European loan sales seen topping EUR 15b in 2012: JLL

Sales of European property loans will rise to more than $20 bn (EUR 15 bn) in 2012 and be characterised by larger portfolio deals and recovery rates meeting or exceeding book values, according to capital markets experts at Jones Lang LaSalle.

The experts expect European lenders to face increasing pressure to deleverage themselves of the large volume of debt coming up for refinancing in 2012 and 2013.

Sellers will be more strategic in their offerings, grouping portfolios by product type, geography and sponsor. In addition, the size of portfolios will reach much larger proportions in 2012 - weighing in at $350 mln and even exceeding $1 bn.

‘We have been spending a great deal of time in Europe recently looking at a number of extremely large portfolios just waiting to come to market,’ said Steve Collins, international director with Jones Lang LaSalle’s International Capital Group. ‘As the European banks become more profitable, they will bring more portfolios to market and those, in turn, will cause even more to come to market.’

Recovery rates will be pushed to or even exceed book values as debt is now available for all types of assets including non-performing, sub-performing and performing notes, according to JLL’s loan experts. ‘We expect a significant increase in loan sale activity in the UK and Europe this year as investors look to establish an early foothold in these pioneering loan sale markets,’ said Peter Nicoletti, managing director and global leader of notes sales.

‘Over the past 12-18 months, we’ve seen the note sale market in the US mature very quickly, achieving prices closer to asset value. We anticipate this pattern beginning to develop in certain European countries as the eurozone crisis and volatility in the debt markets causes more investors to aggressively pursue seasoned paper with bulk transactions for all types of notes across the risk spectrum,’ he added.

Foreign lenders have begun the deleveraging process by marketing their US-based mortgages first as the pickings there are considered far more fruitful than in Europe, the JLL experts said. However, lenders are expected to secure extremely strong pricing for notes attached to prime European properties as well.

Buyers of European loans will be diverse, with private equity firms, institutional funds, investment banks and hedge funds targeting non- and sub-performing notes while banks and private equity will zero in on the performing loans.