Mount Street targets Greek and Cypriot NPLs through new JV

Loan servicing firm Mount Street has formed a joint venture with a Greek investment company to target what it sees as a growing opportunity to acquire and work out defaulted debt, including loans secured by real estate, in Greece and Cyprus.

The London-based firm this week announced its partnership with Technical Olympic, a multi-sector investment group listed on the Athens Stock Exchange. The JV partners will seek investment and co-investment opportunities in the Greek and Cypriot non-performing loan markets, with a focus on debt secured by real estate, hospitality, shipping, infrastructure and renewable energy, as well as debt linked to small and medium-sized enterprises.

Mount Street will source NPL portfolios and single-borrower exposures for Technical Olympic to acquire for the JV. Mount Street will be responsible for the subsequent servicing and workout of the loans. As well as NPLs, the JV will target lender-owned assets, including portfolios of properties.

The JV has already acquired an NPL portfolio, comprising corporate loans with a face value of €33 million, secured by luxury residential development projects in the Athens area. The loans were bought for €12.5 million from Vel Investment Fund, a Cypriot regulated alternative investment vehicle.

Ravi Joseph, Mount Street’s chief executive, says having a JV partnership with an experienced local investor, particularly one with capital to deploy, is a “differentiating factor” in the credit management sector.

Joseph sees significant opportunities to acquire NPLs from financial institutions in the Greek and Cypriot markets. “The underlying collateral on the €70 billion secured NPL market in Greece has posed unique challenges for the management of those assets post-enforcement for the Greek lenders,” he tells Real Estate Capital Europe. “Underlying Greek asset values and business performance have suffered from over 10 years of underinvestment resulting from an unresolved debt overhang.”

He adds: “Mount Street and Technical Olympic have the combined global and local expertise to provide turnkey solutions and now flexible co-investment capital to lenders, credit investors and borrowers, to maximize value of their exposures and assets.”

Increased activity

Activity in the Greek NPL market picked up in the second half of 2021, notes Joseph, through outright loan sales by lenders, as well as synthetic securitisations of NPL portfolios through the Greek government’s Hellenic Asset Protection Scheme.

“It is amongst the busiest primary markets in Europe. We expect Greek NPL portfolios to continue to price favourably and become a more mainstream asset class for European and global investors,” he says.

“In order for this to fully materialise, we need to see more secondary portfolio sales, which will also begin to validate and market-test the broader business plans of the HAPS synthetic securitisation deals. Finally, we need to see these secondary transactions bringing in more investors to create a market, and to enable international lenders to provide portfolio leverage at improved terms.”

While Joseph argues that the regulatory regime has improved in favour of effective management of Greek NPLs, he acknowledges there are continued challenges for buyers and servicers of loans.

“The main challenge currently is pandemic uncertainty in a country where tourism and hospitality, as well as growing FDI [foreign direct investment] in commercial and residential real estate remains a key driver of the economy,” he explains.

Upgrade

However, Joseph sees a need in the region’s NPL market for capital to upgrade ageing collateral, including industrial properties, hotels, offices, and shops. “Many of these assets require new ownership, capital for upgrades and repositioning, and consolidation to create attractive operating units to achieve the required valuation uplift to generate the sort of returns our clients demand.”

The non-performing residential mortgage market in Greece has its own set of challenges, Joseph adds, although he says the government is addressing those. “We understand that the government is working towards a systemic solution for a state-sanctioned buyer of overindebted properties, which will enable homeowners to receive rent support and an option to buy back their property at a discount to market value in the future. This is intended to remove much of the excess supply of properties coming up for auctions,” he explains.