Markets may see an ascending number of distressed real estate debts over the second half of 2012 as a result of increasingly tight capital markets. By 2014, Europe may experience a funding gap of 200 billion.
In addition, non-core debt, defined as credit financing not aligned with a bank's core competency, stands at 1000 billion in Europe and 500 billion in Germany alone. As a result, real estate investors may find attractive opportunities in the residential and retail sectors, especially with respect to secondary and tertiary locations.
These are the initial findings from Corestate's 'Distressed Real Estate Debt' research cooperation with the Real Estate Management Institute of the European Business School ('EBS REMI'). The respective white paper outlining the findings will be presented to the public today (24 February 2012) at EBS REMI's 13th Annual Real Estate Congress.
The challenges arising from credit markets are increasingly forcing banks to dispose of the loans and real estate underlying these maturing distressed credit arrangements instead of simply prolonging them, a practice which was common over the past few years.
Ralph Winter, Founder and Chairman of CORESTATE Capital AG, said: "The time of pretending and extending seems to be over because banks are starting to realise that dealing with distressed debt is not one of their core competencies. The market for this so called 'non-core' debt, together with non-performing loans and the underlying real estate collateral, offer experienced investors with tremendous potential. The problem will take years to solve, but the process is underway."
In particular, the research showed that residential and retail property markets are offering significant opportunities to those investors who have the necessary expertise and resources to deal with the challenges arising out of such portfolios.
Furthermore, the report argues that the funding gap within the traditional banking sector represents a unique opportunity for other sources of capital.
The authors eye real estate private equity, mortgage REITs, retail banks, mortgage backed securities issuers and international investors as the market players with the greatest prospective.