As Europe gears up for 80 billion-worth of bank asset disposals this year, just how this long-awaited trade will play out is still unclear. A very small number of big US-based opportunity and private equity funds look set to clean up: hoovering up all the assets they can get their hands on and plugging them into large captive special-servicing infrastructure.
What chance do other players have against the might of LoneStar, Apollo, Pimco, Oaktree and KKR? When it comes to bidding for large portfolio disposals from the banks themselves, probably not much. But there is more than one way to skin a cat, and smaller players reckon that they can still get their hands on assets if they play their cards right.
This will, however, depend on them being able to thoroughly search for off-the-run situations, which requires feet on the ground and deep sourcing networks. Portfolio sales in Europe are now all about real estate: offloading underperforming assets as leases written five or more years ago expire. There is no shortage of bank-owned underinvested assets in Europe and smaller players can gain traction by approaching the borrowers themselves rather than the banks. By negotiating with the borrower, funds can approach the bank with a fully underwritten solution to a specific problem. However, they run the risk that the banks might find it easier simply to offload everything in one go to a large buyer.
It should not be taken for granted that they will. Buyers report a stark boost in confidence on the part of bank sellers over the past nine months, seeing many move from a: Lets protect our marks mentality to a: Lets write new business mentality. Indeed, one fund reports that a recent real estate acquisition in Spain was funded via a 70% loan-to-value loan from a regional Spanish bank.
This means that banks might be more willing to explore alternatives to wholesale dumping of entire portfolios. It might also be bad news for the many smaller alternative lenders that have set up in Europe to fill the gap left by the banks in real estate finance. For example, Renshaw Bay, the alternative asset management firm set up by ex-co-CEO of investment banking at JPMorgan Bill Winters, recently saw the departure of two senior members of its Real Estate Finance Fund to M&G Investments and Henderson Global Real Estate. The power play for future real estate financing in Europe has only just begun.