A new report by CBRE gives the numbers we’ve suspected were coming: 20% of European loans on commercial real estate are problematic. And over half of all commercial real estate lending is located in Germany and the U.K. There’s no doubt that new money is coming back into the system, but dealing with the old money is the more pressing issue of the day.
Of the 970 billion euros ($1.3 trillion) in European commercial real estate debt outstanding at end-2009, 207 billion were secured at high loan-to-values (LTVs) on poor-quality properties, consultants CB Richard Ellis said on Wednesday.
The UK and Germany, together holding 58 percent of the unpaid loans, are the most exposed to potential “problematic” loans as 30 percent of their debt are secured on poor quality property, against 12 percent in the rest of Europe, it said.
“Rising values are less likely to rescue loans secured against secondary properties and the majority of this pool will struggle to see significant capital value appreciation in the near or even medium term,” Iryna Pylypchuk, CBRE’s associate director of EMEA Research, said.
Ratings agency Fitch warned in December that banks in the UK, Ireland, Spain and Germany could face further downgrades due to their exposure to commercial property, especially in 2011 and 2012 when a high volume of loans fall due. [ID:nLDE5BD281]
With almost half of the total outstanding European debt due to mature over the three years to end-2012, averaging 155 billion euros a year, the pressure on banks could ultimately lead to more forced sales, CBRE said.