ANALYSIS: Another strong year ahead for European loan sales

The new year is expected to see strong volumes of real estate loan transactions across Europe, but the key markets and the products offered are changing rapidly.

With a record volume of €86 bn of real estate loan deals, 2015 will be a difficult year to match. But even if the next 12 months will not be as strong as the past ones, there is no doubt Europe’s real estate debt market will remain remarkably active over the course of 2016.

C&W’s Corporate Finance team is currently tracking €78.6 bn of live and planned sales across the UK and the Continent, and estimates that the 2016 transaction volume will be in the region of €70-80 bn. The start of the year in particular will be supported by a ‘substantial pipeline’ of planned transactions, which are estimated to have a face value of €61.3 bn. Geographically, the UK, Ireland, Spain, the Netherlands and Italy are markets predicted to have high levels of activity over the next year.

The UK alone accounts for 62% of this figure with lenders UKAR, the Co-operative Group and Permanent TSB all waiting for the most opportune moment to launch their respective UK mortgage portfolios. UKAR has already announced plans to explore the sale of £17 bn of Bradford & Bingley mortgages while the Co-operative Group is gauging investor appetite for its €6.6 bn Optimum Portfolio. Similarly, RBS is currently marketing the €810 mln Project Detroit of mainly UK granular performing loans while Permanent TSB is expected to re-launch the disposal of its remaining Capital Home Loans, which was delayed last year due to market congestion.

The type of product on offer is also changing, with more residential than commercial real estate loans coming to market as well as an increased supply of performing loans. The UKAR sale in particular highlights how the collateral type has changed over the past year. While 2014 was dominated by ‘mega-deals’ secured mainly by commercial real estate with an element of residential, large residential loan portfolios are currently taking the headlines. This is largely given the fact that the recovery in residential assets tends to lag that of commercial real estate, according to C&W. The quality of loans is also increasing, and several performing portfolios have recently traded including Coventry Building Society’s sale of a €419 mln portfolio to TwentyFour Asset Management. ‘This trend is anticipated to continue and will attract a different type of buyer to the usual US private equity firms,’ the broker said.

BIGGEST LIVE SALES
In terms of vendors, the ever-active NAMA is looking to bring some €6 bn of Irish loans to the market in the form of Projects Emerald and Ruby. While IBRC, LBG and RBS have now completed their deleveraging, NAMA still has €38 bn of gross non core real estate (NCRE) and will look to complete its sales plan over the next months. Allied Irish Bank is also rumoured to be readying a portfolio for sale which will help boost Irish sales volumes this year.

On the Continent, the Netherlands accounts for 10% of planned sales due to Propertize’s plan to dispose of the €5.5 bn Project Swan portfolio. Competition for the package is expected to be high as investors look to gain an unprecedented exposure to the Dutch market, where opportunities of this size are few and far between. The sale could also potentially lead to a string of subsequent secondary sales, according to C&W.

In Germany, where lenders have been eager to avoid large write-downs, activity has tailed off. According to C&W’s research, the largest live sale at present is the €230 mln Project Samba, which is currently being marketed for sale by FMS Wertmanagement. Portugal on the other hand has around €11.0 bn of NCRE which is not far short of that estimated for Germany. There is a small number of financial entities which are looking to become active vendors; the most notable is Millennium BCP which has recently launched the sale of Project Porto, a €1 bn loan portfolio secured by Portuguese offices.

In neighbouring Spain, banks of the likes of Caixabank and BBVA are expected to put larger portfolios on the market after a relatively quiet 2015, while Bankia will seek to close the €4.2 bn Project Big Bang transaction at some point this year. Furthermore, driven by increasing investor interest and a recovering real estate market, Italy is tipped to see significant growth in sales volumes over 2016.

As the main holders of NCRE exposure, local banks UniCredit and Intesa Sanpaolo will look to step up their activity going forward. In addition, several international lenders including Commerzbank, FMS and EAA are keen to dispose of their Italian exposures, with EAA currently marketing the €350 mln Project Botticelli, which is secured by Italian residential and industrial assets. Other product will likely come from Italy’s recently established national Asset Management Agency (AMA). Despite currently holding only €750 mln of real estate related NPLs, the National Resolution Fund is expected to inherit further soured loans in the next 24 months. Last to be launched, the Italian bad bank can learn from its European peers how best to maximise recoveries.