Distressed loans enter critical phase, says Corestate

Distressed real estate debt is the ‘critical issue’ affecting European real estate markets, according to Ralph Winter, founder and chairman of Swiss-based private equity group Corestate Capital.

‘The current situation whereby European banks have weak balance sheets is creating a very stressful situation,’ he told PropertyEU. ‘Banks are not capable of covering financing demand due to the capital requirements they are facing. Also, they are only focusing on core, stable incoming-producing assets, yet 97% of German real estate is not core. This, along with the ongoing eurozone crisis, is the critical issue facing European real estate markets,’ he said.

Around EUR 500 bn of real estate loans will need to be refinanced in Europe over the next four years, according to Winter, of which around EUR 125 bn alone will be German loans. As a result, Corestate announced a co-operation with Germany’s European Business School earlier this week with a view to identifying and analyzing the key issues with regard to distressed real estate assets and non-performing loans.

‘We’ve known the European Business School a long time and it seemed like the perfect time to analyze distressed debt as banks have really cut back on financing,’ Winter said.

Some of the issues that the collaboration will work on include supply/demand trends for distressed real estate; how investments in such assets will be financed and structured going forward and how new regulatory measures, including Basel III, will have an impact on debt markets.

However, the problem of distressed assets and loans isn’t going to magically disappear any time soon. On the contrary, it is likely to escalate as banks take an even more stringent lending approach, says Winter. ‘I think we will see more distressed loan portfolios going forward - the number of such portfolios will increase significantly. This, in turn, means more distressed sellers and buyers,’ he added.

The European Business School and Corestate are hoping to produce their first report on distressed real estate debt in late-February next year, Winter said.