TAILIEUCHUNG - At the crossroads: Ernst & Young 2012 real estate nonperforming loan investor survey

Real assets definitely play a significant part in the portfolios of both private and institutional investors. The magnitude of the capital and current investments in real assets can, however, be only roughly estimated as investors – as described – can choose different forms of investment, the market volume of which is often not transparent. The purpose of the investment is also not always clear. For instance, an owner-occupied property is certainly a real asset investment. However, the house owner does not necessarily purchase or build a home with the aim of making a profit. It rather represents a permanent asset. | At the crossroads Ernst Young 2012 real estate nonperformin loan investor survey u Ernst Young Quality In Everything We Do Welcome to our fourth NPL investor survey. Last year was the busiest year for investors in nonperforming loans NPLs since we began our survey. It was a year marked by larger transaction volumes and deal sizes more investors looking for deals and more deals being closed. Despite the surge in investment activity in 2011 investors were somewhat frustrated that more investment opportunities were not available. Banks have sold only a small percentage of their NPLs many of which are commercial real estate CRE loans. Now banks are at a crossroads. On the one hand bank earnings have been improving and their provisions for loan losses have been declining. This could mean banks have less incentive to sell NPLs and some could decide to continue to hold NPLs on their books until the broad real estate market more fully rebounds. On the other hand billions of dollars in CRE loans will mature over the next five years and some borrowers may not be able to pay off or refinance their loans. This could add to the backlog of NPLs on banks books and put pressure on them to sell NPLs. But will they Investors seem to think so. Although investors have been somewhat disappointed that banks have not sold more NPLs our survey found that they are optimistic that the NPL market will remain active for another 24 to 48 months. They expect to continue to have opportunities to acquire NPLs from banks - particularly regional and smaller institutions that hold a relatively high percentage of NPLs on their books. But nothing of course is certain. While investor hopes and expectations are high it is not clear which way the NPL market will go - toward more or fewer sales. In any case we would like to thank the investors who participated in our survey. As always we very much appreciate your sharing your perspectives on the dynamic and complex NPL market. Christopher Seyfarth Ernst

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