It used to be that advisors such as accountancy firms would court private equity real estate funds for their business. However, in Europe, the boot seems to be on the other foot.
Since the global financial crisis of 2008, private equity firms have had to get to know the select few individuals within firms such as KPMG and Deloitte in order to be placed on a shortlist of bidders for portfolios being sold by Europe’s governments, banks and financial institutions.
According to multiple sources, this new power is placed in the hands of relatively few organizations. Last month, it became very evident just how powerful they are, when KPMG issued a press release explaining that it had just “successfully” wound up €20 billion of sales in just 12 months for the Irish Bank Resolution Corporation (IBRC). “Over 90 percent of the loan book worth approximately €20 billion par value has now been sold to private equity and institutional investors, including Lone Star Funds, CarVal Investors, Goldman Sachs, Deutsche Bank, Oaktree Capital Management, Sankaty Advisors and Apollo Global Management,” it stated.
One advisor at a leading intermediary, who wished to remain anonymous for fear of speaking out of turn in the eyes of governments, banks and other sellers, told PERE that sales processes often were initiated by state-owned entities that looked to the advisors to pre-select potential bidders to which to offer loan portfolios. In these situations, the advisor’s role is to put forward buyers that could reasonably be expected to “perform.”
This is why, as a senior professional at a well-known buyer of loans in Europe believes, “it is the same four or five buyers each time” that end up transacting. “I would say all those advisers would know the buyers, i.e. us and our peers, reasonably well,” he added.
However, another advisor took issue with the comment that the same sponsors win each portfolio. “It is fair to say that a handful have been very successful in the last 12-18 months, but there are a plethora of buyers at present and the successful ones do vary by country,” he said.
Experts suggested that, in terms of volume, KPMG, Deloitte and Eastdil Secured are the leaders in European loan sales. However, other significant market participants include Lazard and UBS as well as EY, the business formerly known as Ernst & Young.
The absence of traditional real estate brokers in sell-side processes is stark, with the possible exception of Jones Lang LaSalle in Ireland, for example. Advisors suggested this is because they lack the necessary “know-how” and experience. Also conspicuous by their absence are the investment banks, which might be because the fee income derived from this kind of advisory work is not appealing. That said, according to one insider, the fees typically differ from one mandate to the next. Sometimes a flat rate applies, while for others there are performance incentives.
It is reasonable to expect the selling off of non-core real estate assets by European banks and institutions to continue for at least another five years. Unsurprisingly, competition has grown intense and investors in the acquiring funds will soon be asking how investments made by fund managers are performing. According to market sources, aggressive bidding is taking place.
Generally, buyers of portfolios where advisors are involved say that processes are “strict” and honest, and that most transactions do not become public, especially if they are residential loans as opposed to commercial. “There are deals taking place every day,” noted one advisor.
The score card
How do the respective advisors stack up in terms of advising Europe’s governments, bank and financial institutions? A snap poll of various market participants shows each has a distinct profile:
KPMG
Comment: The deals for the IBRC were a huge success. The firm seemed to handle a complicated process and its client with some skill
Go-to guy: Andrew Jenke, head of the global portfolio solutions group
Deloitte
Comment: The firm is said to have its processes down to a fine art. Cerberus Capital Management has been a repeat buyer of Lloyds’ loans
Go-to guys: Dave Edmonds, head of global portfolio lead advisory services, and Andrew Orr, partner for corporate finance in the portfolio lead advisory services group
Eastdil Secured
Comment: Eastdil brings vast transaction experience from the US and is said to be particularly strong on pricing in terms of predicting what buyers will pay
Go-to guy: Jim McCaffrey, senior managing director
Lazard
Comment: The firm advised on one of the earliest deals – the structured partnership for Project Isobel between The Royal Bank of Scotland and The Blackstone Group. More recently, it has been acting on the sale of the Northern Ireland loan book of Ireland’s National Asset Management Agency (NAMA)
Go-to guy: Patrick Long, managing director of real estate
UBS
Comment: UBS currently is selling a loan book for NAMA called Project Tower, which was made to Irish property investor Michael O’Flynn
Go-to guy: Iain Cahoon, executive director of real estate investment banking
EY
Comment: Another advisor handling a sale for NAMA. EY is advising on Project Drive, a collection of loans extended to N1 Property Developments
Go-to guy: Mathieu Roland-Billecart, partner in the real estate finance team
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