Banks in Europe will sell $770 billion in non-core assets.
According to Cushman & Wakefield’s Corporate Finance team, European banks and asset management agencies have a gross exposure to non-core real estate that is subject to sale or work-out plans of $770 billion (€584 billion).
Despite the high level of commercial real estate (CRE) and real estate-owned (REO) transactions seen so far this year, the deleveraging process in Europe is far from complete, according to the results released in the firm’s European Real Estate Loan Sales Market H1 2014 update. real estate
For the in-depth analysis, Cushman & Wakefield Corporate Finance conducted thorough research on the non-core real estate exposure of 46 banks and asset management agencies across Europe. The nine European “bad banks” studied possess over 46% of total gross non-core real estate exposure, highlighting their relevance in the CRE loan and REO sales markets in the coming years.
The report identifies eight’mega-deals,’ or transactions with a face value of more than $1.3 billion, that closed in H1 and another four that are currently being followed. These “mega-deals” accounted for 71% of overall H1 loan sale volume, up from 40% in 2013.
In H1 2014, the average size of loan sale transactions grew to $818 million from $455 million in the same period last year, bucking the trend seen across Europe in 2013, making it even more difficult for smaller investors to engage in the sales process.
Lone Star and Cerberus, two large US investors, continue to make headlines, accounting for 77% of all European CRE loan and REO acquisitions in H1 2014.
Cushman & Wakefield’s EMEA Corporate Finance group’s Executive Chairman, Frank Nickel, stated, “US investors have raised a huge amount of money to engage in opportunistic real estate. These purchasers prefer’mega-deals’ because they allow them to get huge exposures to critical assets and markets in one transaction, saving both money and time.”
Following a record-breaking first quarter led by IBRC, the second quarter saw activity spread to Southern Europe as vendors seek to capitalize on the region’s growing investor appetite. As a result, Cushman & Wakefield’s Corporate Finance team predicts that $21.4 billion in sales were completed in the three months leading up to July, more than six times the volume concluded in the second quarter of 2013 ($3.3 billion).
When combined with the $32.5 billion number for Q1 2014, the total volume for the first half of this year is $53.8 billion. This represents a volume gain of over 30% for the entire year of 2013 and 611 percent for the first half of 2013.
Due to a busy first quarter, Cushman & Wakefield Corporate Finance predicts that closed CRE and REO sales would surpass $79 billion in 2014.
Federico Montero, Head of Loan Sales, EMEA Corporate Finance at Cushman & Wakefield, stated, “Although the record loan sales volume seen so far in 2014 is commendable, the 770 billion in non-core real estate exposure throughout Europe demonstrates the magnitude of the deleveraging process still to come. Furthermore, the ECB’s future stress tests will ensure that the market’s present high levels of activity will be maintained over the next few years.”