groups that are taking a close interest in this market.
“Although there are a large number of transactions at the moment, there remains very high demand from investors for all asset classes. As the banks try to position themselves to meet the Basel III capital requirements and react to the ECB’s stress tests following the Asset Quality Review, we expect more assets to come to market in 2014 and beyond.”
bridget.oconnell@estatesgazette.com
