European banks have stepped up their sales of distressed real estate loans, as investors flock into the continent’s property sector.
Sales of loan portfolios rose 133 per cent year on year to €49bn in 2014, according to research by CBRE Capital Advisers.
The biggest buyers were US private equity groups, which were involved in 79 per cent of transactions in 2014, CBRE found. This fuelled demand for big-ticket deals — average deal size rose from € 441m in 2013 to € 683m last year.
There were 22 portfolios of more than € 500m in size that came to the market in 2014, all of which were bought by private equity groups.
Paul Lewis, a senior director at CBRE Capital Advisers, said banks had made "a lot of progress" in deleveraging in the past year, "although there is still a lot to do".
European bad banks have in total € 264bn of “non-core” real estate loans left to shed, research by Cushman & Wakefield found last October. Nearly 40 per cent of that is in Spain.
They have sold off less than € 97bn of loans so far, Cushman & Wakefield said.
Distressed loan portfolios offer real estate investors “a neat way to place a lot of money very quickly”, something greatly in demand in the current crowded European property market, Mr Lewis said.
As a result of investors’ increased appetite for distressed real estate debt, discounts to property value have fallen from 63 per cent in 2012 to 44 per cent in 2014.
However, European banks still have a long way to go to unwind their pre-2008 problems, according to the research — more than three-quarters of loans on their books still date to 2007 or earlier.
Of this, more than 50 per cent — more than half a trillion euros — will mature by the end of 2017, meaning that many borrowers must seek backers in order to refinance.
New debt issuance rose 47 per cent in 2014 to €23bn, but is still less than half that of 2007.
Price indices have presented wildly contrasting pictures of the health of the housing market – according to some the boom is back, while to others the slump staggers on
More than half of the outstanding loans are secured against properties in the UK and Germany, making the need for new finance particularly acute in those countries.
Nearly two-thirds of the sales in 2014 were in the UK and Ireland, with a further 13 per cent in Spain, where volumes more than doubled from 2013.
German banks sold very little in 2014, despite being — along with British banks — one of Europe’s biggest sources of property finance in the years before the financial crisis.
British banks have been in the vanguard of the sell-offs, with Lloyds having shed several large portfolios of distressed property debt. Royal Bank of Scotland was slower to act, but has now embarked on an accelerated disposals programme.
Irish banks have also been very active, with bad bank NAMA last year moving into property development in a bid to build out its stock of undeveloped land.
International investors’ enthusiasm for the Spanish property market over the past two years has opened the way for Spanish banks to begin to unwind their bad debts.
The national bad bank Sareb recently commissioned four special servicing firms to sell off € 41m of property, in a move which it hopes will speed up the unwinding process.
(Copyright The Financial Times Limited 2015)
