FINANCE: European banks and asset management agencies still have €584bn (£465bn) of exposure to non-core real estate that needs to be offloaded or restructured.
According to Cushman & Wakefield’s latest European Real Estate Loan Sales Market H1 2014 update, close to half of this non-core real estate exposure – some €244bn – is held by UK and Irish banks, despite investors’ interest switching increasingly to Europe.
It highlights RBS as expecting to be increasingly active following the establishment of its internal bad bank – RBS Capital Resolution – which holds circa €25bn of non-core real estate loans, of which 60% of which relate to Ulster Bank.
In addition it points to several Spanish banks that are exploring options to dispose of their soured assets, including Catalunya Banc’s current sale of its €6.9bn Project Hercules of residential mortgages.
The predictions come after a record first half of transactions totalling more than €40.9bn of loan and assets sales, dominated by asset management agencies, which represent 63% of closed transactions.
C&W, which reviewed the non-core real estate exposure of 46 banks and assets management agencies throughout Europe for the report, said that this total represented at least 30% more than the 2013 full year total and 611% more than H1 last year.
Asset management agencies, led by IBRC on €17.2bn, accounted for 63% of closed sales in the first half.
On a quarterly basis, after a strong start to the year IBRC yielded to Nama and Hypothkenbank Frankfurt in Q2, which together counted for 76% of total sales from April to June, driven by their respective sales of the €5.6bn Northern Irish Project Eagle and the €4.4bn Spanish Project Octopus.
The report found that the average size of transaction has increased from €346m in 2013 to €621m in the first half of this year, with “mega deals” representing 71% of the closed total volume.
Looking at investor interest, C&W found activity extending further into southern Europe, with 29% of closed sales in Q2 relating to Spain and more than €10bn of live sales taking place in this region.
US private equity firms such as Lone Star and Cerberus continue to dominate – accounting for 77% of CRE loan and REO completed transactions.
Frank Nickel, executive chairman of Cushman & Wakefield’s EMEA corporate finance group, said: “US investors have raised an enormous volume of capital targeting opportunistic real estate. ‘Mega-deals’ prove popular to these buyers since they offer a chance to gain large exposures to key assets and markets in one transaction, saving on both costs and time.”
However, C&W said a new breed of investor was entering the market in the form of Irish REITs and Spanish SOCIMIs, raising total capital of €3.5bn to invest in real estate.
The provision of loan-on-loan financing continues to be limited to the key markets. But increasing competition has driven margins as low as 295bps and produced loan-to-cost ratios of 60-70%, it concluded.
A highly active H1 has led to Cushman & Wakefield Corporate Finance to forecast that closed CRE and REO sales are now likely to reach €60bn in 2014.
Cushman & Wakefield’s Federico Montero, head of loan sales, EMEA corporate finance, said: “The record loan sales volume seen so far in 2014 has been impressive, although the non-core real estate exposure of €584bn across Europe signifies the enormity of the deleveraging process still to occur. Additionally, the upcoming stress tests being enforced by the ECB will guarantee that the current high levels of activity in the market will be sustained in the next few years.”
bridget.oconnell@estatesgazette.com
