European real estate loan portfolio sales year-to-date have virtually matched last year’s €30bn annual tally with as much again in current live portfolio sale auctions, as the most frenetic period for de-leveraging legacy real estate debt continues to dominate market attention.
In the first quarter of this year, the nominal balance of traded European loan portfolio sales reached €23.9bn, with a further €5.9bn having closed so far in April taking the year-to-date total to €29.8bn, according to data compiled by Cushman & Wakefield’s Corporate Finance research team.
C&W Corporate Finance’s figures include both closed commercial and residential loan portfolio and real estate-owned (REO) sales.
2014’s top five winners so far
C&W Corporate Finance recorded 38 transactions in theyear-to-date showing that the average outstanding principal balance of these deals was €784m.
The successful sell-off of the IBRC real estate loan books, in a process managed by special liquidators KPMG, has led this year’s mega deals with Lone Star emerging comfortably as 2014’s overall winner so far having closed deals with a combined nominal value of €12.9bn, according to C&W Corporate Finance.
Lone Star has won the entire two-tranche Project Salt and 12 of the 14-tranche Project Rock legacy IBRC commercial property loan books in February. The two mega loan portfolios had a combined face value of £5.2bn and traded for around £3.6bn, reflecting a 30% discount.
Lone Star also won the nominally-valued circa €1.3bn tranche 3 and circa €600m tranche 5 of IBRC’s €9.3bn Project Stone, which was comprised of Irish and commercial real estate loans respectively.
Cerberus is in second place, so far this year, driven by the closure of £4.5bn (€5.6bn) Project Eagle, which is NAMA’s book of loans originated by Northern Ireland borrowers, paying just over £1bn.
CarVal Investors, together with its joint venture partners including Goldman Sachs’ Special Situations Fund and Pepper Asset Services, are in third place so far this year, having closed loans and REOs with a nominal balance of €3.2bn.
The three-strong CarVal-led consortium won three tranches Project Stone, tranches 1, 2 and 4 which carried an approximate combined nominal value of€3.2bn.
Deutsche Bank and Oaktree complete the top five winners for 2014 so far, closing deals with a nominal balance of €1.8bn and €1.3bn, respectively, according to C&W. Deutsche Bank won the most contested tranches within Project Stone, 6 and 7. Overall, IBRC managed to sell €19.8bn out of a total book of €21.7bn across five NPL portfolios
By country UK and Ireland dominated sales, accounting for almost 72% of all closed sales in 2014 year-to-date.
Federico Montero, a partner in Cushman & Wakefield’s EMEA Corporate Finance team and head of loan sales, said in a prepared statement: “The European real estate loan sale market could reach its peak in 2014 as activity soared in the first few months of this year – we won’t see a quarter like this for quite some time.
“The speed at which the processes were concluded is a clear message that investor appetite is at an all-time high, with plenty of capital still to deploy.”
€30bn in live portfolio trades
There is a current pipeline of approximately €30.4bn including the just-launched €7bn Project Hercules residential loan portfolio by Catalunya Banc. N+1, a Spanish loan sales advisory firm, is selling Project Hercules.
C&W Corporate Finance has upgraded its forecast for likely real estate loan REO sales this years from €40bn to more than €50bn, following the early year surge in transactional activity, which will substantially surpass previous years.
According to CoStar News’ own reporting, the current live deals include:
- WestImmo predominantly performing legacy €11.8bn European commercial property loan book. CoStar News reported in January that PIMCO has been evaluating a possible bid since last autumn, as has ING Real Estate Finance, while Aareal Bank has pulled out of the process since completing the €342m acquisition of Corealcredit Bank from US private equity firm investor Lone Star just before Christmas. For the full WestImmo report, please click here.
- Catalunya Banc’s just-launched €7bn Project Hercules residential loan portfolio which is comprised of a performing, a sub-performing and a non-performing loan subpool. N+1 is selling Project Hercules. For the separate story published today (16 Aptil), please click here.
Separately, Blackstone confirmed last week in a regulatory filing its acquisition of Catalunya Banc’s real estate servicing platform for €40m.
- Commerzbank’s €4.4bn Project Octopus, which is the Spanish commercial property lending business of its formerly-named Eurohypo subsidiary. The four consortiums through to the second round comprise: Lone Star and JPMorgan; Blackstone and Deutsche Bank; Apollo and Santander; and Cerberus. Lazard’s in Germany is selling Project Octopus. For the latest report, please click here.
