Against a backdrop of continued economic uncertainty, activity in the real estate loan market will speed up significantly over the next two years, according to a new report from C&W.
Against a backdrop of continued economic uncertainty, activity in the real estate loan market will speed up significantly over the next two years, according to a new report from C&W.
Some 33 completed loan sale transactions totalling €21.7 bn were recorded in the past 12 months, up 146% on 2011, demonstrating that European commercial real estate loan portfolios can be successfully traded, says C&W.
In view of the build-up of activity among banks and their legacy entities, C&W is forecasting over €25 bn of CRE loan portfolio and real estate-owned (REO) sales for the coming year.
Of the €21.7 bn of loan sales in 2012, €10.6 bn (50%) of closed transactions were secured against commercial real estate, with €4.13 bn and €4.10 bn secured against mixed and residential loans respectively. The remaining transactions were a combination of REO (€2.6 bn) and infrastructure loan sales (€213 mln), representing 12% and 1% of the total value respectively.
During 2012 the average transaction size of loan sales also showed a slight increase, rising from €549 mln to €658 mln since 2011, suggesting a trend towards larger portfolio sales. However, these averages varied strongly, with the transactions in each year ranging from €50 mln to €1.8 bn in 2011, to €40 mln to €2.5 bn in 2012.
'Whilst large loan sales of €500m+ are still expected to hit the market, there is a wall of capital available for smaller transactions in the €200 mln - €500 mln range,' said Michael Lindsay, head of corporate finance at C&W. 'Banks and legacy entities should consider tapping into this liquidity through appropriate scaling and composition for their planned sales. Selling into a deeper market should help banks maximize recoveries.'
Over 90% of the transactions in 2012 (by volume) occurred in just four countries - the UK, Ireland, Germany and Spain. The UK alone accounted for 28% of the closed transactions, followed by Spain (26%), Germany (21%) and Ireland (18%).
This demonstrates that the UK currently has the most liquid loan sale market in Europe, although it is anticipated that the Iberian Peninsula and Benelux may become the most active regions over the coming 12 months, especially with the establishment of Spanish asset management agency, Sareb.
C&W's analysis shows that during 2012, nine of the top 10 sellers were banks based in the UK, Ireland, Spain or Germany. Topping the list is Lloyds Banking Group, offloading over €6 bn in CRE loans and Santander with over €3 bn. However, it is anticipated that activity will spread throughout the rest of Europe, as banks attempt to deleverage further in non-domestic markets.
The numerous European asset management agencies are poised to accelerate activity this year according to C&W's report. Whilst NAMA has been less active than anticipated during 2012, it is expected to accelerate deleveraging plans this year. It has already completed one transaction this year; the sale of a €85 mln junior note within a €270 mln securitisation of mainly Dublin offices and retail assets to Northwood Investors, and has recently announced plans to sell two portfolios worth over €1 bn.
