Cushman & Wakefield (C&W), the world’s largest privately-owned real estate services firm, has increased its year-end European real estate loan sale estimate from €25 billion to more than €30 billion, as activity spreads across the Continent.
The European loan sale market started strongly in the first six months of 2013, with €5.8 billion-worth of commercial real estate (CRE) loan and real estate-owned (REO) portfolio sales taking place across 18 transactions. This is slightly less than the €7.6 billion sold in H1 2012. However, a busy start to the second half of the year has seen further transactions close, including the Hypothekenbank Frankfurt AG (Eurohypo) sale of its €5 billion UK loan book – this has brought the year-to-date total to €11.2 billion.
C&W is currently observing a build-up of potential transactions – the firm is tracking €12.1 billion in live CRE loan and REO sales and a further €44.1 billion in planned sales. More than 50% of these planned loan sales by face value represent the loan books of European asset management agencies, such as NAMA, IBRC and SAREB. Based an assessment of all of these potential transactions closing, C&W predicts total transaction volumes at the end of 2013 will be in excess of €30 billion.
During H1 2013, the UK, Ireland, Germany and Spain continued to capture the majority of transactions, accounting for almost 90% of closed sales by volume. This is hardly surprising given US investors view the UK and Ireland as first-stop markets for loan acquisitions in Europe – there are no language barriers and more sources of loan-on-loan financing.
However, investors are beginning to turn to other markets and explore opportunities outside of the four most popular countries. C&W says it is witnessing live sales in the Netherlands, Italy, Finland and France – markets which have so far seen very little activity indeed.
Although 2013 continues to be dominated by the same few key investors who were active last year, the range of potential buyers is becoming increasingly diverse. The buyer universe has widened, with more US investors and hedge funds entering the market. US private equity firms are now also turning their attention to continental Europe as returns on US investments fail to meet expectations. There has also been a significant rise in the number of hedge funds targeting markets like Germany and Spain on the lookout for corporate debt of property companies which are undergoing restructuring processes.
The average loan size has decreased by more than half from €658 million in 2012 to €321 million in the first half of 2013. This trend reflects vendors’ attempts to market to a more diversified investor base to maximise recovery. Last year, vendors sought to deleverage quickly through large loan sales and often with no clear expectations of buyers’ investment approaches and therefore results. But this year, however, C&W is seeing vendors bringing portfolios to the market with a more thorough understanding of the property collateral – this is having a beneficial impact on price discovery and transparency.
The majority of closed transactions have been CRE loan sales (73%), with the remainder representing REO sales (19%), CMBS asset sales (6%) and residential loan sales (2%).
Federico Montero, EMEA Corporate Finance partner at Cushman & Wakefield, said: “We are seeing a wave of new investors looking to capitalise on the opportunities presented by both the deleveraging banks and the newly-formed European asset management agencies who are becoming increasingly active. The next six months are certainly going to be very busy.”