European property market attracting private equity groups
At this moment in time you don’t have to look very far to find some negative news on the European property sector although interestingly investment in real estate by private equity groups has increased by 56% in the first half of 2013 compared to the same period last year. An impressive €3.2 billion was invested by private equity investors in the first half of 2013 and many experts believe as more distressed property sales come to the market this figure will increase.
This comes at a time when countries such as Spain, the UK to a lesser extent and other areas of Europe are still struggling in a sea of debt. So why is there interest in European real estate and is this the start of a long-term recovery?
US funds target the UK
Interestingly, while there appears to be good value in the European property market as a whole, nearly 2/3rds of the €3.2 billion invested in the first six months of 2013 has been targeted at the UK. Investors have taken advantage of “bad banks” jettisoning an array of properties which they acquired from struggling companies. We have also seen an array of loan deals for with areas such as the Old Spitalfields Market in London attracting a £95 million redevelopment loan and £250 million set aside for a refinancing of the Heron Tower. These are just two of an array of high-profile property investments currently in the pipeline.
Quote from PropertyForum.com : “Since the 2008 recession, which began in the US with the infamous mortgage crisis, many economies around the world have failed to regain lost ground and are still struggling to move into positive economic growth.”
It is intriguing to see that this ongoing investment in European real estate is rising to levels not seen since 2007. It will indeed be interesting to see whether the market has bottomed out or whether private equity companies are simply hovering like vultures over some of the largest distressed property sales we have ever seen.
Is this the end of the property downturn in Europe?
There have been signs of improvement in some of the residential property markets across Europe and indeed commercial property is starting to become attractive for long-term investors. The problem we have is that the European economy as a whole is still struggling to keep its head above water and there are still potential debt issues among some of Europe’s largest members.
The next few months will determine whether we have in fact reached the bottom of the market or, as many suspect, large scale property investors are simply cherry picking the best distressed asset sales and refinancing arrangements.
Distressed property sales
Over the last 12 months or so we have seen a significant number of assets and property loan sales facilitated by Lloyds Bank in the UK which have caught the attention of private equity investors. While the situation in the UK is starting to become clearer, with the UK government set to sell off its stake in Lloyds Bank in the short to medium term, the same cannot be said of Spain for example.
There is speculation that Sareb, which is Spain’s €90 billion “bad bank”, is set to begin sales of distressed assets later this year. This is likely to capture the attention of private equity property investors and focus will probably move to Spain in the short to medium term. While the acquisition of distressed assets across the European real estate sector does mark perhaps the first stage in a long-term recovery, there are literally billions of euros of distressed assets which will become available in the short to medium term. Until the vast majority of distressed assets have left the marketplace this may limit the upside potential of the European real estate market as a whole.