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Flurry of activity encourages acquisitions of distressed assets

A flurry of properties and loans coming on the market through insolvent zombie property companies is encouraging sales of smaller property and debt portfolios, according to law firm HBJ Gateley.

There have been previously well publicised ‘megabank’ deals, where large funds have bought huge loan books from major institutions, but now there is also interest in comparatively smaller debt portfolios, says Jamie McIntosh, a partner in the firm’s corporate restructuring practice.
He says demand is being driven by increased appetite for commercial loans and assets, leading lenders to negotiate the sale of non-performing property loans or assets to specialist asset managers.
McIntosh highlights that there are still large deals such as Ireland’s National Asset Management Agency (NAMA) agreeing the sale of its EUR1.8 billion ‘Project Tower’ portfolio to Blackstone Real Estate Partners’ Europe IV fund earlier this month and the recent cash acquisition of the GBP119 million Fordgate Jupiter portfolio, sold to property investment manager Kennedy Wilson.
However, there are also more sub-GBP100m deals starting to come into the market, the scale and volume of which provide a major opportunity for investors.
McIntosh says: “Lenders have provisioned for these liabilities on their books over a number of years, and there’s now a tipping point in values which means they can look seriously at disposals to free up capital for other lending.
“The growing health of the economy in Scotland means there is now a significant opportunity for property investors, as well as for growing businesses in other sectors which need to access growth capital, so they can take advantage of the improved outlook.
“Where possible, lenders have been very proactive in restructuring facilities, but non-performing loans which have not been dealt with are now being passed into the hands of specialist asset managers to allow new money to come into the lending market.”
The trend is bringing increased levels of competition into the distressed real estate market and the timing is a result of lenders’ efforts over an extended period of time.
Acquiring large portfolios of loans allows buyers to maximise returns on individual assets and stimulates development and other related activity.
McIntosh says: “These deals point to improving sentiment from investors and lenders alike – they wouldn’t happen if investors didn’t feel as though they could realise benefit from the transactions or if the lenders weren’t happy with the value being achieved from the assets.
“There has always been a feeling that there would have to be a turning point at which these assets would need to move, but a lot of lenders have deliberately moved very slowly on the lower level assets to preserve the value of their loan books and to give customers as much time as possible to restructure. Now that buyers are out there and have the will and finance to develop some of these assets, we’re seeing that movement of assets starting to happen in quite a big way.
“Investors in Scotland can theoretically have their pick of billions of pounds worth of property assets, and for as long as the market continues to pick up then the returns will be there to encourage more of this kind of activity over the coming months.”

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