Private equity conference hears flow of loans offloaded by lenders is up “from trickle to a stream”
The flow of deals from banks offloading loans is picking up, Blackstone senior European managing director Chad Pike told delegates at Private Equity Real Estate’s PERE Forum: Europe in London this month. While banks cannot afford to offload loans wholesale, nor have they been under pressure to, the deal flow is bound to pick up as loans made in 2006-2007 mature, Pike said.
The result would be a steady flow of deals, albeit in the form of a “long-dated opportunity” that will take time to emerge. Pike has seen the “trickle become a stream”, from no deals last year to five in Europe today, one of which is about to close in Germany. This will allow Blackstone to maintain its high return targets, he added.
Ralph Rosenberg, new global head of real estate at Kohlberg Kravis & Roberts, said KKR was pursuing four potential deals in Europe – the first in the region for the leveraged buy-out group. KKR has $2bn in cash and wants to diversify into European property. Rosenberg is looking at sale-and-leaseback deals and development finance, as well as bank portfolios.
Sean Arnold, Starwood Capital Group’s head of European acquisitions, said he had looked at 10 large loan portfolios in the past year and expected that number to double in the next 12 months. Dale Lattanzio, managing director of Duet Private Equity, said an increase in the flow of deals would be linked to banks starting to make profits again.
Banks remain heavily focused on deleveraging, he noted, and will continue to extend loan maturities. “There’s no silver bullet for refinancing; it will require much more new capital,” added Lattanzio. Isabelle Scemama, AXA head of commercial real estate finance, said it can be almost impossible for insurance companies to participate in some countries’ property debt markets, however.
“Insurance companies view the market as a black box; there is no data or benchmarks and a lack of liquidity,” she said. The implications of Basel III banking regulation are still a major point of contemplation for banks, which could look to capital markets to come up with structures that work under the regulations as a means to reduce their balance sheets.
AgFe head of real estate Natalie Howard said investors have an appetite for CMBS bonds, as demonstrated by the take-up of Deutsche Bank’s DECO 2011-CSPK deal But she was not convinced that this would be the model for future debt distribution. It is crucial for the market to establish new CMBS principles, she added. “Banks did it because they made money out of it but with the rule that 5% of issues must be retained it is not clear how they can do that now.”