Third quarter chalks up record for European real estate loan sales

By Paul Norman - Friday, October 06, 2017 10:04

€79.6bn (face value) of closed real estate loan and REO sales completed in the first three quarters of 2017 across 50 transactions with the third quarter seeing the highest total ever record in Europe and the year on course to beat 2015's peak level of transactions, according to Evercore’s latest European Distressed Real Estate Market figures.

Evercore reports that there has been a high volume of sales relative to the number completed with almost €50.7bn (face value) of transactions closed in Q3. That volume is the highest quarterly total ever recorded in Europe, boosted by a number of large non-performing loan (NPL) sales and securitisations in both Spain and Italy.

However, the total number of deals completed to date is well below the 94 recorded for 2016, albeit for the whole year. As such Evercore said the market is also being defined by the average size of transactions which stands at €1,591m, considerably above the €542m recorded for 2016.

Despite this, there have only been five “mega-deals” (deals with a face value greater than €1bn), again highlighting the significance of a small number of mega-deals including those by Santander, Banca Monte dei Paschi di Siena (BMPS) and UKAR

Given the pipeline of portfolios being marketed, Evercore expects the closed volume for the whole of 2017 will surpass the peak recorded in 2015.

By portfolio type, 50% of the closed volume relates to CRE loans, with 26% and 24% corresponding to REOs and residential mortgages respectively.

The REO volume has been significantly bolstered by Santander’s sale of circa €18bn of non-core RE assets previously held by Banco Popular.

Geography

Following the record c.€30bn transaction involving Santander’s sale of former Banco Popular real estate loans and foreclosed assets to Blackstone, Spain has seen over €34.0bn of closed transactions in 2017 so far and accounts for 43% of the total.#

Italy accounts for a further 30% or circa €24.1bn of the total to date. There have been a number of large NPL securitisations, but the most notable has been BMPS’s €26.1bn NPL portfolio of which 62% of the loans were estimated to have been secured

The UK is takes up 22% with the €17.7bn of recorded transactions mainly UKAR’s €15bn Project Ripon.

Evercore points out that there have been relatively few RE loan sales in comparison to recent years, with a number of private equity firms converting into REO vendors having once been key loan buyers.

Germany has recorded just three sales amounting to €1.4bn, with a similar story being witnessed in Ireland where the only completed sale of note is AIB’s circa €400m Project Cypress

Evercore points that given the current pipeline of live sales, there is the potential for Portugal's closed total for 2017 to surge considerably in the final quarter.

Top vendors and buyers

Three names dominate the vendors so far. Following its acquisition of Banco Popular for €1 in June this year, Santander has pressed on with a sale of circa €30bn of the assets, with the bank retaining a minority interest in the JV structure it established with Blackstone

BMPS securitised its entire NPL portfolio, allowing the “clean” bank to be subject to a precautionary recapitalisation.

Evercore writes: "The securitisation saw c.€3.3bn of senior notes and further c.€1.7bn of mezzanine and junior notes issued.

Evercore points out that compared to previous years there has been a low level of asset management agency (AMA) involvement with the likes of NAMA and FMS yet to record a sale in 2017, AMA have accounted for just 21% of the closed volume over the first three quarters of the year. This compares to 38% of the total for the whole of 2016.

The buyers’ market has been highly concentrated so far in 2017, with the top two buyers representing 76% of all RE loan and REO purchases Blackstone has acquired the highest volume of RE loan and REO portfolios in 2017 YTD(1). Its circa €42.1bn of acquisitions across four portfolios is significantly above the next buyer, and includes the Banco Popular RE assets sale, part of UKAR’s Project Ripon, and two smaller deals from Banco Popular and BBVA earlier in the year

The Atlante II Fund has been the second most active buyer. Evercore explains: "Given the rise in the use of the favoured NPL securitisation structure in Italy, the rescue fund was used to acquire the mezzanine and junior notes backed by BMPS’s c.€26.1bn loan portfolio. The senior notes have been guaranteed under the government's GACS scheme and subsequently offered to investors."

Bain Capital has been a recurring name in 2017. The entity has to date closed five deals, the most of any buyer this year. Its most recent purchase was the circa €750m Project Terzo, a portfolio of sub-performing and non-performing leasing loans in Italy.

Live and planned transactions

Evercore flags notable live transactions as:

Caricesana / Carim / Carismi – circa €3.2bn: Following the recent sale of €380m unlikely-to-pay (UTP) loans to Algebris Investments, the three Italian banks are looking to offload circa €3.2bn of NPLs using the securitisation process. This will then facilitate the sale of the banks’ good assets to Crédit Agricole Cariparma

Piraeus Bank – c.€1.4bn: Greek banks are

becoming more active as demonstrated by Piraeus’s marketing of a c.€1.4bn NPL portfolio secured by commercial and hotel properties

Danske Bank – €2bn: Danske Bank is looking for a buyer for its c.€2bn portfolio of performing Irish mortgages

The REPS team is tracking a future pipeline of circa €17.6bn in potential European RE loan and REO transactions. This is below the €24.8bn recorded as at the end of June 2017

Evercore says that with year end approaching, it is unsurprising that there is a relatively low level of planned transactions as many vendors have recently launched sales in order to achieve completion before 2018.

Approximately 87% of the total relates to the UK and Ireland, mainly due to UKAR and AIB. The former is rumoured to have identified circa £6bn of mortgages following its sale earlier in the year, whilst the latter is rumoured to be eyeing the sale of two portfolios which together amount to nearly €7bn.

Rabobank recently reported that it will start the sale process of a circa €1.5bn CRE loan portfolio in October or November this year, meaning that the Netherlands accounts for 8% of the planned total.

pnorman@costar.co.uk

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