Europe’s banks are going to be forced into selling more distressed property loans in the coming year as borrowers default, a major Bloomberg real estate summit in New York was told this week.
“There’s going to be a feeding frenzy soon” for European loans, said Robert Blumenthal, a managing director at Deutsche Bank Securities Inc. “Someone’s going to have to take those loans out at a significant discount” and inject “huge amounts of equity” to recapitalise the assets.
European lenders have 151.4 billion euros ($204.8 billion) of commercial real estate loans in default, compared with $121 billion at U.S. banks, according to New York- based data provider Trepp LLC, and the hotel and resort sector is a major risk.
The first quarter of 2012 is going to be “grim” the conference heard, and because the CMBS market isn’t coming back fast enough to help borrowers refinance debt coming due, there will be a “huge increase” in U.S. hotel foreclosures next year, said Robert Sonnenblick, a hotel developer.
About $21.7 billion in CMBS (Commercial Backed Mortgage Securities) loans on 232 hotels are coming due in the next 12 months and need to be refinanced, according to Realpoint, a securities ratings firm now owned by Morningstar Inc. At best, a third of that will be refinanced, with many properties being taken over by lenders, Sonnenblick said.
Private-equity firms and real estate companies over the past six months have been staffing up in London in anticipation of bidding for distressed debt in Europe, said Glenn Rufrano, president and CEO of Cushman & Wakefield.