Barclays shed almost £3bn in legacy real estate exposure last year in its investment banking arm, while increasing total UK property lending by £2.5bn.
In addition, Barclays increased its continental European property loan book by around £170m.
The circa £300m net reduction in overall exposure to European commercial real estate reflects steady progress for the bank, which is making progress ridding itself of unwanted old vintage exposure, while continuing to lend to the real estate sector at today’s much more attractive margins.
Barclays Capital’s disposals were driven by £1.18bn in legacy commercial property loan sales, run-downs and direct property sales in 2011, while £1.83bn in CMBS bonds were traded or matured, according to the bank’s annual results.
BarCap had £5.32bn in commercial real estate loan and property credit market exposures at the end of December, down from £7.10bn the previous year.
Protium, the investment subsidiary which BarCap set up in 2009 to house its distressed credit market exposures off balance sheet, reduced its CMBS bond securities by £1.83bn to £1.42m. In addition, outside Protium, BarCap has shed a further £18m of CMBS securities.
Concurrently, Barclays Real Estate’s overall European lending increased by £2.65bn, driven by a £2.48bn increase in lending to UK property last year, increasing its total domestic loan book from £13.74bn to £16.23bn. In Europe, overall property lending was static, increasing by £169m to £3.19bn over the 12 months to the end of last year.
Barclays’ overall global real estate loan book increased by £1.29bn to £24.1bn in 2011, reflecting 5.0% of the bank’s aggregate £479bn loan book, compared to a 4.89% weighting at the end of 2010.
Barclays said in its annual results that it retains a “tightly controlled exposure to commercial real estate loans” which had helped drive the reduction in credit impairment charges. In the UK, impairment charges had reduced by 23% to £355m and by 33% to £716m in Europe.
Barclays has also confirmed in its annual results that it has received £1.8bn in settlements, which include “the £0.8bn Baubecon debt restructuring” as well as repayments received on other legacy commercial real estate loans.
In November, Barclays Capital exercised a call option written into an €1.36bn loan securing a RREEF and Prelios joint venture, the BauBeCon portfolio of 26,000 German residential properties.
Barclays negotiated the insertion of the call option into the BauBeCon balance sheet loan in 2010 after a series of covenant breaches, and finally took ownership of the portfolio in late November, as revealed by CoStar News.
The 26,000-strong portfolio of residential apartments in Berlin, Hanover and Magdeburg had a market value of €1.42bn at the end of June, with the yield on the portfolio at 6.8% and a 4.2% vacancy at the end of 2010. The €1.36bn balance sheet loan issued by Barclays Capital was originally earmarked for a securitisation, before the market turned in the second half of 2007 preventing a capital markets exit.
Last month, Barclays completed the sale of a half of its 50% commercial real estate equity stake in Archstone, one of the largest builders and operators of apartment buildings in the US, for £405m ($628m), reportedly with Sam Zell’s Equity Residential.
Last April, Barclays acquired all third party interests in Protium securities to facilitate the bank’s early exit from the underlying exposures. As a result, Protium has subsequently been sold to Barclays entities, which has enabled the prepayment of the £7.56bn loan the bank issued against the Protium collateral. As part of this transaction, £459m ($750m) was invested in Helix, an existing fund managed by Protium’s investment manager.
Protium was established by BarCap in September 2009 as an off-balance sheet investment subsidiary which consists predominantly of senior and junior commercial real estate loans, CMBS positions as well as broader non-real estate leveraged finance positions such as CDOs and CLOs.
All exposures originated before what Barclays refers to as the “market dislocation in mid-2007”.