European real estate loan portfolio sales is expected to ramp up from next month with as much as a further €84bn in planned disposals expected to close before the year end, taking annual volumes to almost €140bn capping the fastest pace of bank deleveraging in this cycle.
These estimates, by PricewaterhouseCoopers, include €55bn of loan portfolio sales already concluded during the first half of this year, a 20% on the same period in 2014. PwC said around 80% of all deals concluded this year which it has recorded are secured by commercial or residential real estate.
PwC predicts “a flood of new transactions expected to be launched after the summer holiday period” which will be more than 50% higher than the €91bn in European real estate loan portfolio sales in 2014.
The drivers of this increased deal flow are a mixture of: last year’s Asset Quality Review by the European Central Bank; vendors seeking to capitalise on, particularly, private equity investor demand; as well as banks to conclude their necessary balance sheet restructuring.
Driven by a few large deals, the UK market is likely to top the transaction table this year, with a total expected transaction volume of in excess of €60bn. Transactions for unwanted loans in Germany, Spain, Italy are likely to be around €20-25bn for each country.
More than 60% of the €84bn – or above €50bn – planned loan portfolio disposals for the remainder of 2015 are secured by assets in the UK and Ireland but it is Italy, the CEE markets and the Netherlands which investors are now expecting successive deal flow to emanate from.
PwC even suggests markets like Greece – still stifled by its economic crisis – could become an active market for distressed loan portfolio sales. “With the recent economic and financial developments in Greece, we believe this market will remain fluid. Increased levels of borrower defaults are possible and this market could become very active when there is greater financial and economic stability.”
Richard Thompson, global leader of PwC’s Portfolio Advisory Group, said: “The volume of transactions in the market today is higher than it has ever been, and shows no signs of abating over the next 12-18 months.
“Our analysis shows that banks continue to hold around €2trn of unwanted loans which means that the supply of loan portfolios into the market won’t dry up anytime soon.
“Transactions in Italy this year are expected to be greater than the past five years combined.
“Whilst there may well be some turbulence in this market over the next couple of years, regulatory changes, increased investor appetite and a stock of NPLs the highest in Europe mean it will be a significant market for many years to come.
“At the moment we do not see any impact arising from recent events in Greece. Investors have a continued appetite to invest and the debt markets to leverage such transactions remain open.”
PwC identifies loan portfolios backed by real estate as continuing to be the most traded asset class, with around 80% of all transactions completed so far this year being either residential mortgages or lending backed by commercial real estate. This represents an increase from around 70% in 2014.
PwC’s research also shows that over the past five years (2010-2014 inclusive) banks have disposed of loan portfolios – including and beyond real estate – with a total face value of around €250bn.
UK and Irish based banks have been the largest group of sellers, accounting for half of this total. Spanish banks account for around €45bn with Germany and Italy a long way behind at around €25bn and €15bn respectively, though in Italy’s case, this is soon to change.