Loan sales market heading for record annual volume

Sales of real estate loans and lender-owned properties look set to surpass the €85.9 billion 2015 market peak this year, on the back of large-scale loan sales and securitisations of non-core debt in the Spanish and Italian markets.

A total of €79.6 billion of real estate loans and lender-owned property has been sold so far this year, with €50.7 billion trading during the third quarter, Evercore’s European Distressed Real Estate Market report shows.

The investment banking firm’s data showed that 20 deals have closed in the year to date, with the Q3 total the largest ever recorded, boosted by southern European deals including large-scale securitisations, which has become a method for banks to remove non-core assets from their balance sheets.

Average deal size, at €1.59 billion, is considerably higher than 2016’s average of €542 million. However, the firm pointed out, there have only been five ‘mega-deals’ of more than €1 billion, with deals by Santander, Banca Monte dei Paschi di Siena and UK Asset Resolution boosting the year’s figures.

By portfolio type, 50 percent of the closed volume relates to commercial real estate loans, with 26 percent and 24 percent corresponding to real estate owned properties (REOs) and residential mortgages, respectively.

The REO volume has been significantly bolstered by Santander’s deal to transfer former Banco Popular real estate loans and foreclosed assets with a face value of €30 billion into a joint venture vehicle in which Blackstone bought a majority stake.

Following that deal, Spain has witnessed more than €34 billion of closed transactions in 2017, accounting for 43 percent of the European total.

Italy accounts for a further 30 percent, or €24.1 billion, of the total to date. The most notable deal was Banca Monte dei Paschi di Siena’s securitisation of its €26.1 billion NPL portfolio, of which 62 percent of the loans were estimated to have been secured.

The UK accounts for 22 percent of deals this year to date, with €17.7 billion of recorded transactions driven mainly by UKAR’s Project Ripon sale of Bradford & Bingley performing loans to Blackstone and Prudential.

The year to date has been notable for banks using innovative methods to deal with their non-core debt piles. In previous years, more straightforward NPL portfolio sales have been the typical option for lenders. Evercore noted that asset management agencies have had little involvement in the market this year, with Ireland’s National Asset Management Agency and Germany’s FMS Wertmanagement yet to record a 2017 sale.

The report highlighted the emergence of the Greek market. With non-core asset reduction targets established by the central bank, Greek banks are becoming more active as demonstrated by Piraeus’s current marketing of a circa €1.4 billion NPL portfolio secured by commercial and hotel properties.

In total, Evercore said that it is tracking a pipeline of circa €17.6 billion in potential European real estate loan and REO transactions, down from the €24.8 billion recorded as at the end of June 2017.