Cushman & Wakefield market commentary
With IBRC sales flooding the headlines in Q1 2014, CRE loan sales were at their highest level since the start of structured bank deleveraging. According to C&W Corporate Finance research, closed Q1 deal volumes hit €23.9bn, with a further €5.9bn so far in April. The year-to-date total is €29.8bn, just shy of the €30.3bn C&WCF recorded for all of 2013.
With a pipeline of €38.4bn in live sales, annual volumes should well surpass previous years. The momentous rise in the loan portfolio market is mainly due to several large deals from IBRC in special liquidation, prepared in Q3/4 2013 and completed in Q1 2014. The vendor has sold around €19bn of the €21bn of loans originally put up for sale, a far greater total than anticipated earlier.
The speed of the disposals clearly shows that investor appetite is at an all-time high, with plenty of capital still to deploy. Deals with a face value of over €1bn have again attracted all the big players active in the market over the past three years and the €784m average outstanding principal balance of the 38 deals in the year to date highlights the scale of the offerings.
Such large portfolio sizes make it hard for mid-sized investors to get involved in sales and big US private equity firms have been left to fight it out. Big firms seem increasingly dominant and are winning more deals than ever. As many firms continue to raise capital, such as Blackstone raising a €5bn European real estate fund and Kennedy Wilson’s £1bn IPO, investor demand should remain high.
As with 2013, the dominant vendors are deleveraging banks and asset management agencies (bad banks). The latter accounted for 71% of total year-to-date closed volumes.
RBS is also expected to be more active, having recently created an internal ‘bad bank’, RBS Capital Resolution Group, which will look to dispose of around £10bn-11bn of non-core CRE loans in the next three years.
C&WCF also expects a big increase in activity in Spain, Germany, the Netherlands and Italy this year. There have been several distressed sales in The Netherlands, and more are anticipated following the ECB’s asset quality review and the establishment of Dutch asset management agency Propertize.
While Italian banks have yet to market big CRE loans, investor interest has been high for their unsecured debt. UniCredit recently announced deleveraging plans of €55bn in non-core assets over the next five years, and with many other Italian banks likely to follow suit, investors will be eager to take advantage of the awaited opportunities.