Editor’s Choice: Agnostic investors spur European real estate market

European real estate professionals can look back on an auspicious start to the year as they head into their annual Easter break or extended spring holiday.

Deal activity has been revving up in most major markets across Europe and secondary cities are starting to see some of the action. A clear sign that the worst may be behind us came this week from Cushman & Wakefield: the London-based adviser is now predicting real estate loan sales will hit €50 bn in 2014, more than 20% higher than its initial forecast at the beginning of the year.

The upward revision follows deals worth almost €30 bn in the first quarter, virtually equal to 2013’s total. Since the beginning of the year, the market has seen some ‘frenetic’ and large-scale deal making, according to Federico Montero, partner in the debt advisory unit: 'The European real estate loan sale market could reach its peak in 2014 as activity soared in the first few months of this year. We won’t see a quarter like this for quite some time.’ The 2014 figures have been pushed along in part by sales of most of the remaining debt from ‘bad bank’ Irish Bank Resolution Corporation. In the last 14 months, €20 bn of the €21.7 bn debts has been sold.

Alternative lenders gain ground
Bank disintermediation is also gathering pace and Paris-based AXA Real Estate has been one of the biggest beneficiaries. This week the property arm of French insurance giant AXA announced it has secured a €485 mln investment mandate for a new senior commercial real estate debt fund created by five Danish pension funds. AXA Real Estate won the mandate following a competitive pitch and will now focus on investments in large senior loans across all asset classes, including offices, retail, logistics and hotels. The vehicle will target opportunities in Western Europe, in particular the UK, France and Germany, alongside other clients within AXA Real Estate’s €7.9 bn debt platform.

As traditional lenders have retreated, AXA Real Estate has rapidly become Europe's largest alternative debt provider and is currently targeting at least another €2.5 bn of equity commitments in a new round of fundraising for its European debt platform, Isabelle Scemama, global head of real asset finance at AXA Real Estate, recently told PropertyEU.

AXA Real Estate’s growth as an alternative lender has also been spurred by a new phenomenon in the European real estate sector: investors are becoming more agnostic in terms of how to invest in real estate. Commenting on the trend, Philip Cropper, managing director of CBRE Capital Advisors, said investors are increasingly looking beyond direct investment. ‘They are looking at the four quadrants of real estate, private and public equity, and public and private debt. Investors need to look at all sectors of the four-quadrant grouping and see where returns will be delivered.’

In anticipation of changing investment behaviour patterns and the further globalisation of the business, CBRE has rebranded its real estate finance unit as CBRE Capital Advisors. The world's leading adviser now offers its specialisms in debt and structured finance, capital advisory and loans servicing under one banner across the world. In the coming year, Cropper expects to see a continuation of the market recovery that set in during 2013 and more demand for real estate on the back of a growing appetite for real assets. He believes real estate will remain an attractive proposition relative to other asset classses such as debt, equities, bonds and gilts given that interest rates are expected to remain relatively low in the coming years. 'We will continue to see large amounts of capital flows heading for real estate on a global basis,' he predicted in a recent corporate webcast.

A partner in need
Inter-regional partnerships are also flourishing. Earlier this week, it emerged that Italian listed property services group Prelios has teamed up with New York-based Fortress Group to launch a bid for Unicredit Credit Management Bank, the lender's NPL management platform, as well as for Banco Popolare's bad bank, Release. Prelios Credit Servicing, the manager of over €8 bn of loans, is jointly bidding with Fortress for the two banks' businesses as part of plans to grow in the services sector.

Fortress already has a foot on the ground in Italy as the majority shareholder of Italian asset manager Torre Sgr as well as Italfondiario, the country’s largest NPL-management company with €36.1 bn of assets under management. Under the memorandum of understanding signed last week, the companies are studying the merger between asset managers Prelios Sgr and Torre Sgr as well as between their respective NPL platforms, Prelios Credit Servicing and Italfondiario. Prelios has been forced to restructure its business after overeating at the peak of the market in its former guise as Pirelli Real Estate. The Milan-based company is now focussing on asset management in Germany and Italy, but the credit servicing business is also providing an opportunity to get back on its feet. Nevertheless, its troubles are by no means over and market watchers believe Prelios may need a new capital injection in the near future as it continues to struggle with a difficult market at home.

Fortress may well prove to be just the right partner in its hour of need.

On behalf of the PropertyEU team, a very happy Easter and best wishes for a good and restful break
Judi Seebus
Editor in chief

Related articles
Real estate loan sales to hit €50b in 2014: C&W
AXA Real Estate wins €485m debt mandate
CBRE rebrands finance unit
Prelios, Fortress bid for Italian banks' NPL platforms

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