Nationwide has selected three private equity funds to progress to the second and final stage of the bidding process for the granular Project Adelaide German commercial property loan portfolio, as the wave of European NPL activity continues to gather in momentum.
CoStar News understands that Oaktree Capital Management, Cerberus Capital Management and Kildare Partners have been selected as the finalists based on first round pricing and judgement of execution certainty.
Nationwide’s €850m Project Adelaide is comprised of a granular pool of around 200 retail office and industrial commercial properties throughout Germany, with each loan connection around €20m to €30m.
Deloitte, which is running the sale of Nationwide’s Project Adelaide, valued the underlying real estate portfolio at north of €650m, prior to the launch of the loan portfolio sales process.
The spread on the first round bids from the final three is thought to range by around €50m, with all three finalists offering above €600m.
As the momentum of positive economic sentiment continues to build across Europe, a detectable new trend has appeared in the NPL market, with a winning bidder paying above the current real estate desktop valuation.
Yesterday, Marathon Asset Management agreed to buy Project Aberdonia NPL from Lloyds for €280m which reflected a premium to CBRE’s desktop valuation north of 15%, CoStar News understands.
In between the first and final rounds of the Aberdonia sale process, commercial properties valued at between €35m to €40m were sold separately. Marathon’s €280m price paid, therefore, reflects a smaller total debt relative to the original €600.1m secured by the initial 82-strong property portfolio which CBRE’s desktop valuation put at €279m.
Marathon’s premium could reflect a number of variables, including its own low cost of capital, upward price movements since the desktop valuations as well as more positive assumptions of future valuation increases. Indeed, the extent to which this is the first of a trend remains to be seen.
What is probable is that these multiple positive variables which are aligning – the weight of capital chasing higher yielding debt and equity product, expectations of further upside to come, ever-tightening loan-on-loan financing spreads – is fragmenting the NPL buying universe in which some investors are prepared to pay premiums to values again.
These dynamics are influencing the strategies of de-leveraging institutions, such as RBS, Lloyds, NAMA, Commerzbank, SAREB, Uni-Credit, as well as the bad banks of Germany – all of which unilaterally believe that the time for legacy loan portfolio sales make more sense now.
For a separate report on Lloyds Banking Group’s next UK non-performing loan portfolio, as well as an update on additional NPL sale processes, please click here.
All parties declined to comment.