European banks dispose of billions in property loan portfolios

Of these, six were sales of loan portfolios where the assets were solely located in the UK and Ireland. With Lloyds Banking Group recently reported to be selling a portfolio of predominately Irish debt valued at euros 2billion and comprising over 700 individual property loans, CBRE estimates that more than euros 11billion of loans, divided into nine portfolios, are currently being marketed by the region’s banks.

Natale Giostra, Head of EMEA & UK Debt Advisory, CBRE, said: "Both performing and non-performing loan portfolios have been successfully transacted this year by European banks seeking to reduce their exposure to real estate. Some institutions, such as RBS, are now expressing a preference to pursue asset sales where they have control over the physical property.

"However as we can seen from the Lloyds example, loan disposals are still seen as the most efficient strategy for reducing overall exposure, particularly where the underlying assets require active management or lot sizes are smaller meaning they are time consuming and costly to deal with individually."

Philip Cropper, Managing Director, Real Estate Finance, CBRE, said: "The common denominators of successful loan sales are an efficient and well run process, bidder track record and realistic pricing expectations between counterparties. Pricing is a particularly key factor, and we have seen several transactions fall by the wayside during the year due to the complexities of being able to accurately value large and intricate loan portfolios, where there are sometimes large levels of distress. We therefore expect completed loan sales in 2012 to fall short of the euros 20 billion recorded in 2011. However a good quantum of sales should be transacted before the year end and further announcements of new loan sales are also anticipated."

Financing to support loan portfolio purchases has also opened up in 2012, helping the market further, with more lenders now offering complex loan-on-loan senior debt financing to support acquisitions, driven by the attractive margins that can be achieved, particularly over a three to five year period.

In 2011, CBRE’s Debt Advisory team recorded the completion of more than 20 loan sales by European banks, representing more than euros 20billion of real estate debt. This included the sales known as Project Isobel and Project Royal, which substantially completed in 2011.

Have your say on this story using the comment section below