In 2014, European real estate lending exploded.

According to a new analysis from Cushman & Wakefield's Corporate Finance team, European real estate loan sales have gotten off to a fast start in 2014, with loan volumes already surpassing 98 percent of total 2013 volumes. rent in qatar

Closed commercial real estate (CRE) and real estate-owned (REO) sale volumes are expected to hit €50 billion in 2014, according to Cushman & Wakefield.

The increase in the projection - up from €40 billion at the start of the year - comes after a busy start to 2014, with investor interest continuing to expand and spread across Europe.

With sales from the Irish Bank Resolution Corporation (IBRC in Special Liquidation) dominating the news, activity in the CRE loan sales market soared in the first quarter of 2014, reaching its highest level since the start of structured bank deleveraging.

Closed transaction volumes in Q1 2014 totaled €23.9 billion, according to C & W's Corporate Finance research team, with another €5.9 billion so far in April. This brings the total year-to-date (YTD) value to €29.8 billion, just shy of the €30.3 billion reported in Cushman & Wakefield's latest European Real Estate Loan Sales Market report (February 2014) for 2013.

Furthermore, with a current sales pipeline of €23.4 billion, annual volumes are expected to outperform past years. The United Kingdom and Ireland continue to lead the way, accounting for over 72% of all closed purchases in 2014 thus far.

"The European real estate loan sale market could hit its pinnacle in 2014," said Federico Montero, a partner in Cushman & Wakefield's EMEA Corporate Finance team, "since activity soared in the first few months of this year - we won't see a quarter like this for quite some time."

The significant increase in the loan portfolio market is mostly due to several big Special Liquidation deals from IBRC that were arranged in Q3/4 2013 and finalized in Q1 2014. Overall, the seller has sold about €19 billion of the €21 billion in loans that were originally placed up for sale, a much higher number than would have been expected at this point.

"The speed with which the processes were completed is a strong statement that investor appetite is at an all-time high, with plenty of capital yet to deploy," Montero added.

Deals with a face value of more than €1 billion, known as'mega-deals,' have drawn all of the major players that have been engaged in the market during the last three years once again. C&W Corporate Finance has registered 38 transactions YTD, with an average outstanding principle balance of €784 million, well exceeding the €360 million deal average stated in the European Loan Sales Market Study (February 2014).

Due to the enormous portfolio sizes, it has been difficult for mid-sized investors to participate in the sales procedures, leaving the large US private equity companies to compete amongst themselves. In fact, larger corporations appear to be gaining a greater share of the market and winning more sales than ever before. Investor interest is anticipated to remain high for the foreseeable future as several of these corporations continue to raise cash, such as Blackstone's €5 billion European real estate fund and Kennedy Wilson's £1 billion IPO.

The aggressive pricing or'mega-deal premiums' observed on IBRC's Project Rock, Stone, Sand and Salt (c. €21 billion), NAMA's Project Eagle (c. €4 billion), and Hypothekenbank Frankfurt's Project Octopus (c. €5 billion) demonstrate investor demand for major European transactions.

These potential'mega-deal premiums' have numerous justifications. To begin with, investors are expected to have between €100 billion and €125 billion of cash to deploy in Europe over the next several years, and they are keen to win these mega sales processes. As a result of the increased competitiveness, the underwriting has risen in order to avoid disappointment. The offerings also give investors the chance to establish huge portfolios in a single transaction, saving money and time over engaging in multiple smaller transactions. Finally, many of these larger transactions, such as Project Octopus, may be a crucial chance for investors to achieve their required exposures to specific geographies and asset classes.

Deleveraging banks and asset management agencies ('bad banks') continue to dominate the vendor landscape in 2014, accounting for 71 percent of total closed volume YTD, as they did in 2013. Following the completion of numerous substantial disposals by IBRC in Special Liquidation, any remaining loans are expected to be transferred to NAMA later this year, ensuring that asset management agencies continue to play an important role in the loan sales market.

Increased action is also expected from RBS, which recently announced the formation of an internal 'bad bank,' or RBS Capital Resolution Group, with the goal of selling c. £10 billion to £11 billion in non-core CRE loans over the next three years. With Permanent TSB announcing intentions to sell just under €10 billion in real estate loans in the near future, investors should have plenty of possibilities to put their money to work.

So far in 2014, the UK and Ireland have dominated closed deal volumes, but C&W Corporate Finance anticipates activity levels in Spain, Germany, the Netherlands, and Italy to skyrocket during the year. Following the completion of the asset quality review exercise and the founding of Propertize, the Dutch asset management agency, the Netherlands has seen a number of distressed transactions. While Italian banks have yet to bring significant CRE loans to market, investor interest in their unsecured debt has been strong. UniCredit has announced plans to deleverage non-core assets worth €55 billion over the next five years, and with many other Italian banks likely to follow suit, investors will be ready to seize the next opportunities.

Investors' footprint in Spain continues to grow, with Blackstone's recent purchase of Catalunya Banc's real estate servicing unit demonstrating the excitement surrounding an expected increase in activity. The transaction is particularly noteworthy because it represents Blackstone's first servicing platform in Spain, joining a lengthy list of major investors with teams on the ground in Spain ready to go, including Centerbridge, Apollo, Kennedy Wilson / Varde, TPG, Cerberus, and others. Project Octopus will have a significant impact on the Spanish market; not only will it increase transaction volumes, but multiple secondary deals are expected to occur shortly after the sale is completed.

Montero ended by saying, "The regular sellers and purchasers make up the €29.8 billion in completed deals so far this year, but big name investors are becoming more dominant than ever. We're tracking another €23.4 billion in live sales, implying that opportunities will continue to flow from vendors and that 2014 will see record volumes of about €50 billion."