European asset management agencies to offload €264bn of non-core real estate

Global real estate adviser Cushman & Wakefield’s EMEA corporate finance team estimates that asset management agencies have almost €264 billion of European non-core real estate exposure, according to the firm’s latest European Real Estate Loan Sales Market report at Q3 2014.

Cushman & Wakefield completed a thorough analysis of 10 European asset management agencies to determine their combined gross, or ‘face-value’, non-core real estate exposure and consequently estimate the expected levels of commercial real estate (CRE) loan and real estate owned (REO) sales in years to come.

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.

In total, European asset management agencies hold approximately €264 billion of gross non-core real estate assets, which after allowing for loan loss provisions gives a net total of approximately €173 billion. Overall, the asset management agencies represent around 45% of the total exposure held by all European financial entities, highlighting their significant role within both the current and future deleveraging landscape.

Cushman & Wakefield has recorded €54.9 billion of closed CRE loan and REO transactions in 2014 YTD, more than the volume completed in 2012 and 2013 combined. With a pipeline of €30.8 billion in live sales and €24 billion in planned disposals, the total volume for 2014 will likely break the €60 billion mark.

Further highlights from the report include:

  • Nearly 40% of the total gross non-core real estate assets held by asset management agencies relates to Spain, with SAREB accountable for almost the entirety
  • 51% of the current non-core real estate exposure of asset management agencies is secured by residential assets with a further 31% secured by commercial real estate (CRE) assets
  • European asset management agencies have completed €96.7 billion of deleveraging which equates to c.27% of the combined exposure that they received initially
  • Asset management agencies will remain active over the next five to 10 years with over €40 billion of deleveraging expected in 2015 alone
  • The UK continues to dominate the market accounting for 37% of closed transactions by volume, with a further 25% and 21% relating to Spain and Ireland respectively
  • There has been a rise in the number of secondary sales from acquirers of ‘mega-deals’ and sales of banks in Q3 2014
  • Private equity firms continue to take centre stage purchasing 76% of all European CRE loan and REO sales

Frank Nickel, executive Chairman of Cushman & Wakefield’s EMEA corporate finance group, said: “Whilst the UK, Spain and Ireland continue to dominate the investment landscape, new geographies are beginning to attract global capital for the first time – a trend that is only set to continue with the ongoing asset quality reviews helping to facilitate the deleveraging process. However, investors will remain cautious in regards to new markets, with the country’s legal system being a crucial investment factor.”

Cushman & Wakefield’s head of EMEA loan sales, Federico Montero, added: “Many European banks will be forced to finally face up to the facts. If they hold troubled assets, they will be required to reclassify them in the upcoming stress tests which in turn may cause a few capital requirement challenges. With the clear success of the Irish and Spanish asset management agencies, other European governments may follow suit in setting up asset management agencies to workout the non-core exposures.”

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