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Wave of NPL Sales Ahead for Europe

FRANKFURT, GERMANY- European banks' suspension of disbelief in non-performing commercial real estate loans is nearing an end, according to locally based Lohnbach Partners.

By Allan Saunderson | Updated on February 02, 2011

FRANKFURT, GERMANY-European banks’ suspension of disbelief in non-performing commercial real estate loans is nearing an end and many investors will default as these mature, starting this year, so that a wave of selling will occur, predicts Ruprecht Hellauer, managing director of Frankfurt workout firm Lohnbach Partners.

In a new study, Hellauer said Samuel Taylor Coleridge coined the term “suspension of disbelief” to describe non-realistic or fantastic storylines, and European banks are maintaining a similar fiction on property loans. Between 2003 and 2007 European real estate financing grew by 58% to $2.3 trillion so that commercial real estate debt represented 176% of the capital base of European banks, or 12% of their loans. “Reality will kick in with a wave of maturity defaults between 2011 and 2014 during which the 70% reported LTVs will rise to 100%-plus,” he says. “The writing is already on the wall – just 25% of European CMBS loans maturing in the last two years were repaid or repurchased by the originator and a wall of maturities looms this year.”

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