- NAMA’s €1.7bn remaining Project Tower, which comprises Irish property developer Micheal O’Flynn Irish, UK and German property loan book. Lone Star, Blackstone and Davidson Kempner are the three finalists. UBS is selling Project Tower.
- Nationwide’s €850m Project Adelaide, the granular German commercial property loan portfolio. Final bids are due in next Wednesday (23 April), with the three finalists comprised of Oaktree, Cerberus and Kildare Partners. Deloitte is selling Project Adelaide. For the latest report, please click here.
- Lloyds Banking Group’s £625m (€780m) Project Avon portfolio, its latest – and possibly penultimate – UK commercial property portfolio. Deloitte is selling Project Avon. For the latest report, please click here.
- Ulster Bank’s reduced €715m Project Button which is secured by six separate tranches of multiple loans collectively secured by 71 Irish retail and office commercial properties. CoStar News understands that Blackstone’s Real Estate Debt Strategies, LaSalle Investment Management and a combined bid by Kennedy Wilson and Deutsche Bank are all through to the second round. Eastdil Secured is selling Project Button. For full details, please click here.
- NAMA’s €225m Project Drive, secured by loans extended to Irish property developer Brian O’Farrell’s N1 Property Developments. Finalists include Development Securities, Patron Capital and CarVal Investors. EY is selling Project Drive. For the latest report, please click here.
- NAMA’s €300m Project Spring, secured by Irish developer Gerry Conlan loans. DebtX is selling Project Spring.
C&W Corporate Finance wrote in a prepared statement this morning: “With such large portfolio sizes, it has been very difficult for mid-sized investors to get involved in the sales processes and the large US private equity firms have been left to fight it out amongst each other.
“In fact, larger firms seem to be increasingly dominant and are winning more deals than ever before. As many of these firms continue to raise capital, such as Blackstone raising a €5bn European real estate fund and Kennedy Wilson’s £1bn IPO, investor demand is likely to remain high for the foreseeable future.
Investor appetite for the large European transactions has also been reflected by the aggressive pricing or ‘mega-deal premiums’ observed on IBRC’s €21.7bn Project Rock, Stone, Sand, Pebble and Salt, NAMA’s £4.5bn (€5.6bn) Project Eagle and Commerzbank’s €4.4bn Project Octopus.
There are several rationales behind these potential ‘mega-deal premiums’, according to C&W Corporate Finance. “Firstly, it is estimated that investors have around €100bn to €125bn of capital to deploy in Europe in the upcoming years, and are therefore eager to win these mega sales processes.
“This increased competition has resulted in an upward pressure on the underwriting in order to not be left disappointed. The offerings also present an opportunity to build large portfolios in one transaction, thereby saving on the costs and time associated with participating in several smaller sales.
“Finally, many of these larger sales may be a key opportunity for investors to gain their required exposures to certain locations and asset classes, for example Project Octopus.”
As with 2013, the vendor landscape in 2014 is still dominated by de-leveraging banks and asset management agencies or bad banks, with the latter accounting for 71% of the total closed volume year-to-date.
It is also anticipated that there will be increased activity from RBS which recently announced its creation of an internal bad bank, RBS Capital Resolution Group which will look to dispose of c. £10bn to £11bn of non-core CRE loans in the next three years.
With Permanent TSB also revealing plans to dispose of just short of €10bn in real estate loans in the near future, the momentum of loan sales shows no signs of abating.
Closed transaction volumes have been dominated by the UK and Ireland so far in 2014, but C&W Corporate Finance expects activity levels in Spain, Germany, the Netherlands and Italy to increase dramatically throughout the year.
In the Netherlands has seen several distressed sales, and further activity is anticipated following the completion of the asset quality review exercise and the establishment of the €4.8bn Propertize, the Dutch asset management agency.
Whilst Italian banks have yet to bring substantial CRE loans to the market, investor interest has been high for their unsecured debt. UniCredit recently announced deleveraging plans of €55bn in non-core asset over the next five years, and with many other Italian banks likely to follow suit, investors will be eager to take advantage of the awaited opportunities.
C&W Corporate Finance’s Montero concludes: “The €29.8bn of closed transactions which have taken place so far this year are made up of the usual sellers and purchasers – but big name investors are becoming more dominant than ever. We are tracking a further €23.4 billion in live sales, which means that opportunities will continue to flow from vendors and record volumes of near €50bn will be witnessed in 2014.”