European loan sales volumes drop 44% in 2016

A total of €49.4 billion of real estate loan and lender-owned property sales were closed across Europe during 2016, a sharp drop of 44 percent from the peak of the market in 2015, according to investment banking firm Evercore.

A total of €49.4 billion of real estate loan and lender-owned property sales were closed across Europe during 2016, a sharp drop of 44 percent from the peak of the market in 2015, according to investment banking firm Evercore.

The firm’s European Distressed Real Estate Market report Q4 2016 showed that 89 transactions were completed last year, a 43 percent drop in the number of deals from 2015. “Although it was always unlikely for activity in 2016 to surpass that of 2015, the fall was more significant than anticipated,” the firm said.

With lenders in the UK and Ireland reaching the end of their non-core real estate disposal programmes, Spanish and Italian lenders had been expected to fill the gap.

Federico Montero, Evercore
Federico Montero, Evercore

“However, unprecedented circumstances and events surrounding various European economies hampered even the distressed markets,” the firm noted. “Both vendors and loan-on-loan lenders appeared to take a slightly cautionary frame of mind as several sales were put on hold until 2017.”

Evercore is more optimistic for 2017. The firm predicts that closed sales this year will be in the region of €50-60 billion, based on the current pipeline of live and planned transactions. A total of 28 live transactions are currently being tracked across Europe, with a combined face value of around €27.8 billion; a 49 percent spike in live deals since the end of Q3 2016.

That figure is heavily skewed by the launch of UK Asset Resolution’s sale of its £16 billion Bradford & Bingley loan book. However, with several lenders postponing deals due to economic and political uncertainty during the second half of 2016, vendors are expected to be assessing their remaining exposure before launching fresh sales processes.

There are 10 live transactions in the Spanish market amounting to €2.4 billion and Spain is expected to take a leading role this year. In the Italian market, Intesa Sanpaolo is aiming to sell the whimsically-named Project Beyond the Clouds, a €2.5 billion NPL portfolio containing secured and unsecured elements.

Elsewhere, Germany’s HSH Nordbank is in the process of selling its €3.2 billion Project Leo loan book, of which around €2 billion relates to real estate debt.

In addition to live deals, Evercore has recorded planned transactions amounting to around €18.8 billion. The Spanish market accounts for approximately 36 percent of the total. Italy relates to a further 34 percent, with the future of €8.5 billion of secured and unsecured loans transferred by four failed banks still to be decided.

Ireland will continue to generate loan sale opportunities, with NAMA expected to put additional portfolios onto the market and market watchers eager to know what AIB will do with its remaining €9 billion non-core real estate exposure.

However, the firm said that activity this year will be driven by Spain: “With a high level of REOs to dispose of, Spanish vendors are likely to continue their activity in 2017. As in 2016, Spain can be expected to record the highest number of transactions completed over the next 12 months. Further larger sales from SAREB are also foreseen.”

During 2016, around 71 percent of the total volume closed related to commercial real estate loans, with 20 percent relating to residential mortgages and the remainder of the total comprised of real estate-owned transactions.

Following a flurry of sales in Q4, Ireland finished the year as the most active market with almost €12.1 billion of transactions, largely driven by NAMA. The largest year-on-year increase came from the Netherlands, with bad bank Propertize off-loading its entire portfolio in one deal – the €5.2 billion Project Swan sale to Lone Star and JP Morgan – and Rabobank bringing several portfolios to the market.

The number of €1 billion-plus ‘mega-deals’ was down to nine in 2016, from 15 in 2015. Together the top five sales in 2016 had a combined face value of €20.7 billion, around two thirds of the total for 2015.

Italian bank UniCredit’s €17.7 billion Project Fino, of which a third related to real estate, was split into two sub-portfolios of €13.5 billion and €4.2 billion. The debt was securitised and half was sold to Fortress and PIMCO. In Ireland, NAMA sold its €3.9 billion Projects Ruby and Emerald to Oaktree Capital Management.