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The Banks Are Setting The Pace For The New Real Estate Era

4 May 2015 – ABC

Financial institutions still have 65,000 homes for sale and are developing land and housing projects.

The banks were the “stars” of the real estate crisis. And although they are now reneging on this business – “it is not our vocation”, say the senior directors in the sector – the same banks are forming the cornerstone of the recovery once more. The financial sector, ranging from banks to investment funds, is playing a leading role in the revival of the sale and purchase of homes. They are the financiers, marketers and even the developers. Currently, and after having recovered from the real estate “hangover”, the main (financial) institutions in our country still have more than 65,000 homes on their balances sheets, as well as other assets such as shops, garages and offices.

The banks are still the primary real estate companies in the country and their behaviour is determining the speed of transactions and, above all, the prices at which transactions are being closed. Sales made by the so-called bad bank, Sareb, have lost steam in 2015, although it continues to be a key player. According to a recent announcement by its Chairman, Jaime Echegoyen, the company that manages assets from the bank restructuring sold 2,800 properties during the first three months of this year, which represents around 26 units per day, versus the 32 properties it sold per day during the same period in 2014. “We are one of the top five players in the market”, said the senior executive.

Bad banks

On the other side of the majority of the sales made by the bad bank are the banks and “vulture” funds that go hand in hand with this business. CaixaBank leads the ranking of the financial entities, through its real estate company Servihabitat, which is controlled by the US fund TPG. The entity manages assets with a value of close to €60,000 million, after it was awarded some of the most substantial portfolios auctioned by Sareb and whereby gained strength. Next in the ranking is Haya Real Estate, the brand that Cerberus gave to Bankia Habitat after its purchase, which manages (assets worth) more than €52,000 million; and then Altamira (owned by the fund Apollo, which was purchased from Santander at the beginning of 2014) with €45,500 million (of AuM).

The real estate arm of Sabadell, Solvia, is also ranked among the top five most active (managers) in the market, despite having followed a different strategy from that of its peers. The bank chaired by José Oliu was the only one that did not sell its real estate arm to investment funds and its decision, to develop and make a profit for itself, has generated good results (so far). After the recent transfer of a portfolio from Sareb for €34,000 million, the managers of the company want Solvia to lead the process of consolidation that is expected to take place in the so-called “servicer” sector in the near future.

The funds seek out the “servicers”

The funds, which are experts in managing these types of assets, have found a stroke of luck in this business. However, to make it more profitable, they are looking for volume, i.e. to add more portfolios and benefit from scale. This explains the interest that many of these funds have shown in the auction processes held in recent months, including in Catalunya Banc’s portfolio of problematic mortgages, which was eventually awarded to Blackstone; (the US fund) also purchased the Catalan bank’s (real estate) platform (in a previous transaction).

Nevertheless, the experts consulted believe that it is still early days for talk of M&A activity and that no deals will take place until 2016, i.e. until the market is more saturated. Regardless, the consolidation of this new sales channel is already a reality. “The wholesale channel has consolidated as a divestment channel”, assured Francisco Gómez, the CEO of Banco Popular, last Friday, when he presented this group’s latest results.

New developers

Another way to “recover from the hangover” is through development. Banco Santander is a clear example of this: the entity chaired by Ana Botín is currently developing around 300 real estate developments across Spain. It is a formula for trying to recover the investments it made in land during the boom years. Santander is constructing on land that ended up on its balance sheet after non-payments by developers and against which the entity has had to make significant provisions. Sareb is also developing land and completing the unfinished developments acquired that it thinks may be profitable.

As the CEO of Santander, José Antonio Álvarez, explained at the presentation of the bank’s results, that to ensure that there is demand for developments, the entity is more selective in terms of the circumstances of a projects (it invests in) and it only begins construction once 30% of the properties have been sold (off-plan). Santander sold 2,500 real estate assets (during the 3 months to) March 2015, a reduction on the volumes recorded during the first quarter last year. Specifically, the entity sold 12,000 properties in 2014.

Other entities, such as BBVA and Popular, are also now selling foreclosed properties at prices that exceed the value at which they are accounted for on their (respective) balance sheets.

Original story: ABC (by María Cuesta and Moncho Veloso)

Translation: Carmel Drake