Propertize, the bad bank formed from the Netherlands government’s nationalisation of SNS REAAL’s property finance division in 2014, has appointed Lazards to explore a sale of the entire real estate lending platform including the remaining €4.3bn net loan exposures.
The bank is believed to be encouraged by the scale of interest among private equity investors and recapitalised long term senior lending banks to have appointed the investment bank to more thoroughly test the viability of a private sale.
Propertize was formally founded in January 2014 with a mandate to run-down the initial €4.8bn loan portfolio over an eight to 10 year time horizon. Over the first half of 2015, Propertize reduced its net loan exposure by €635m to €4.28bn. This loan portfolio is comprised as follows:
- €1.1bn in ‘healthy’ loans (borrowers which are paying interest, make redemptions and no loss on the outstanding balance is expected in the medium term);
- €2.88bn in the ‘value retention and creation’ bucket (mainly consisting of Dutch loans and property assets which offer opportunity for creating value in the short or medium term. Active asset management is essential);
- €302m in the ‘stop-loss’ bucket (loans secured by assets with no scope for value creation – Propertize has earmarked these loans for quickest possible exit in order to minimise losses and risks).
Propertize did not breakdown its current loan book by geography in its interim results, published last week for the first half of the year. 2014’s €4.9bn net loan book was 77% secured by properties in the Netherlands and €1.07bn secured by European assets, which predominantly are Germany, France and Spain.
In the subsequent period, Propertize has prioritised running off its non-domestic exposures.
A more traditional examination of Propertize’s gross loan book is as follows. Propertize’s gross exposure to real estate is €5.6bn, which is comprised of €3.2bn in non-performing loans and €2.4bn in performing loans. Of the €3.2bn NPL pool, €2.2bn are in the value retention bucket, €1.0bn are in the ‘stop-loss’ bucket, while just €26m are ‘healthy’.
“The credit quality… and the volume of non-performing loans of the Propertize property finance portfolio deteriorated slightly in the first half of 2015 compared with 2014,” wrote Propertize in its interim results.
“The levelling of the pace of the rate of deterioration found in 2014 has continued in 2015. The still lasting poor market conditions continue to cause customers to have insufficient means in their own reserves to comply with the interest and redemption obligations not covered by the property’s operating cash flow.”
Propertize is funded by €3bn in debt – medium term notes and euro commercial paper – and has €549m in equity, of which €500m was provided by the Dutch state.
“The economic recovery that is expected for 2015 has cautiously begun, but it is still fragile and vulnerable. The developments with regard to Greece, for instance, and their possible effects on the interest rate are an important factor in our wind-down assignment.
“Propertize does not expect the Dutch office and retail property markets to pick up substantially in the second half of 2015. Although the residential property market in the Randstad conurbation is showing signs of improvement, there is not much evidence of recovery in other areas.
“The part of our portfolio which is comprised of office financing in the Netherlands continues to be a point that requires attention, given the development of the vacancy rate.”
Propertize and Lazards declined to comment.