Commerzbank has this morning confirmed the sale of its majority performing €2.2bn pan-European commercial real estate (CRE) loans portfolio to JP Morgan and Lone Star as well as trading its €700m German NPL to Oaktree Capital Management.
The two loan portfolios, with a combined original principal balance of €2.9bn, were part of the former Eurohypo property lending bank’s legacy loan book.
In a statement, Commerzbank said the two portfolios account for approximately 16.6% of the remaining €17.5bn commercial real estate loans held in the bank’s Non-Core Asset (NCA) division as of the end of March 2015. Following these two portfolio sales, Commerzbank’s CRE loan book is now €14.6bn.
Commerzbank added: “In the future Commerzbank also intends to further reduce its portfolios in commercial real estate and in ship finance in a value-preserving way.”
Commerzbank has approximately €900m remaining German non-performing loans and a further circa €8bn in performing German loans.
In addition, Commerzbank’s remaining legacy European CRE loan portfolio is approximately €5.6bn, including €1.1bn in Italian loans; €1.0bn in Portuguese loans; and €0.5bn in US loans.
In addition, the volume of CRE non-performing loans is being reduced by approximately €1.3bn to €1.7bn.
The pan-European portfolio, which was approximately two-thirds performing and one–third a mix of sub and non-performing, had several names including Project Parroti.
Cerberus Capital Management, Colony Capital and Oaktree Capital Management, were underbidders on the pan-European loan portfolio.
The European portfolio comprised loans secured by commercial properties in Austria, Belgium, Czech Republic, Cyprus, Denmark, Finland, Hungary, Luxembourg, Netherlands, Rumania, Sweden, Switzerland, Slovakia and Turkey.
The German NPL portfolio told to Oaktree reduces Commerzbank’s domestic loan book by 40%, Commerzbank added in the statement.
Commerzbank’s German NPL has 257 loan tranches, comprised of 114 borrower groups with total liabilities, unpaid interest, amortisation and other costs, of €752.15m. As a result of this loan composition, provisioning against the pan-European portfolio is low and therefore Commerzbank was seeking a small discount.
The property portfolio is 177-strong, including: 42 offices (including 5 assets with a mixed-use component), 35 multi-family blocks, 14 mixed residential and commercial buildings, 10 hotels, eight warehouses, seven shopping centres, five factory buildings, five retail parks and three logistics buildings.
There is also a raft of more unusual asset types, including three horse-riding farms, one furniture store, one cold storage house, one medical centre, one nursing home, one multi-storey car park and one petrol station with a supermarket.
The annual passing rent for the German NPL is €51.2m. Based on passing rent, there is a considerable concentration of value within 10 assets which account for €26.2m, coincidentally also 51.2%, of the total portfolio income.
Plans to sell these two portfolios were first mooted back in December, as reported by CoStar News.
The bank said second and third quarter charges of €65m and €20m, respectively will be taken as a consequence of the sale. However, Commerzbank will release €1.9bn in risk-weighted assets (RWA) will lead to a positive net capital effect of approximately €105m.
Sascha Klaus, divisional board member non-core assets commercial real estate said in a statement: “Both transactions show that we are continuing to press ahead with our value-preserving run-down, and that we are significantly reducing both risk and complexity.
“In this respect we are taking advantage of market opportunities, in order to achieve best possible results through competitive bidding procedures.”