October 26, 2015

European banks and AMAs have €531 billion of non-core real estate exposure

European banks and AMAs have €531 billion of non-core real estate exposure

European banks and asset management agencies (AMA) have a gross exposure of €531 billion to non-core real estate which is subject to disposal strategies in the upcoming years, according to research from Cushman & Wakefield.

The firm’s European Real Estate Loan Sales Market Q3 update report comprehensively analyses the non-core real estate exposure of 51 European banks (including AMA) to understand the commercial real estate (CRE) loan sales market in the years to come. The figures in the report include exposures to European CRE loans, residential mortgages and real estate owned property (REOs) which are believed to be subject to disposal strategies by lenders.

The €531 billion of gross non-core real estate assets equates to a €53 billion reduction in European Bank’s exposure compared to the figures reported in C&W’s European Real Estate Loan Sales Market Report Q2 2014. After allowing for loan loss provisions, the total net exposure amounts to €333 billion.

By face value, the countries with the largest exposure remain Spain and the UK. Unlike the latter, Spain’s exposure to non-core real estate has increased, rising from €192 billion to €203 billion over the past year due to the reclassification of loans following last year’s Asset Quality Review (AQR).

Similarly, Italy has seen its figures rise by almost €30 billion. This stems from the delay by the country’s banks in establishing deleveraging plans and highlights the ongoing problems faced by Italian lenders. As this begins to change, sales activity will undoubtedly increase as shown by the 10 sales already closed this year compared to just three throughout 2014. Interestingly, the Netherlands has also seen an increase in exposure to non-core real estate, rising by almost €2 billion – another nation predicted to attract investor interest.

The third quarter of this year has been the busiest with €21.0 billion of CRE loan and REO sales being recorded, bringing total transactions over the year-to-date to €44.6 billion. Irish and UK banks alongside AMAs, remain the most active vendors with NAMA, Permanent TSB and RBS, collectively responsible for over €16.6 billion of CRE loan and REO sales in 2015.

Federico Montero, Head of Loan Sales, EMEA Corporate Finance, Cushman & Wakefield said: “Although exposure to non-core real estate by European banks has fallen by approximately €53 billion compared to last year’s analysis, a significant amount of impaired assets are yet to be worked out providing huge opportunities for investors especially within Southern and Eastern Europe.

“We estimate live and planned sales amount to €92.7 billion, just below the high watermark recorded last quarter, leaving the total volume of closed transactions likely to reach €60-70 billion in 2015.”

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