MIPIM still has some sparkle

There’s nothing quite like MIPIM. On Tuesday, with the sun beating down and the tempo sedate, the property extravaganza in Cannes was keeping the punters calm and happy.

On Wednesday, as the wind howled and rain lashed anyone brave enough to venture outside the packed Palais des Festivals ‘bunker’, the whole shebang suddenly seemed more challenging than fun.

What cannot be disputed was the popularity of the event, with the 21,500 reportedly in attendance comparable to the size of the crowd that gathered in the pre-Crisis year of 2007. The only difference nine years on, volunteered one delegate, was that 2016 offered “less champagne and fewer fireworks”.

MIPIM veterans will know that there is a phenomenon known as the “Mood of MIPIM”. Ask anyone what the mood is on day one and you will invariably be informed that it’s too early to tell. But on day two opinions came as thick and fast as the inclement weather.

This year the mood was best described — at the risk of being cliché — as ‘cautiously optimistic.’ There was acknowledgment that political risk — especially the prospect of Brexit and the German migrant crisis — was a major factor; but also a sense that property is better placed as the recipient of clever money than pretty much anything else. 

Those involved in the buying and selling of commercial real estate loans say there are plenty of willing buyers out there. With interest rates negative or near-negative in many European countries, there is pressure to put money to work rather than leave it sitting idle.

It may also seem to some like a good idea to sell before economic and political headwinds begin blowing in earnest.

In countries such as the UK, Netherlands, Spain and Ireland, healthy levels of loan sale activity have been seen and observers say they expect that to continue. Pressure on banks to offload non-performing loans (NPLs) has been applied by regulators and there have been willing buyers, often in the form of US private equity firms.

The hope going forward is that the appetite of a diverse range of buyers may be met by the packaging up of large primary portfolios into sub-portfolios. This might, for example, see bidders team up to finance the acquisition of a portfolio containing both performing and non-performing loans with a view to dividing the spoils according to their respective strategies.

This is not a new trend — it was seen to good effect on the Project Octopus sale of Spanish and Portuguese loans almost two years ago — but there is an expectation that it will gain momentum.

Set against what is considered to be a generally healthy market, the two perceived ‘outliers’ of Italy and Germany have cast a shadow on the market.

In Italy, where consolidation has not taken place to any significant extent, a plethora of small banks have sat on their bad loans hoping that the storm will eventually pass, none of them large enough to absorb the shock to the system that would accompany sales at large discounts.

Meanwhile, in Germany, the banks have generally been perceived as being in decent health, which has kept the regulators at arms’ length. But there is a growing sense that, having hidden its bad loan problem, the German banking sector is coming under increasing pressure to take action amid the unfolding travails at Deutsche Bank.

The hope initially was that growth in the German economy would see the banks through to the other side of their present difficulties, but that hope appears increasingly forlorn.

How much longer Italy and Germany can hold out against an anticipated wave of NPL sales remains unclear. But continuing steady levels of activity elsewhere means those involved in European loan sales are probably entitled to a little champagne, and maybe even some fireworks.

Andy Thomson is editor of Real Estate Capital