Asset management firms have roughly €264 billion ($337 billion USD) of non-core real estate exposure in Europe, according to Cushman & Wakefield's EMEA corporate finance division. Cushman & Wakefield completed a thorough analysis of 10 European asset management agencies in a report titled European Real Estate Loan Sales Market to determine their combined gross, or 'face-value,' non-core real estate exposure and, as a result, estimate the expected levels of commercial real estate (CRE) loan and real estate owned (REO) sales in years to come. properties
The figures in the paper refer to the face value of European CRE loans, residential mortgages, and REOs held by institutions established by European governments to receive and dispose the 'bad' assets of one or more national banks on an external basis.
After adjusting for loan loss provisions, European asset management agencies own around €264 billion in gross non-core real estate assets, resulting in a net total of around €173 billion ($220 billion). Overall, asset management agencies hold about 45 percent of all European financial firms' overall exposure, emphasizing their importance in both the current and future deleveraging landscapes.
Cushman & Wakefield's EMEA corporate finance group executive chairman Frank Nickel said, "While the United Kingdom, 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 as ongoing asset quality reviews aid the deleveraging process. Investors, on the other hand, will be wary of new markets, with the country's legal system being a critical investment element."
Cushman & Wakefield has closed €54.9 billion ($70 billion) in CRE loan and REO transactions so far in 2014, which is larger than the total volume of 2012 and 2013. With an active sales pipeline of €30.8 billion ($39 billion) and planned disposals of €24 billion ($30 billion), the total amount for 2014 is expected to exceed €60 billion ($76.5 billion).
"Many European banks will be forced to confront the reality for the first time. If they have problem assets, they will have to reclassify them in the next stress tests, which could result in some capital requirements issues. With the success of the asset management agencies in Ireland and Spain, other European governments may follow suit in establishing asset management agencies to deal with non-core exposures ", said Federico Montero, EMEA loan sales head at Cushman & Wakefield.
The following are some of the report's other highlights:
Spain accounts for over 40% of total gross non-core real estate assets held by asset management firms, with SAREB accounting for nearly all of it.
Residential assets secure 51 percent of asset management organizations' existing non-core real estate exposure, while commercial real estate (CRE) assets secure another 31 percent.
Deleveraging has been completed by European asset management agencies in the amount of €96.7 billion ($123 billion), corresponding to approximately 27% of the total exposure they received initially.
Asset management firms will continue to operate for the next five to ten years, with deleveraging of over €40 billion ($51 billion) predicted in 2015.
The United Kingdom continues to dominate the market, accounting for 37% of all closed transactions by volume, with Spain and Ireland accounting for 25% and 21%, respectively.
In Q3 2014, the number of secondary sales from acquirers of "mega-deals" and bank sales increased.
Private equity firms continue to dominate the European CRE loan and REO market, accounting for 76% of all sales.