The Wall Street Journal notes that banks up to their ears in it are increasingly likely to take over properties, as they cast about for a way to deal with loans they probably wish they’d never made.
Banks are taking over non-performing loans where they see potential to add value through managing underlying assets.
“Many banks are already choosing this path in the U.K.,” said Situs director Hugo Raworth, adding that the same will happen in Europe although lenders on the continent largely still are talking about this possibility. Situs has been involved in over $1 trillion of commercial real-estate related transactions since it was founded in 1985. Banks should and, in many cases, do outsource the management of these assets, Raworth said.
If banks choose this direction on a large scale, the fragile recovery in most European property markets will be protected and banks won’t need to realize losses immediately. But Situs warned that banks will have greater exposure to any further weakness in the property market and will face jurisdictional, tax and structural issues.
For some reason, the article doesn’t mention Eurohypo, which as the FT points out is currently taking over a property in a deal which will apparently see it build an office tower…
The bank is in talks to agree a joint venture to build an office tower on the site that would be part-funded by the institutional property funds of Axa, the French insurer. The development of the scheme would be overseen by Core, the development manager.
Eurohypo took control of the site at 6 Bevis Marks, EC3, from Monteverde, a Spanish developer. It is one of a number of such deals being lined up by banks that are reluctant to crystallise loan losses by conducting an outright sale. Such joint ventures mean that the bank retains an interest in a scheme’s future profit.
Eurohypo has already created a similar profit-sharing structure with Great Portland Estates to complete the development of Marcol House in the West End and share the proceeds, while Hammerson is helping Lloyds Banking Group on a series of developments.