Thursday, March 8, 2012

Reporting from MIPIM: Who will "win" in distressed investing in Europe?

Reporting from MIPIM on Wednesday's session on Private Equity: European Distressed Investing

The latest European credit crisis has created an interesting scenario involving apprehensive real estate private equity investors and deleveraging commercial banks. The facts are clear: large European commercial banks will be forced soon to unload billions of dollars of real estate debt from their books due to tightening regulations (Basel, Solvency, etc.) in the near future. There is enormous pent-up demand among investors for these assets, with current fundraising in the tens of billions of dollars.

This would seem to represent a significant opportunity but so far, European banks have been reluctant to shed real estate assets at “fire sale” prices. Will supply loosen up to meet this demand? And what will it take?

In the heat of the crisis, European investors fled to core assets. The investment focus was on gateway cities such as London, Paris, and Frankfurt. Now, many feel core assets in these locations are over-valued, reaching yields as low as 3-4%. So this area does not currently present significant opportunities in Europe.

An interesting side note to this situation is the relative outlook by European vs. U.S. investors. U.S. investors seem to be far more pessimistic on the future of Europe than are European investors. European optimism is based in knowledge of the history of their markets, and confidence in the structures in place to fix the current crisis. So does that mean American investors may miss out on deals on distressed assets?

For more coverage of discussions and developments at MIPIM, check our blog and visit the official MIPIM blog. And follow us on Twitter (@UW_GraaskampCtr) and on Facebook.

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