Distressed assets are any asset put on sale, usually at a lower price, because the owner is forced to sell it. Since 2012, there has been a huge upswing in these types of investments in the European market. According to “Record Breaking Year for European Distressed Asset Purchases in 2014,” 2014 saw €80.6 billion ($91 billion) of closed European commercial real estate (CRE) and real estate owned (REO) transactions. This was more than 2.5 times the transaction volume recorded for 2013. Will this trend continue into 2016? To answer that question, we have to look at how the 2015 market was and the signs we can see so far in 2016.
“Record Breaking Year for European Distressed Asset Purchases in 2014” forecasted between €60 and €70 billion ($67 and $79 billion) closed CRE loan and REO transactions for 2015. According to the article, there were likely going to be fewer distressed asset investments in 2015 than in 2014 because many deleveraging processes were almost completed, which would theoretically limit the amount of distressed asset opportunities.
In 2015, there were approximately €85.9 billion ($95 billion) closed European CRE and REO transactions. 2015 saw a lot of changes in regulations regarding distressed assets and bankruptcy laws. These changes have made it easier for companies to sell certain assets, which will affect the distressed asset trends in the years to come. The reforms across the European sector are going to be ushering in new opportunities for foreign investments of this nature. The last quarter in 2015 was the busiest of the year, which seems to point towards an eventful 2016 as well for the distressed asset market.
Signs of a Record-Setting 2016
The reforms that took place last year are setting the stage for another record-setting year. In early 2016 there were €78.6 billion ($87 billion) live and planned sales already. Many experts are estimating there will be a closed transaction volume of between €70 and €80 billion ($78 and $87 billion) in 2016. There are a lot of signs that are pointing towards the trend of foreign investments in distressed assets continuing:
An increasing demand for European assets
Pressure from the market to clean house
Pressure from market to focus on return capital
Increasing regulatory pressure with continual oversights
Increasing interest in the divestment of non-core assets
Key European markets still have distressed asset situations that have yet to be tapped
These signs and the early stages of 2016 show the trend of distressed asset investment will continue this year. It is still a question, though, whether it will be another record-breaking year in this category. No matter if it is record-breaking or not, the trend of foreign investment in distressed assets will likely continue into 2016.
It is likely that the UK and Ireland will again be at the center of the stage in this market. However, Italy is going to become a larger part with more transactions becoming available at the end of 2015 and the beginning of 2016.
The activity levels from key vendors will likely change throughout this year, however the activity will still be there. The opportunity for distressed asset investment has not yet passed. According to expert estimations, this year has the potential to be another record-setting year in the European markets, but it may fall short of the record set in 2015.