20 July 2018

Bad banks are feeling better

25 February 15 | Judi Seebus
Judi Seebus


Pepper Hellas

Consultant - GREECE

Eurobank Property Services

Consultant - GREECE


Public entity - GREECE


Agency - GREECE


Investment - GREECE


Dimitris Andritsos

CEO of Eurobank Property Services S.A Eurobank Property Services
After seven tough years of restructuring, Germany’s bad banks are clearly feeling better. This week it emerged that Hypo Real Estate Holding (HRE) is gearing up to divest its entire stake in pbb Deutsche Pfandbriefbank or to exit via an initial public offering.


Pbb is 100% owned by HRE which, in turn, is fully owned by SoFFin, the Financial Market Stabilisation Fund set up by the German government following the collapse of Lehman Brothers in September 2008 to stabilise the German banking industry.

The German government nationalised Hypo Real Estate in the aftermath of Lehman Brothers' collapse and the real estate lender received a €10 bn capital injection as well as €145 bn in liquidity guarantees under the condition it would sell pbb at a future date.
Pbb is not the only bank on the block in Germany. Bad bank EAA is 'already at an advanced stage' with the disposal of WestImmo, the real estate lending arm of failed lender WestLB. EAA, which is tasked with winding down WestImmo's assets, ‘intends to sell WestImmo in its entirety, including its loan portfolio,’ to one bidder, a spokesperson told PropertyEU.
According to a Frankfurt-based analyst, mortgage bank Aareal Bank is believed to be the sole bidder left standing for WestImmo, with around €10.4 bn of loans on its balance sheet. If Aareal succeeds, it will mark the lender’s second acquisition of a rival in the past two years, following its acquisition in 2013 of Corealcredit from US private equity group Lone Star for €342 mln.
The European Commission had originally asked for WestImmo to be sold by the end of 2011 as part of its conditions for parent company, WestLB's, bailout. The latest attempt to sell WestImmo comes more than three years after exclusive talks with private equity investor Apollo failed.
In better shape
The timing is good. Loan portfolios are becoming increasingly popular with investors looking to diversify and commit big chunks of capital. ‘The market is very favourable at the moment,’ agreed Dirk Richolt, head of real estate finance at CBRE in Frankfurt: ‘Margins and interest rates are low. Five-year swap rates are now only a quarter of where they were in January last year.’
Billions of loan sales expected in 2015
Opportunities abound. Cushman & Wakefield is forecasting that there could be as much as another €70 bn in loan sales to come to market across Europe this year after more than €80 bn of closed European commercial real estate (CRE) and real estate owned (REO) loan sales last year.
Debt: no longer unloved four-letter word
 All in all, debt is no longer an unloved four-letter word in this part of the world. To be sure, it never was for US private equity giants like Cerberus, Blackstone and Lone Star who picked up record amounts of European loan packages in 2014. But they are facing increased competition from home-grown players.  Even Europe's institutional investors are acquiring a taste for debt. Earlier this week AXA Real Estate announced it has raised more than €1.5 bn for Europe’s largest commercial real estate debt fund.
In short, it's not only the banks that are feeling better about their debt positions. Indeed, institutional investors are starting to feel as comfortable with debt in their portfolios as bricks and mortar.


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