While the world is anxiously watching to see how the European debt crisis
will unfold, many real estate investors in the United States are
eagerly seeking opportunities to reap profits from the Continent’s
distress.
The asset sales in Europe could dwarf the work of the United States Resolution Trust Corporation, which was charged with disposing of the troubled mortgages resulting from the savings and loan crisis of the 1980s, said Russell Platt, the chief executive of Forum Partners Europe, an investment firm with headquarters in London. “Most of the firms looking at this came of age during the R.T.C.,” Mr. Platt said. “You can see why a lot of folks are rubbing their hands and saying: ‘This could be very interesting.’ ”
Private equity firms, whose investors include pension funds, university endowments and foundations, have been vying to buy portfolios of European bank debt consisting of troubled commercial real estate mortgages. By acquiring these loans at deep discounts, they hope eventually to earn generous returns of 12 to 18 percent, investors and advisers say.
As the sovereign debt crisis continues, European banks are expected to sell such distressed assets in an effort to increase their capital and protect against future losses. Morgan Stanley estimates that such institutions may have to cut their exposure to commercial real estate by up to $760 billion.
Commercial mortgage-backed securities, real estate loans that are packaged together and sold to investors, are not as common in Europe as in the United States. Instead, most European mortgages remained on the banks’ books, which has been a drag on profits.
“Getting the banks healthy is critical for getting the European economy healthy again,” said Gifford S. West, head of European operations for DebtX, a loan-sale advisory firm.
In 2011, CBRE, the giant real estate company, tracked more than 20 European loan portfolio sales with a value of 20 billion euros (about $26 billion at current exchange rates). The pace so far this year has dropped, with 14 transactions totaling 7.5 billion euros. Another 11 billion euros’ worth of loans are currently being marketed, CBRE said. Many individual loan sales are also taking place in private.
So far, the pace of sales has been modest. Last year, the region’s institutions received an infusion of capital from the European Central Bank, easing the pressure to trim their balance sheets.
The asset sales in Europe could dwarf the work of the United States Resolution Trust Corporation, which was charged with disposing of the troubled mortgages resulting from the savings and loan crisis of the 1980s, said Russell Platt, the chief executive of Forum Partners Europe, an investment firm with headquarters in London. “Most of the firms looking at this came of age during the R.T.C.,” Mr. Platt said. “You can see why a lot of folks are rubbing their hands and saying: ‘This could be very interesting.’ ”
Private equity firms, whose investors include pension funds, university endowments and foundations, have been vying to buy portfolios of European bank debt consisting of troubled commercial real estate mortgages. By acquiring these loans at deep discounts, they hope eventually to earn generous returns of 12 to 18 percent, investors and advisers say.
As the sovereign debt crisis continues, European banks are expected to sell such distressed assets in an effort to increase their capital and protect against future losses. Morgan Stanley estimates that such institutions may have to cut their exposure to commercial real estate by up to $760 billion.
Commercial mortgage-backed securities, real estate loans that are packaged together and sold to investors, are not as common in Europe as in the United States. Instead, most European mortgages remained on the banks’ books, which has been a drag on profits.
“Getting the banks healthy is critical for getting the European economy healthy again,” said Gifford S. West, head of European operations for DebtX, a loan-sale advisory firm.
In 2011, CBRE, the giant real estate company, tracked more than 20 European loan portfolio sales with a value of 20 billion euros (about $26 billion at current exchange rates). The pace so far this year has dropped, with 14 transactions totaling 7.5 billion euros. Another 11 billion euros’ worth of loans are currently being marketed, CBRE said. Many individual loan sales are also taking place in private.
So far, the pace of sales has been modest. Last year, the region’s institutions received an infusion of capital from the European Central Bank, easing the pressure to trim their balance sheets.
Consequently, banks have been slower than expected to put their bad
loans on the market and write down their losses. “We all sort of thought
there would be a greater flow of deals,” Ms. Ricks said.
But in Europe, at least, no one these days expects the values of
mediocre properties to rise without efforts to improve them physically
or manage them better, said James Wallace, who writes a trade blog on
European debt for the CoStar Group, a research company in Washington.
“Extend and pretend is over,” he said. “People don’t say that anymore in
Europe.”
As a result, participants in this market expect the pace of loan
portfolio sales to accelerate. “We anticipate the next 24 to 36 months
to be busier than the last 12 months,” said Graham Martin, the
London-based global leader of KPMG’s portfolio solutions group, which
advises banks on these transactions.
