Europe property debt deals seen slowing after sales reach peak

Distressed property debt sales in Europe will probably fall this year from a record 85.9 billion euros ($93.5 billion) in 2015 as the mountain of bad loans built up during the financial crisis starts to erode.

Italy will lead the way.

Sales of debt and foreclosed properties will reach 70 billion euros to 80 billion euros, New York-based broker Cushman & Wakefield Inc. said in a report on Tuesday. Sales that are planned or underway total 78.6 billion euros, the broker said. Spain tops the list of expected sales with deals that include Bankia SA’s 4.2 billion-euro loan portfolio code named “Big Bang.’’

Cushman & Wakefield Inc. expects
Italy will probably take a growing share of loan sales as assets become attractive and legal changes encourage transactions, the broker said. Europe’s banks are selling soured debt to shore up balance sheets damaged when real estate prices plunged and defaults jumped in the financial crisis. The U.K. and Spain remain the countries with the most bad-loan risk.

“Following the success of other European asset management agencies such as NAMA, the Italians have a good illustration of how best to maximize recoveries,” Federico Montero, head of loan sales for Cushman & Wakefield’s EMEA corporate finance group, said in the statement. “With reforms to enforce legislation now in place, the Italian market is set to grow further in the coming years.”

Cerberus Capital Management LP bought the most distressed real estate debt in Europe last year, closing 11 deals with a face value of 28.1 billion euros. Billionaire John Grayken’s Lone Star Funds was second with five deals with an original value of 5.8 billion euros, according to the report. A total of 39.4 billion euros of deals were closed in the last quarter of 2015.

The U.K. and Ireland were the strongest sellers last year, representing 71 percent of the annual total. Cerberus bought loans with a face value of 17.8 billion euros from UK Asset Resolution Ltd and a 6.3 billion euro portfolio from Ireland’s National Asset Management Agency. Sales at NAMA peaked in 2015, and British sellers apart from the UKAR are “limited,” according to Cushman & Wakefield.

This year’s sales will be buoyed by Italian lenders after the nation approved a 3.6 billion-euro resolution plan for four lenders and segregated bad loans including 750 million euros of debt backed by real estate, according to the report.

Bad debt in Italy currently stands at 66.4 billion euros, the third largest market, after delays in creating a definitive mechanism to sell it off Cushman & Wakefield said. Five billion euros of transactions closed in Italy last year, 12.5 times the volume recorded in 2014. Going forward, increased investor interest and recovering real estate prices will also encourage more Italian banks to start selling assets, according to the report. There will be high levels of activity in the U.K., Ireland, Spain and the Netherlands, the report said. 

Source: Bloomberg