The European note sale market will rise to more than $20 billion in 2012 and be characterized by larger portfolio sales and recovery rates meeting or exceeding book values, according to Jones Lang LaSalle’s
(NYSE: JLL) Capital Markets
experts attending the MIPIM conference in Cannes, France. The firm’s global note sales experts expect European lenders to face increasing pressure to deleverage themselves of the large volume of debt coming up for refinancing in 2012 and 2013. Additional new trends will include:
- Note sales moving from primarily distressed to performing
- Average Unpaid Principal Balance at $50 million
- More portfolio transactions of scale $350 million to $1 billion plus
- Recovery rates will be pushed to or even exceed book values as debt is now available for all types of assets including nn-performing, sub-performing and performing notes. This phenomenon happened in the United States in 2011 and is expected to broaden in 2012.
“We expect a significant increase in loan sale activity in the UK and Europe this year as investors look to establish an early foothold in these pioneering loan sale markets,” said Peter Nicoletti, Managing Director and Global Leader of Notes Sales, Jones Lang LaSalle. “Over the past 12-18 months, we’ve seen the note sale market in the United States mature very quickly, achieving prices closer to asset value. We anticipate this pattern beginning to develop in certain European countries as the Eurozone crisis and volatility in the debt markets causes more investors to aggressively pursue seasoned paper with bulk transactions for all types of notes across the risk spectrum.”
Foreign lenders have begun the deleveraging process by marketing their U.S.-based mortgages first as the pickings there are considered far more fruitful than in Europe. However, lenders are expected to secure extremely strong pricing for notes attached to major market, prime European properties as well.
Investors in the U.S. have amassed large quantities of capital to purchase such loans, but in addition, a corresponding number of lenders have also stepped up to offer financing for distressed mortgages.
Sellers will be more strategic in their offerings, grouping portfolios by product type, geography and sponsor. In addition, the size of portfolios will reach much larger proportions in 2012—weighing in at $350 million and even exceeding $1 billion.
“We have been spending a great deal of time in Europe recently looking at a number of extremely large portfolios just waiting to come to market,” said Steve Collins, International Director with Jones Lang LaSalle’s International Capital Group. “As the European banks become more profitable, they will bring more portfolios to market and those, in turn, will cause even more to come to market.” http://www.youtube.com/watch?v=gzZxc6NWEtE
Buyers of European loans will run the gamut, with private equity, institutional funds, investment banks and hedge funds targeting non- and sub-performing notes while banks and private equity will zero in on the performing loans.
“In 2012, you will see more note sellers coming to market as they’re attracted by the stronger pricing due to increased liquidity in the market,” said Jere Lucey, Managing Director, Jones Lang LaSalle. “A number of funds have been working to raise capital to take advantage of distressed opportunities and now those funds are looking towards real estate where they feel they can buy loans in an environment in which asset values are perceived to be lower.” http://www.youtube.com/watch?v=3pkat0cpq_E
The Jones Lang LaSalle Special Asset Services and Note Sale team completed more than $4.7 billion note sale transactions in the United States in 2011. The team valued more than $26 billion in note sale assets globally in 2011 and currently has more than $1.5 billion in the market.
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About Jones Lang LaSalle
Jones Lang LaSalle (NYSE:JLL) is a financial and professional services firm specializing in real estate. The firm offers integrated services delivered by expert teams worldwide to clients seeking increased value by owning, occupying or investing in real estate. With 2011 global revenue of $3.6 billion, Jones Lang LaSalle serves clients in 70 countries from more than 1,000 locations worldwide, including 200 corporate offices. The firm is an industry leader in property and corporate facility management services, with a portfolio of approximately 2.1 billion square feet worldwide. LaSalle Investment Management, the company’s investment management business, is one of the world’s largest and most diverse in real estate with $47.7 billion of assets under management. For further information, please visit our website, www.joneslanglasalle.com.