GE leads with European loan-buying spree
"Through our proactive acquisition strategy, we are confident that we can add significant value to our UK business in these more challenging times"
GE Real Estate is at the forefront of a growing trend to acquire real estate loans at a discount. Players such as GE with the ability to put cash to work are able to take advantage of opportunities coming on the market from lenders unable to hold on to loans that have dropped in value or have breached loan-to-value covenants. While GE has completed three large deals in the past six months, others are attracted to the value these assets offer. "We’re seeing banks offloading loans from their balance sheets," says Ian Gleeson, international multi-manager at Morley Fund Management, during a session at GRI’s London event in May. "We are looking at buying private loans at a discount. There are some bargains out there."
Bernard Phang, executive vice-president at GIC Real Estate UK, indicated during the same session that stressed debt was of interest to his firm, a long-time investor in global real estate. Indeed, loan portfolio trading should gather steam as banks are forced either to pull the plug on deals that have breached LTV covenants or aren’t able to be refinanced at the same levels where they were originally agreed.
"There are deals coming up for refinancing, and the market hasn’t reflected the fact there’s no money for refinancing," says Sarah Watkinson, partner at law firm Ashurst in London.
Publicly at least, GE has been in the vanguard of picking up value in European real estate loans. In April it acquired a €1.272 billion portfolio of senior and whole loans in a performing commercial property loan book from Capmark Europe. The portfolio comprises 39 loans to a group of high-quality borrowers secured on a range of different assets throughout Europe, the majority of which are domiciled in Germany.
"Lending is a good investment at the moment," says Michael Rowan, managing director of GE Real Estate UK. "We have the skill-set to buy these kinds of assets and were able to get them at a discount."
The acquisition follows GE’s purchase in November 2007 of a £2 billion ($3.9 billion) portfolio of performing commercial property loans from Bradford & Bingley. It comprises performing loans to a group of more than 100 borrowers. GE said it has experience in managing portfolios of performing loans and had spotted an opportunity in a period of market uncertainty.
"Through our proactive acquisition strategy, we are confident that we can add significant value to our UK business in these more challenging times," says Rowan. "The successful execution of this significant acquisition at the right price and on the right terms is a strong endorsement of our ability to complete large and complex transactions where we have identified an opportunity, regardless of market conditions."
Value will persist in this sector, says Rowan and accordingly GE will seek to buy more portfolios. As LRE was going to press, GE announced the acquisition of a €642 million pan-European loan portfolio from Credit Suisse. While loans from balance sheet lenders such as Bradford & Bingley will be a source for those looking to buy, so will those originated by investment banks with the intention of pooling into commercial mortgage-backed securities.
Sadly for banks, the demand is unlikely to take up all the supply. "There are a limited amount of players [able to buy whole loan portfolios]," says GE’s Rowan.