€60-70bn of real estate loans sales forecast for 2015
Global real estate adviser Cushman & Wakefield’s EMEA Corporate Finance team in London has recorded €12.2 billion of closed European commercial real estate (CRE) loan and real estate owned (REO) transactions in Q1 2015 – according to the firm’s latest European Real Estate Loan Sales Market report.
There has been a spreading of activity throughout Europe which has been characterised by sales in Italy. As anticipated, there has been a noticeable increase in activity in Italy at the start of 2015 with over €1 billion of closed transactions being recorded. To put this into perspective, this total is over 2.5x the volume recorded in the entirety of 2014 and makes Italy the third most active European country by closed transactions in Q1 2015.
After a record-breaking 2014, last quarter’s overall performance represented a decrease of 49% on the totals for both Q1 2014 and Q4 2014. However, this reiterates the staggering level of activity witnessed in 2014 which was bolstered by the deleveraging of IBRC, NAMA and RBS.
A more telling statistic is that the Q1 2015 figure is around 53% of the total volume transacted in the entirety of 2012, highlighting how significantly the European CRE loan and REO sales market has evolved over the past three to four years. Only €23.2 billion of transactions were completed in 2012 with virtually no sales recorded outside of the four key markets of the UK, Ireland, Spain and Germany and only seven ‘mega-deals’ (those deals with a face value of over €1 billion) completed. Not only has the level of activity increased dramatically since then but the geography and type of product being brought to the market has noticeably expanded.
Despite the UK and Ireland together accounting for almost two thirds of Q1 2015 sales, closed volumes reduced by 47% and 68% respectively when compared to the figures for Q4 2014. Again, this is a better reflection of 2014 than on the year ahead. As predicted in Cushman & Wakefield’s Q4 2014 European Real Estate Loan Sales Market report, this reduction has been the result of many UK and Irish banks and asset management agencies, such as IBRC, RBS and Lloyds Banking Group, completing the majority of their deleveraging in 2014. Although there are signs of slowing activity in these leading markets, several key vendors, including NAMA, have a mountain of non-core real estate exposure still to be worked-out.
There were several large transactions in Q1 2015 which helped boost the closed volume, including Permanent TSB which completed the sale of its Capital Home Loans servicing platform and the €3.5 billion of associated residential loans to Cerberus. In addition, in its drive to cover its capital shortfall following the results of the AQR last October, it also finalised the disposal of its €1 billion and €500 million Irish CRE loan portfolios (dubbed Project Leinster and Project Munster respectively) to Haybell Limited, a newly formed entity believed to be funded by Deutsche Bank and Apollo.
From its knowledge of key vendors and expected market trends, Cushman & Wakefield anticipates closed sales for 2015 will be in the region of €60-€70 billion.
Further highlights from the report include:
- There has been a notable increase in the number of secondary sales coming to market as early investors in non-performing loans (NPLs) start to ‘cash in’ on worked-out portfolios;
- With fewer ‘mega-deals’ completed in Q1 2015, the top five investors accounted for 69% of the closed sales volume in the first quarter;
- Permanent TSB was by far the most active vendor in the market, alone accounting for 41% of all completed transactions in its effort to cover the capital shortfall highlighted by the AQR last October;
- Despite the relatively quiet start to the year, volumes in the second half of 2015 will be boosted by the €49.2bn pipeline of live and planned sales, with NAMA and the Italian banks set to be key vendors.
Cushman & Wakefield’s Head of EMEA Loan Sales, Federico Montero, said: “Although completed transaction volumes are slightly down on those recorded for 2014, there are plenty of large transactions being prepared for the market which will boost activity in the second half of the year and catch the eyes of awaiting investors. As predicted, we have already seen a noticeable uplift in the number of sales coming from Italy, which was the third most active European country in the first quarter.”
Frank Nickel, Executive Chairman of Cushman & Wakefield’s EMEA Corporate Finance group, said: “Vendors in the UK and Ireland have undoubtedly led the way in the deleveraging cycle since the crash of the market, setting an example to banks and asset management agencies throughout Europe and even globally. As many now approach the completion of their workout strategies, the likes of Spain and Italy have the opportunity to step up to the plate and grab the attention of a wealth of investor interest flooding in from the US.”