Evercore: more than €500m of non-core European property debt remains

Further deleveraging is expected this year, with €35bn of live sales, although Southern European banks still have huge legacy debt piles.

Europe’s banks and state-backed asset management agencies still sit on €528 billion of unwanted real estate exposures even though they sold significant volumes of non-core legacy real estate assets last year, according to new research.

The balance sheets of 63 banks and ‘bad banks’ were examined for non-core real estate-related loans and residential mortgages, plus lender-owned assets, for the Q1 2018 European distressed real estate market report, published by investment banking firm Evercore today.

Accounting for loan loss provisions, the net total amount of exposure is around €248 billion, meaning an implied coverage ratio of 53 percent, up from around 50 percent over the year as banks raised further capital to provision for expected losses.

During 2017, €135 billion – around 20 percent – of Europe’s non-core debt pile was off-loaded by lenders, with Spanish vendors behind the most activity. During the year, Santander sold €30 billion of Banco Popular assets to a joint venture vehicle with Blackstone, while BBVA sold €13 billion of loans to US private equity investor Cerberus Capital Management.

Last year’s deleveraging contributed to a total of €386 billion of European non-core real estate debt sold since the end of 2013, Evercore calculated. The loan sales market was relatively quiet during the first quarter of 2018, with around €4.6 billion sold, although Evercore noted €34.6 billion of pipeline transactions.

The largest deals closed during Q1 included Project REP – Intesa Sanpaolo’s formation of a joint venture entity with KKR and COIMA to develop unfinished property assets sitting within the bank’s non-performing loan portfolio – and Project Purple, which saw Dutch lender Rabobank sell €1.3 billion of loans to CarVal Investors, including a large proportion of performing debt.

Spanish ‘bad bank’ Sareb is the region’s largest holder of non-core assets. With a predetermined deleveraging period running until 2027, the agency holds around 56 percent of Spain’s gross total and is tipped to be an active vendor during the remainder of this year. Italy’s Intesa Sanpaolo also remains a large-scale holder of legacy debt, with non-core assets in the region of €33 billion.

Greek lenders Piraeus Bank and Alpha Bank – two of the country’s four systemic banks – also feature among Europe’s top holders of legacy assets, with gross totals of €21 billion and €19 billion, respectively.

Italy is the country with the highest exposure to non-core real estate, with an estimated €210 billion. Spanish volumes were reduced by €67 billion last year to stand at €133 billion. Southern Europe remains the focus of the non-performing real estate loan market, accounting for around 80 percent of European exposure.