Five large US private equity firms have dominated the purchase of an estimated €40 billion in commercial real estate loans (CRE), sold by European banks over the first half of 2014, according to real estate advisory firm Cushman & Wakefield (C&W).
Lone Star, Cerberus, CarVal Investors, Blackstone and Oaktree Capital bought €28.8 billion face value between them of €40.9 billion in CRE and real estate-owned (REO) sales by European banks and asset management firms.
The top five firms bought approximately 71 percent, while US private equity firms in total bought 77 percent, according to C&W’s European Real Estate Loan Sales Market H1 2014 update.
Deleveraging by European banks of non-core real estate is “far from over,” the firm said, with an estimated €584 billion needing to be worked out over the coming years, in the wake of the property crash.
Eight “mega-deals”, sales with a face value of more than €1 billion, accounted for the 71 percent of transactions. The figure is a significant jump from the 40 percent of total transactions closed in 2013. A further four mega-deals are also expected to close this year.
The rise of the mega-deal has resulted in the average transaction size increasing from €346 million in 2013 to €621 million in H1 2014, “making it more difficult than ever for smaller investors to participate in the sales process,” the report found.
“Despite this, there is an increasing number of smaller deals under the radar of the larger firms and too large for the private investor, in the €50 million to £100 million range. Following the purchase of these “mega-deals”, it is anticipated that there will be plenty of secondary bite size offerings as the private equity firms look to maximise their proceeds,” the report said.
UK and Irish CRE accounted for the majority of the closed volume in H1 2014 at 63 percent, primarily driven by the Irish Bank Resolution Corporation (IBRC) sales process, formerly known as Anglo Irish Bank.
However, Q2 has seen activity spread to Southern Europe, with Spain being the top investor target at present for opportunistic investing, the report said.
Lone Star by far closed the biggest volume of transactions in H1 2014 at €14.9 billion, while Cerberus closed €6.3 billion of deals, CarVal closed €3.3 billion, Blackstone closed €2.2 billion and Oaktree Capital closed €2.1 billion.
The report also highlighted how the competitive lending environment between banks and non –traditional lenders had contributed to a tightening of margins over the year in the UK and Ireland, reducing from 400 to 600 basis points in 2013 to between 300 and 400 basis points at present.
The improvement in the affordability of loan-on-loan financing has not been evidenced throughout Europe as of yet however, and has been dependent on the “existing lender relationships” of the large US investors.
C&W Corporate Finance recorded more than €5.5 billion of debt being secured across nine transactions on H1 2014, compared to €3.2 billion secured for all of 2013, also on nine transactions.
Two alternative lenders part-financed two of these transactions: GE Capital provided a €770 million loan to Blackstone to acquire Project Tower from NAMA in April and M&G Investments provided a €140 million loan secured against the Jervis Shopping Centre in Dublin in Colony Capital’s purchase of Project Pebble from IBRC in March.