European Real Estate Snapshot

A monthly in-depth coverage of the latest developments in the European Real Estate market.


October 2019

Focus of the Month

NPLs in Europe

European banks face the challenge of high NPL ratios and due to regulatory capital requirements, this can weigh on their performance. NPLs piled-up on lending books of banks in the recession following the financial crisis, as an increasing number of borrowers couldn’t make their loan payments.

NPL levels on bank balance sheets have been on the decline and are heading to the pre-crisis levels. Q1 2019 saw 22 deals closing with a total volume of €21.4bn and by mid-July, this number had reached €35.6bn.

As the market is maturing, securitisation is playing a major role. NPL securitisations accounted for 20% of loan portfolio sales in the first half of 2019, with a volume of €11.5bn. Securitisation transactions are dominant in Greece, and are the preferred channel for disposing residential portfolios and for secondary transactions in Ireland, Spain and Portugal.

The NPL market is evolving with residential NPL sales picking up. Earlier, large CRE sales were predominant, but this year, residential NPLs were double the CRE NPLs (€4bn vs €2bn).

  • The Italian government has a securitisation guarantee scheme GACS (Garanzia Cartolarizzazione Sofferenze), for senior tranches of NPLs. This guarantee is expected to accelerate the sales by supporting reasonable bid/ask spreads in a more competitive market.
  • Hoist Finance completed the securitisation of an unsecured NPL portfolio of GBV €225mn in July. The senior notes represent 95% of the issue and were subscribed to by CarVal investors.
  • Project Dawn – UniCredit is running a process to sell €1bn worth UTP (unlikely-to-pay) loans. The bank aims to cut its poorly performing loans to €10bn by the end of the year.
  • Intesa SanPaolo transferred the management of €10bn of UTPs to Prelios, owned by Davidson Kempner, which bought 30% of the loans.
  • Spain is one of the leading markets in terms of NPL activity. M&A activity for NPL servicers and property managers is also high. The Blackstone Group is the largest NPL and REO buyer in Spain, having bought €39.4bn, while Cerberus is second, having bought € 35.6bn.
  • Bankia finalised the sale of an NPL portfolio, including foreclosed properties to Lone Star XI Fund. The RE portfolio has a gross accounting value of €1.4bn and the NPL portfolio is worth €1.3bn.
  • Project Albatroz – In August, Novo Banco sold a portfolio of unproductive assets (GBV of €308mn) to Waterfall Asset Management LLC.
  • Project Sertorius – In August, Novo Banco sold a portfolio of unproductive assets (GBV of €487mn) to Cerberus Capital Management. The portfolio consists of 195 properties of industrial, commercial, land and residential uses.
  • Project Nata 2 – Novo Banco recently concluded a process where it agreed to sell an NPL portfolio of outstanding balance €2.7bn for €191mn to Davidson Kempner.
  • Project Pumas – Millennium bcp is in negotiations with AnaCap Financial Partners for a portfolio of REOs with a GBV of €210mn.
  • Having overtaken Italy, Greece is leading in terms of loan sale activity. Greece is also considering having a similar government securitisation guarantee scheme which has been adopted by Italy (GACS).
  • On the M&A front, Hipoges acquired Alsvit, thereby strengthening its presence in the Greek market. This has added to its offerings a professional and quality REO service in Greece.
  • Eurobank Ergasias has agreed on securitisation of portfolios worth €9.4bn. It sold 95% of the mezzanine and junior notes of a €2bn securitisation to PIMCO (Project Pillar).
  • In August, the National bank of Greece sold €1.2bn of unsecured NPLs to CarVal Investors, and the transaction was priced at 9% of the UPB. The bank is also set to sell a €400mn notional portfolio of NPLs to APS, a distressed debt servicer and advisor.
  • After Southern Europe, Central and Eastern Europe have also followed suit in terms of NPL activity
  • Ukraine has the largest stock of NPL in the region, at €20.1bn. The ratio is 54%, which is over 10 times the ECB’s target of 5%. Poland is the second largest, with € 13b equivalent, but the NPL ratio is very low (4%).
  • In August, the largest ever Ukraine NPL portfolio sale took place, with a GBV of € 413mn, where First Financial Network (FFN) conducted the sale on behalf of Deposit Guarantee Fund. The portfolio consists of 290 NPLs from 12 banks.
  • Project Beech – AIB sold a portfolio of loans to Cerberus, with value of €1bn on the bank’s books, consisting of investment properties and 220 owner-occupier loans that were cross-secured to wider commercial debt.
  • Rabobank sold to Goldman Sachs, CarVal Investors and Cadot, a €3bn portfolio of former ACC Bank loans at a highly discounted price of €800mn.
  • RBS’s Ulster Bank is selling €900mn of NPLs which includes 3200 owner-occupied mortgages and debt linked to 400 BTL properties.

