Commerzbank's sale of three loan portfolios in Spain, Portugal and Japan for a combined total of €5.1 bn marks the biggest deal of its kind this year.
Commerzbank's sale of three loan portfolios in Spain, Portugal and Japan for a combined total of €5.1 bn marks the biggest deal of its kind this year.
Germany’s second biggest lender sold its Spanish commercial real estate financing portfolio, as well as a portfolio of non-performing loans in Portugal, for €4.4 bn to a consortium comprising US private equity group Lone Star and JP Morgan. Of this, around €1.1 bn comprised non-performing loans in Spain and €300 mln in Portugal. The CRE perfoming book in Portugal remains with Commerzbank.
‘This deal shows that Commerzbank is serious about disposing of its loan book,’ Frank Nickel, head of the Capital Markets Group at C&W in Germany, told PropertyEU. ‘It’s the biggest deal of its kind this year and shows that there is a lot of investor appetite for product like this.’
The transactions will reduce Commerzbank’s CRE loan book by 16% to €32 bn and the non-performing loans by nearly one-third to €5.1 bn, both as of end-March 2014. The majority of the loans were issued by Eurohypo, Commerzbank’s former European real estate lending arm, currently known as Hypothekenbank Frankfurt.
In Japan, Commerzbank has also sold its subsidiary Commerz Japan Real Estate Finance Corporation to Asian alternative investment manager PAG’s Secured Capital REP V and Pacific Alliance Special Situations funds. The primarily subordinated loans held by this subsidiary, totaling €700 mln, have subsequently been transferred to the buyer. The portfolio will be managed by PAG’s Tokyo-based Secured Capital Investment Management.
The platform in Spain as well as in Japan, and also the respective employees, is being transferred to an affiliate of Lone Star (Spain) and to PAG (Japan). No further details have been disclosed.
The sale of the Iberian portfolio – known as Project Octopus - is one of the largest Continental European loan disposals this year. Blackstone and Deutsche Bank are also believed to have been among the bidders and Cerberus, Goldman Sachs and Orion Capital Managers are also thought to have bid jointly. Commerzbank brought the portfolios to market last year through New York-based investment bank Lazard as part of plans to liquidate Eurohypo in exchange for a state bailout during the financial crisis.
According to Jörg Schuermann, head of corporate finance at JLL in Germany, US private equity groups typically snap up large loan portfolios like this due to their sheer size and because ‘they feel comfortable going after these portfolios’.
However, the market has changed significantly in the past two years, Schuermann said. ‘Today, these portfolios can sell for 80% to 90% of their value, due to increased asset values and competition, up from large discounts a couple of years ago. Performing loan portfolios, particularly those where the loan terms were agreed five years ago at higher interest rates than today, can be an attractive investment for investors looking to boost income,’ he added.
According to one analyst, who asked not to be identified, the three portfolios could have been sold at just a 2% discount, creating ‘a great time to sell’.
Nickel of C&W agrees: ‘If investors are willing to pay a good price today that is close to par, that sets a new trend in the market for loan portfolios. This deal will also pique the interest of other banks who have loan portfolios to sell but who couldn’t afford to sell them before at a sizeable discount.’
It is not the first loan portfolio sale of its kind for Commerzbank. The bank has sold loan portfolios with a combined value of around €10.8 bn since July last year, including the sales announced on Wednesday, a spokesman told PropertyEU. In addition, it also sold €710 mln of non-performing Spanish loans to international investors in February.
In July 2013, Commerzbank clinched Europe's largest loan sale with the disposal of its UK loan book with a face value of around €5 bn to US lender Wells Fargo and Lone Star for a single-digit discount. Under the trems of the deal, Lone Star acquired the non-performing assets and Wells Fargo entities the performing loans. The transaction marked one of the largest commercial real estate loan portfolio transactions in Europe in the past two years.
Commerzbank has said that as part of its ongoing disposal programme for Eurohypo, it aims to run down €75 bn of non-core assets, including real estate, by the end of 2016.
Commenting on the latest deal, Sascha Klaus, divisional board member, Non-Core Assets Commercial Real Estate said Commerbank had been able to take full advantage of the 'excellent' market opportunity in Spain, thereby reducing significantly the earnings impact through an auction process. ‘With the sale in Japan we have disposed of our only CRE portfolio composed of subordinated loans. At the same time we have further reduced complexity, as this was our last remaining CRE operation outside Europe.’