Due largely to the impact of global events on macroeconomic conditions, 2023 proved a tumultuous year for the real estate market, and one in which flexibility became increasingly important. As part of our commitment to constantly improving the quality of our portfolio, and providing institutional grade investment opportunities to our retail investors, we introduced several measures, including the enhancement of our credit policy and the integration of Moody’s analytics onto the platform. These efforts have proved successful, as is demonstrated by the fact that of the €100M in funding facilitated on the platform in 2023, the vast majority is performing well.
Below we’ll take a closer look at the performance of the portfolio in 2023, and the focuses for the current year.
- We reached a new record for recoveries (€14.6M) and repayments (€124M) in 2023.
- Recoveries remain a focus for 2024, especially in the German market, where local legal requirements have caused frustrating delays. We remain steadfast in our commitment to resolving the large majority of the defaults before we consider introducing new German projects onto the platform.
- We introduced measures to accommodate the new market conditions, such as changes to our credit policy, the integration of Moody’s analytics onto the platform and a shift in focus from growth to sustainable profitability.
- Partly as a result of the measures described above, loans originated in 2023 have performed exceptionally well, with a minimum of defaults.
- Our enhanced credit policy has resulted in better quality borrowers and projects on the platform.
- We facilitated approximately €100M in loans in 2023, supporting real estate developers across the Baltic States and Finland.
Repayments and recoveries
The graph above shows the loan origination cohorts (figures) on the far left and how those cohorts behaved (performing, late, defaulted, partly recovered, outstanding and repaid or recovered principal) in subsequent quarters, which are represented by the columns ( (0, 1, 2 etc.) to the right of the origination figures. Column 0 represents the status of the cohort at the end of the same quarter in which they originated, column1 the next quarter and so on.
For example, in the first quarter of 2023, €23.1M worth of loans were originated on the platform. By the end of that same quarter, €22.47 was performing, €0.47M had been repaid, and €0.14M was late. By the end of the following quarter, €19.61M was performing and €1.99M was repaid, €1.28M late and €0.2M was defaulted. Please click on the graphs to expand them.
When we compare the 2023 cohort table with 2022 (above), we can clearly see how the amount of late and defaulted loans has decreased substantially (red and beige colours have been replaced by blue and green in the graph). This shows that loans originated in 2023 are for the most part either repaid or performing. Only 3% of the loans originated in 2023 are late and if defaults occur, they do so in small and sustainable numbers.
Repayments and recoveries over the past 12 months (as of 07.02.2024):
In 2023 investors received €16.5M in returns from repaid and recovered loans (including interest, bonuses, penalties and indemnities). The largest recoveries came from a long-term recovery project in Spain (€1.75M), a loan in Lithuania (€2,75M), several Estonian recovery cases (eg. Parnu €1.2M). The largest repayment came from Finland (€5M). Distribution of recovered principals, end of 2023:
Due to our long market presence in Estonia, we have an especially strong track record of recoveries in the market. In 2023, Estateguru’s risk team recovered €490k worth of Estonian defaulted loans per month, delivering an average interest rate of 10.13% over the whole loan period. Our debt collection process in Estonia, and the Baltics more generally (where the recovery process is very similar), has been refined over the course of a decade, and our inhouse legal team has an equally long history of working with local security agents to rapidly navigate local legal requirements and expedite recoveries.
Loan origination numbers remained stable over the year. In 2023, we originated just under €100M in new loans, mostly in Estonia and Lithuania. The new loans all meet the criteria outlined in our enhanced credit policy, and they have all received a grade of B or higher according to Moody’s Analytical Assessment.
As is fitting for the oldest and most experienced real estate backed lending platform in the Baltics, our performance in the region remained rock solid despite the macroeconomic factors. In adapting to these conditions, we have once again shown our flexibility and understanding of the markets.
Loan origination over a 12-month period (as of 07.02.2024):
For more data please have a look at our statistics page. We will keep you informed about the credit portfolio quality monthly.