CBRE teamed up with REAM Capital Partners, a real estate debt investor and adviser, to prepare for a "huge amount of activity" in the industry, said Philip Cropper, head of the broker’s London-based corporate finance arm. The venture wants to invest new equity in loans that could return a profit within five years, as well as advise banks on how to manage them.
There are about 300 billion pounds ($437 billion) of outstanding loans against U.K. stores, offices and warehouses, CBRE estimates. The biggest lender was Royal Bank of Scotland Group, followed by HBOS, which was bought by Lloyds Banking Group. Banks have been reluctant to sell the loans to distressed debt investors because the offered prices reflect the slump in property values, Cropper said.
"There’s now a recognition that values have fallen and they need to start looking more carefully at their books," Cropper, 50, said by telephone Wednesday. "We’re working with the Scottish banks, as well as German and Irish banks - it’s right the way across the board."
CBRE’s mandates from banks have risen threefold in the last two months, he said.
The banks are forming "recovery teams" to work through their loan books, though they lack real estate expertise, said Mike Birch, a former banker who created London-based REAM with the backing of an anonymous U.K. investor at the end of 2008. Birch, 51, restructured Citigroup’s bad real estate loans during the early 1990s.
"The problem is a lot bigger than it was last time around because of the dispersion of debt," Birch said in a telephone interview. There are about 50 billion pounds of securitized loans against U.K. real estate.
The banks’ biggest challenge is 100 billion pounds of loans that must be refinanced within three years, said Birch. They are currently extending such loans by 12 months, which is only postponing the problem. "It’s simply a way of saying we can’t deal with it now, let’s leave it to next year," he said.
"Banks are likely to roll over their better quality loans, but their secondary stuff is still a huge problem that’s not materialized yet," said Cropper.