Evercore’s Montero records €24bn of non-core RE sales in 2016

Non-core real estate loans and lender-owned properties with a face-value of €24.4 billion have been sold in Europe this year, according to the first loan sales report to be published by Federico Montero (pictured) since his move from Cushman & Wakefield to investment banking firm Evercore.

Non-core real estate loans and lender-owned properties with a face-value of €24.4 billion have been sold in Europe this year, according to the first loan sales report to be published by Federico Montero (pictured) since his move from Cushman & Wakefield to investment banking firm Evercore.

Montero, Federico REC16 CROPPED
Federico Montero

Montero, the former head of European loan sales for Cushman & Wakefield, joined Evercore to lead its European real estate portfolios solutions team in July. At Cushman, Montero led the publication of a quarterly real estate loan market research report.

The first Evercore Real Estate Portfolio Solutions (REPS) European Distressed Real Estate Market report examined the volume of real estate-related loans, residential mortgages and real estate-owned assets (REOs) held as non-core assets or subject to a deleveraging process across 59 organisations.

The report showed that the €24.4 billion sold across 54 deals by the end of August was down around 38 percent from the record volumes sold during the same period in 2015.

“The €40bn of sales in the first eight months of 2015 were driven by UK and Irish lenders such as RBS, Lloyds and Permanent TSB, all of which have completed or are close to completing their respective deleveraging plans,” the report explained.

“The decline in activity in the first half of 2016 can be partly connected to a ‘Brexit effect’ on the distressed market, with the associated economic uncertainty leading to a number of sales being delayed until later in the year. In addition, loan-on-loan lenders have taken a ‘rain-check’ on several transactions in the latter stages,” it added.

This year’s three largest transactions to date have been the sale of the €5.2 billion face-value Project Swan sold by Dutch ‘bad bank’ Propertize to Lone Star and JP Morgan for €895 million; the €3.9 billion Projects Ruby and Emerald sold by Ireland’s National Asset Management Agency (NAMA) to Oaktree; and a €1 billion mortgage book sold by Rabobank to Dutch insurance company Vivat Verzekeringen.

The Evercore team is tracking 51 live deals across Europe with a combined face value of €18.7 billion, a decrease of 34 percent on the total that was being followed at the end of Q1. Among the live deals is Banco Sabadell’s Project Normandy, a circa €1.1 billion non-performing loan portfolio secured mainly by residential assets, for which bids are due in November.

In addition, the pipeline of planned real estate loan and REO transactions stands at €40.2 billion, over half of which is the UKAR’s proposed sale of around €22 billion former Bradford & Bingley loans.

In total, Europe’s banks and asset management agencies have €462 billion of gross non-core real estate exposure as at 30 June 2016, according to the report. The debt pile is down 6.3 percent from the figure recorded at the end of 2015 and down 32.1 percent since the end of 2013.

Net non-core exposure, defined as gross exposure minus loan loss provisions, amounted to around €240 billion, meaning that the implied coverage ratio has risen from 44.8 percent at the end of 2014 to 48.1 percent at H1 2016.

“This suggests that, as required, financial entities are gradually increasing the amount of capital provisioning their non-core loans,” the report said.

The report said that 47 percent of the total gross non-core RE exposure is held by banks with a specific deleveraging plan, and a further 40 percent by asset management agencies.

Almost 45 percent of gross non-core exposure related to CRE loans, with a further 34 percent relating to residential mortgages and the remaining 21 percent to REOs. Since the end of 2013, the percentage of CRE loans as a proportion of the total has decreased from 55 percent whilst the proportion relating to REOs has increased from 13 percent.

“Vendors have typically concentrated on first deleveraging their CRE loans secured by bulkier assets which are potentially less impaired and which attract a high level of interest from investors.”

The UK and Ireland have witnessed a decrease of around €146 billion (56 percent) in gross non-core real estate since 2013. In the UK, the majority (89 percent) of remaining exposure relates to residential mortgages.

The Netherlands has seen 25 percent of its exposure sold in the Project Swan deal.

Spain accounts for 41 percent of the European total, with more than €189 billion of gross non-core real estate. Of Spain’s total, 44 percent relates to REOs, due to developers handing over the keys to a vast amount of residential and development assets and due to improvements in enforcement procedures.

In Italy, the results of various stress tests and growing regulatory pressure have led to an increase in the level of NPLs since 2013. “Although there has been a low level of secured loan sales to date, activity has the potential to balloon if pricing expectations of vendors and buyers converges,” the report said. In Italy, UniCredit holds the highest level of non-core exposure by a significant margin.

Although Germany has seen the largest percentage decrease since the end of 2013 (down 74 percent), just €8.1 billion of sales have been recorded in the same period. German banks have concentrated on selling international exposure whilst working-out domestic exposure internally or waiting for improvements in the underlying market, the report noted.

Propertize, with €5.45 billion of closed sales has been the year’s largest vendor to date, followed by NAMA with €5.3 billion and Rabobank with €2.5 billion. Lone Star and JP Morgan were the largest-scale buyers due to the Swan deal, followed by Oaktree for projects Ruby and Emerald and Deutsche Bank with more than €2 billion of debt purchased.