Key Themes

South Korean investors flock the European markets

South Korean investors have completed several significant transactions in the Nordics, Germany and the UK, increasing their exposure to European commercial real estate markets. Investors are searching for properties in prime locations with strong and simple covenants and credible long-tenure tenants.

La Francaise Real Estate Partners International Korea tracked inflows of around €1.2bn in 2014, €5.2bn in 2016 and €7.3bn in 2018 into Europe from South Korea. The gradual rise in investments over the years is due to increasing comfort and knowledge of risk-averse Korean investors, primarily because Europe houses many national and local companies that support economy and has advantageous currency hedge and low interest rate environment. Most of the capital has been invested in central and eastern Europe due to higher yields and better quality of buildings.

Korean investors are actively investing in properties which yield around 4% in continental Europe and 5% in the UK. 80% of these Korean transactions in UK region took place in the office sector, while the remaining rested with logistics and hotel sector. In Western Europe, Korean investors are mainly attracted towards logistics and hotel sector in Germany and office sector in France.

Additionally, the method of sourcing deals by Korean investors seems to be shifting from a broker relationship to an off-market local partner or a buy-side advisory. This is a result of the comfort which most Korean investors feel by investing in a club structure as opposed to a few investors like Korea teachers Credit Union, NPS and KIC which prefer to invest independently.

The global industrial real estate seeks significant consolidation

The strong growth in industrial fundamentals, primarily resulting from the rise of e-commerce industry, have spiked the demand from institutional investors. With increasing rentals and low vacancy on the demand side and compression of cap rate and yearn for higher yields on the capital side, industrial sector has emerged as one of the top performers in the broad CRE market.

The industrial market suffers from a mismatch in supply and demand which is why Europe is experiencing a historical low vacancy rate of less than 5%, as reported by JLL. To take advantage of this imbalance, fund managers are pursuing the market more aggressively. The focal strategy of the funds is to develop and acquire well-positioned warehousing spaces near prime consumption centres.

Interest in the industrial sector has been highlighted by some major cross-border transactions. In June, the Blackstone Group acquired a triad of GLP’s industrial focused funds for $18.7bn which is the largest deal ever in private real estate. Prologis, which manages and owns approx. 800m square feet of warehouse space globally, has signed a cash transaction of ca. $4bn for the acquisition of Industrial Property Trust which is expected to close by the end of 2019.

In the last few months some noticeable allocation to industrial managers have been made by pension funds. The Pennsylvania Public School Employees’ Retirement System has invested $100m in Cabot Properties’ Cabot Industrial Value Add Fund IV which will invest in value-added industrial properties. The Teacher’s Retirement System of Texas has committed $379.6m to Banner Oak Capital Partners for the development of industrial properties close to prime consumption centres.

Berlin's office market saturated with global investors

Despite yields being low in Berlin (ca. 3%) there is a huge spike in foreign investments primarily due to the foreign investors’ belief of better long-term opportunities in the city as compared to other prime cities across the world. Foreign investments rose by 160% during the first two quarters of 2019 accounting for 70% of total investments reaching approx. $5bn.

Despite the significant foreign investor pull, the market is facing shortages in supply of properties across various asset class. The key reason for the shortage is the booming population of Berlin which is expected to reach 3.8m by 2030, experiencing a growth of 7.5%. Investors and businesses are, respectively, facing troubles in acquiring targets and finding office spaces as average vacancy rates are as low as 1%.

Rents in prime locations have increased by 1.6x since 2013 reaching €35 from €22 per square meter. Investors in the coming months will struggle to find opportunities but they have belief in the city’s long-term potential and expect the rents to continue to rise above 10% in the near future.

Fresh capital is being continuously pumped into the city by both international and domestic managers like BlackRock’s office project in Kruezberg district of Berlin holding an investment of $116m, other key investors include Cording Capital, Meyer Bergman, Blackstone and Ivanhoe Cambridge.

