Distressed sellers change gear

‘A big wave of American investors is looking at distressed opportunities in Europe’ - Jos Short, chairman Internos Global Investors

A number of forces are helping to create a better environment for unlocking distressed real estate opportunities in Europe, according to Mathieu Roland-Billecart of Ernst & Young.

Speaking at the PropertyEU Distressed Investment & Workout Briefing hosted in London last week by law firm SJ Berwin, Roland-Billecart said a steady flow has so far failed to materialize as swap structures have blocked transactions in some cases from happening.

‘There has been a lot of noise out there but there are also a lot of good properties locked into bad capital structures. The forces are now pushing in the right direction and prospects are improving,’ Roland-Billecart, partner real estate corporate finance at E&Y, said.

A key change that has taken place in the last 12 to 24 months is that vendors have become more realistic and sales conditions are improving, agreed David Ryland, partner funds & indirect real estate at SJ Berwin. Just two years ago, German bank Westimmo tried to sell a big loan book but there was virtually no interest and ultimately the deal with Apollo fell through. At the time, Westimmo wasn’t willing to accept a hefty discount, but that is now changing, Ryland noted.

‘The performing loan market is becoming quite important as well. The joint venture looking at Eurohypo’s UK loan book is trying to acquire both performing and non-performing loans.’

Indeed, media reports suggest Eurohypo has received five fully funded bids for its performing and non-performing UK loans. In another sign that appetite for larger loan books is increasing, Deutsche Bank has also put its UK loan book on the market and more are rumoured to follow. A new realism is also becoming visible among vendors of sub-performing loans, Roland-Billecart said. ‘At least they are now willing to enter into discussion. It’s an interesting part of the market.’


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Asked how they would spend a theoretical €500 mln, the panellists made the following choices:

Jos Short (Internos) would look for operating businesses ‘stuck in banks’, particularly in the hotel and healthcare sectors. The consolidation of the real estate investment management arena also offers potential. ‘The real estate investment management sector is oversupplied... would use some of the money to buy up other REIM companies and squeeze the synergies out of that.’

David Ryland (SJ Berwin) would not invest in loan portfolios, but added that distress was not limited to the bank market. German open-ended fund managers are in distress as well, he pointed out. ‘Focusing on the opportunity area offers the most upside, it’s a very good time for that strategy. The time for core has come and gone.’

Mathieu Roland-Billecart (Ernst & Young) would buy a loan book. ‘Not non-performing loans, that’s too much hard work. I would go for sub-performing loans with a 70-90% LT V with potential returns in the high single digits. I know vendors are thinking about it.’

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