GE Real Estate acquires EUR 642m pan-European loan portfolio

GE Real Estate has boosted its European property debt holdings with the acquisition of a EUR 642mln portfolio of performing pan-European loans from Credit Suisse.

The portfolio comprises 10 loans on a range of predominantly office properties in Germany, Switzerland, the UK and Spain. Around 70% of the properties are located in Germany, with 25% located in Switzerland and the UK. The remaining 5% are in Spain.

'Everything we do is about the return on equity. We would expect a return on equity of at least 20% for a portfolio like this, which makes it one of the most attractive asset classes at the moment,' said Olivier Piani, president of GE Real Estate Europe. With financing conditions still tight, such portfolios represent better value for money than they did a year ago: 'A year ago we would have been fighting for a portfolio like this. Now portfolios are often selling for around 15% less than last year,' Piani added.

Investors are keen to take advantage of lower prices, said Michael Haddock, director of EMEA research and consulting at CB Richard Ellis in London: 'They're exploiting a pricing opportunity in the market. If you look at the price at which debt is changing hands, it's not being priced on the expectation of defaulting but on the lack of liquidity in the market.'

Financial institutions have a lot of debt that they are looking to sell on. In recent years, many property deals have been financed with 50% debt. Last year alone, there were around EUR 250bn in property deals across Europe, which were conceivably financed with around EUR 125bn of debt, Haddock added. He also estimated that around one third of property debt in Europe will need to be refinanced over the next three years, which will only exacerbate the problem.

'Nevertheless, a deal like this does send a positive sign to the market. If banks are increasingly able to recycle debt, it increases their ability to initiate new loans and reduces the possibility of them calling in existing loans,' Haddock said.

Following this deal, GE Real Estate has invested more than EUR 4.3bn in European debt portfolios since last November, when it acquired a EUR 2.4bn portfolio of commercial property loans from UK mortgage lender Bradford & Bingley. In April (2008), GE Real Estate acquired a EUR 1.3bn loan portfolio from commercial real estate financial services group Capmark Europe.

'We would be interested in buying further portfolios like this. We don't have a target allocation for performing loans but we would be especially interested in such loans in Germany, France, the UK and Spain,' Piani said.

GE Real Estate has a presence in 31 countries throughout North America, Europe, Asia and Australia/New Zealand, with a combined total of more than $87bn in assets under management.