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26 April 2014
Some are calling it the “distressed real estate gold rush in Europe.” Others who have been expecting 1990s-style opportunistic investment opportunities for several years, now are seeing a change in European banks’ willingness to sell distressed loans at discounts to clean up their books. Several significant deals have been announced with big name investors and more are underway.
What is happening? And what is the opportunity for investors? Is it too late already?
Troubled European banks with soured real estate loans
Following the U.S. economic crash, Europe fell into recession and largely remains mired in a sluggish economy, high unemployment and depressed real estate values. European banks have suffered greatly along with their customers as real estate loans have soured.
According to a recent PricewaterhouseCoopers report, European banks were finally recognizing approximately $1.4 trillion in nonperforming loans at the end of 2013, up from $715 billion in 2008. For years after the financial crisis, the European banks were not marking down the loan collateral and classifying their loans. They took no decisive action to deal with their bad loans.
But now that is changing. European banks are at an inflection point. According to the PwC report, in 2013, banks sold $90.5 billion worth of troubled debt to investors, compared with $64 billion in 2012, an increase of more than 40%. The European Central Bank is the driving force in this new development and 2014 is likely to set new records.
Troubled loan purchases or restructuring deals are on a dramatic rise. Deals have been announced by the likes of Oaktree Capital Management, Apollo Global Management, Centerbridge Partners, Angelo Gordon, Kohlberg Kravis Roberts and Goldman Sachs.