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€233bn Non-Core Real Estate Exposure Held by European Asset management Agencies

Global real estate adviser Cushman & Wakefield’s EMEA Corporate Finance team in London estimates that asset management agencies (AMA) have more than €233 billion of gross European non-core real estate exposure – according to the firm’s latest European Real Estate Loan Sales Market report.

A staggering volume of transactions being brought to market since the end of the first quarter is also revealed in the report, with more than €74.0 billion of live sales currently being tracked. This is the highest level of live sales ever recorded and is over 4.5x the live volume recorded at the end of March.

After allowing for loan loss provisions, this figure equates to a net total of c. €144 billion (62% of gross exposure).  Overall, it is estimated that AMA represent around 43% of the total non-core exposure across Europe, highlighting their significant role within both the current and future deleveraging landscape.

European AMA will remain key vendors over the next 6-8 years with between €50-55 billion of deleveraging expected in 2015 alone.

The team analysed 12 European AMA to determine their combined gross non-core real estate exposure as at the end of Q2 2015 and consequently estimate the expected levels of commercial real estate (CRE) loan and real estate-owned (REO) sales in future years.

The figures in the report relate to the face value of European CRE loans, residential mortgages and REOs held by entities which have been set up by European governments to externally receive and then liquidate the ‘bad’ assets of one or more national banks.

The exposures of AMA remain much like in 2014, continuing to be dominated by NAMA (Ireland), SAREB (Spain) and UKAR (UK).  These three entities together hold 91% of the €233 billion and therefore will continue to be critical vendors of loan portfolios over the coming years. 

This once again highlights how those countries which committed early to establishing AMA have benefited from high levels of investor interest.  Due to the success of existing AMA, further entities are likely to be set up in the near future in the likes of Italy, Romania and Poland.

Cushman & Wakefield’s Head of EMEA Loan Sales, Federico Montero, said: “Buoyed by the successful sales of existing entities in Ireland and Spain, the currently less active AMA will look to increase their disposal activity to take advantage of growing investor demand. Additionally, Europe can anticipate the establishment of further AMAs by the end of 2016. However, due to the smaller nature of the related local banks, it can be expected that the newly formed AMA will not have the same scale of troubled assets associated with the likes of NAMA or SAREB.”

In comparison to a very positive 2014 which was dominated by loan portfolio sales from AMA, 2015 has yet to spark into life. Together, European AMA sold €2.7 billion of CRE loans and REOs in H1 2015, accounting for just 12% of the six-monthly total.

However, this is not to say that these agencies have not been busy behind the scenes. Both NAMA and UKAR have recently launched ‘mega-deals’ in the forms of the €7.2 billion Project Arrow and the €17.6 billion Granite Portfolio respectively, which they will look to complete before the year’s end.

As key vendors, the AMA have together disposed of over €44 billion by face value in real estate loans and REOs between 2012 and the end of H1 2015. 

With many key vendors preparing ‘mega-deals’ for the second half of the year, Q2 2015 followed in the same vein as the first quarter.

Cushman & Wakefield’s Corporate Finance team recorded €9.5 billlion of closed CRE loan and REO sales in the three months to July, bringing the total for the first half of the year to €23.5 billion.  Predictably, the UK and Ireland accounted for 49% of this total with a further 13% relating to Spain.  This represents a decrease of 42% on the total for H1 2014 (which was driven by the sales by IBRC) and of 32% on the Q1 2015 volume. 

Permanent TSB remains at the top of the list of the most active vendors following a string of completed deals earlier in the year.

Despite the slightly subdued activity levels in Q2 2015, over €99 billion of live and planned sales are currently being tracked which will lead to a busy second half of the year.  These sales include several ‘mega-deals’ from Lloyds Banking Group and RBS which will virtually complete their non-core deleveraging.

Having established four ‘bad banks’, China may be the next stop for opportunistic investors once activity in Europe eventually subsides.

Frank Nickel, Chairman of Cushman & Wakefield’s EMEA Corporate Finance, said: “Despite a relatively subdued start to 2015, it would be a mistake to assume that activity in the European CRE loan sales market is subsiding.  Closed sales in the last three months are below those recorded in Q1 2015 or any quarter in 2014, but behind the scenes there has been a flurry of preparation work as key vendors line-up ‘mega-deals’ for the second half of the year.  No doubt, investors will have plenty of distressed opportunities before the year is out in which to invest their capital across the UK, Ireland and Europe as a whole.”