Sun, sea and loan sales: investor interest shifts to southern Europe, writes Federico Montero
Following a record €24.6bn of closed CRE loan deals in Q1 2014, C&W Corporate Finance estimates that €16bn of sales were completed in Q2, over six times the volume closed in Q2 2013, and making a total of €40.7bn for the first half of this year. The UK still accounts for the majority of the closed volume, at 55% in Q2, but around a third of the €27.4bn of live deals and 42% of planned sales relate to Spain. With Spanish and international banks, and SAREB, looking to take advantage of improving market sentiment, investor interest is extending to southern Europe.
Large US investors such as Lone Star and Cerberus continue to grab the headlines, eager to deploy the large sums of capital they have raised. There is also a belief that if the European economy recovers as quickly as in the US, the window of opportunity may be short before pricing becomes less attractive. European real estate investment volumes have been boosted as investors take advantage of opportunities not only from deleveraging banks, but buying assets from borrowers looking to repay loans.
With IBRC completing most of its sales in Q1, NAMA and Hypothekenbank Frankfurt took centre stage, accounting for 76% of total Q2 sales. RBS is expected to be active after setting up internal bad bank RBS Capital Resolution, while several Spanish banks are exploring options to sell soured loans, including Catalunya Banc’s sale of its €6.9bn Project Hercules residential mortgages. A wave of secondary sales is also expected, following Lone Star’s purchase of the Project Octopus non-performing loan pool. The increased investor focus on Spain should provide improved liquidity in the market.
The year’s first reported Italian CRE loan sale also took place in Q2, when HIG Bayside bought a €40m loan from Cassa di Risparmio di Ravenna, although there has been plenty of activity involving unsecured debt. Unicredit and Intesa San Paolo have announced deleveraging ambitions and should, in time, offer a wealth of opportunities.
Opportunities are appearing in Central and Eastern Europe and Greece, but these markets are expected to be more suited to local investors, with the majority of big US firms preferring markets with more liquidity and a stable economic and legal environment. Following European Central Bank-enforced asset quality reviews later this year, more non-performing loans are likely to be held on banks’ balance sheets due to reclassification. This will lead to more loan sales, banks raising equity to meet capital and liquidity requirements, and more banks setting up bad banks (some government-sponsored).
Federico Montero is a partner and head of loan sales in EMEA Corporate Finance at Cushman & Wakefield