Funds in the Market

Strategy Institution Regional Focus Asset Focus Status Fund Size (mn)
Opportunistic Blackstone Global Mixed-Use Closed $ 20,500
Opportunistic Harrison Street US Education, Healthcare and Storage Closed $ 1,600
Value-Add Angelo Gordon Asia Property Development Closed $ 1,300
Debt Lasalle Europe Office, Retail, Operating Raising €1,000
Value-Add Chenavari UK and Spain PRS and Student Housing Raising € 350
Value-Add Newcore Capital UK Storage and Social Infrastructure Closed £ 150

Recent Transactions

Snapshot of Key Deals
Asset Name Buyer Seller Asset Type Location Price (mn)
Office and Logistics Portfolio The Blackstone Group Dream Global Mixed-use Europe $ 4,700
Hotel Portfolio AXA IM-Real Assets Principal Real Estate Europe Hotel Primarily Germany & Austria € 545
Luxury Retail Portfolio UBS Asset Management (Italian RE unit) Undisclosed Retail Paris € 250
Office Portfolio Credit Suisse Asset Management Skanska Office Poland € 214
Hotel Portfolio Blackstone Real Estate Partners Europe Louis Group Hotel Greece € 179
Apart-Hotel Aviva Investors London Borough of Barking and Dagenham Mixed-use London € 150
Queens Towers Kiwoom Asset Management Undisclosed Office Amsterdam € 130
Asset Name Lender Borrower Asset Type Location Loan Amount (mn)
Battersea Power Station in London Standard Chartered Bank, CIMB, Maybank, OCBC, RHB Battersea Power Station Development Company   London € 600
Two office buildings in King’s Cross, London Nuveen Real Estate, DekaBank King’s Cross Central Limited Partnership Office London € 285
Pan-European logistics portfolio Aareal Bank Knight Frank Investment Management Logistics Network Spain
€ 240
Loan to improve terms of existing debt for residential portfolio Natixis Pfandbriefbank Phoenix Spree Deutschland Limited Residential Berlin € 240
Office building pbb Deutsche Pfandbriefbank, ING Hana Financial Investment, NH Investment & Securities Office Amsterdam € 150
Revolving credit facility Bank of China, Banco Sabadell Tritax EuroBox Unsecured Revolving Credit Facility Continental Europe € 125
4 Cannon Street office building, London Dekabank Undisclosed Investor Office London € 96

Key Indices

Key Indices 30-09-2019 YTD 1-YEAR 3-YEAR 5-YEAR
MSCI World Real Estate 230.05 19.1% 12.8% 13.1% 25.7%
STOXX Global 1800 Real Estate 286.61 19.2% 13.0% 13.9% 27.0%
STOXX Europe 600 Real Estate 178.94 13.9% 2.7% 2.0% 17.4%
Dow Jones US Real Estate 368.02 24.3% 15.6% 15.7% 36.1%
STOXX APAC 600 Real Estate 256.84 10.9% 7.7% 8.3% 12.5%
Property REITS - Europe 30-09-2019 YTD 1-YEAR 3-YEAR 5-YEAR
Retail 55.23 (5.1%) (24.9%) (43.2%) (46.8%)
Office & Industrial 286.61 19.2% 13.0% 13.9% 27.0%
Property REITS - US 30-09-2019 YTD 1-YEAR 3-YEAR 5-YEAR
Retail 370.52 (9.1%) (17.5%) (35.0%) (21.8%)
Office 331.96 14.4% (0.4%) (8.4%) 7.0%
Healthcare 202.31 24.3% 26.3% 5.7% 24.1%
Industrial 449.22 39.1% 25.7% 52.6% 126.5%
Diversified 279.23 33.0% 23.2% 41.6% 61.7%


This information discusses general market activity, industry or sector trends, or other broad-based economic, market or political conditions and should not be construed as research or investment advice. This material is not financial research and was not prepared in compliance with applicable provisions of law designed to promote the independence of financial analysis. Investors are urged to consult with their financial advisors before buying or selling any securities. This information may not be current and Oxane Partners has no obligation to provide any updates.

This material is provided for educational purposes only and should not be construed as investment advice or an offer or solicitation to buy or sell securities. The information contained in this presentation is not intended to be used as a general guide to investing, or as a source of any specific investment recommendation.Views and opinions expressed are for informational purposes only and do not constitute a recommendation by Oxane Partners to buy, sell, or hold any security. Views and opinions are current as of the date of this presentation and may be subject to change, they should not be construed as investment advice.Sources: PERE, Real Estate Capital, Gulf News, South China Morning Post, Savills, Knight Frank, Deloitte, JLL, Institutional Real Estate, Bloomberg, propertyfundsworld, Cushman & Wakefield, Heitman, Urban Land Institute, Financial Times, SWFI