Month: August 2013

Housing prices should fall an additional 25%

The managing director of Business of Aguirre Newman, Ángel Serrano, believes that the housing prices in Spain should fall an additional 20% or 25% in order to adjust to the buying capacity of the demand and points out that this percentage could be even higher if the “wage shock” suffered by workers continues.

In an interview to Europa Press, Serrano explains that the equilibrium between the price offered and the buying capacity of the demand lies at an effort of 4 and 4,5 times the gross salary for the acquisition of a home, a proportion that currently lies at 5,7 times.

The adjustment will take place either through a descent in prices of more than 20% or through an increase in salaries, something which is not foreseeable in the current context of salary moderation.

Serrano also reminds that the market not only needs to “buffer” the weakness of the demand, which still suffers the lack of employment or of credit, among other factors, but also the disappearance in January 2013 of the tax benefit for the acquisition of a principal residence and the increase of the VAT from 4% to 10% for new homes. “All or a part of the descent of prices during the crisis has been absorbed by the end of these advantages”, he adds.

Serrano declares that it will take around 18 months before the offer and the demand meet, that is, around 2015. To go any further would be “a juggling exercise”.

He assures that the first half of the year has shown figures that “provide some optimism”, although this has not reflected on the prices in the residential sector.

As explained, the real estate sector also includes the tertiary sector, which is not given the same importance as the residential one due to its smaller volume. This segment “suffered the crisis much later than the residential one and will be out of the crisis much earlier as well”, Serrano points out.

The contracting in the tertiary segment, measured in square meters, has increased in 40% in the first half of the year, while the adjustment in the rentals has softened in these months, with a descent of 2,6%.

Serrano reminds that the residential sector is made of several “micromarkets”, several of whom have already the adjustment process and are starting to see an increase in purchases.

For this reason, he considers that “the pace of purchases will improve” in the next few months, when Sareb is also starting to get rid of its assets, as with the “operation Bull”, where it has awarded nearly 1000 properties.

However, Serrano considers that the pending issue is the international demand. “I think we need to export the commercialization of properties”, he assures, indicating that consulting firms such as Aguirre Newman have a lot to say thanks to their knowledge and experience.

Madrid sells 3000 properties included in the Youth Plan of the Housing Institute of Madrid for 201 million Euros

The Government of Madrid has awarded the sale of 3000 properties included in the Youth Plan of the Housing Institute of Madrid (HIM) to the investment fund Goldman Sachs-Azora for 201 million Euros, nearly 20% more than the starting price (168,9 million Euros).

As explained by the regional government in an announcement, the sale process of these properties awoke the interest of 10 investment funds that took part in the auction. The earnings obtained will go to social projects.

The Ministry of Transport, Infrastructure and Housing has stressed that the tenants of these properties will not see any change in their conditions, as they will keep the same rent and will be able to execute their right to buy at the price they already know.

The regional government calculates that this operation will generate around 170 indirect and direct jobs. The investing company will generate at least 30 direct jobs in the management and administration of the homes, garage spaces and trade premises included in the portfolio and also 70 indirect jobs in the management of services such as caretaking, security, maintenance and repairs of these properties.

On the other hand the operation of the 42 trade premises located in the ground floor of these buildings will allow the creation of at least another 70 jobs and will revitalize the neighborhoods where they are located, invigorating the business activity and increasing the commercial offer for the neighbors.

The nearly 3000 homes of the Youth Plan, divided in 32 developments located in 11 towns, are mainly one or two bedroom apartments with a maximum 70 square meters with rents between 370 and 520 Euros per month depending on the town and the size of the apartment. (…)

Apart from obtaining 201 million Euros, the government of Madrid will save 800.000 Euros annually that had to be paid for real estate tax and other municipal taxes for garbage, as well as the nearly 1,5 million Euros for the properties being repaired, works that will now be carried out by the investing company. (…)

Goldman Sachs, considered the first investment fund in the world, is a banking holding that invests in real estate assets and other related properties. Through the funds Whitehall, Goldman Sachs and its partners have invested more than 11.000 million dollars in residential assets all around the world and their property platforms include 252.000 units.

Catalunya Banc sells its real estate company to the funds Kennedy Wilson and Värde.

Catalunya Banc has found a buyer for its real estate division, that manages assets of 8700 million Euros and more than 50.000 homes. The international funds Kennedy Wilson and Värde Partners have reached an agreement to acquire 100% of the subsidiary of the nationalized bank for an amount that varies between 30 and 40 million Euros.

However, the amount of the transaction could reach 50 or 60 million Euros on the medium term, depending on the results obtained by the company, as assured by sources informed of the operation.

The objective of Kennedy Wilson and Värde Partners is to transform CatalunyaCaixa Inmobiliaria into its platform for growth in Spain, where they have ambitious plans to acquire properties put on sale by financial institutions, the bad bank Sareb and the Administrations. “These US funds consider that the time has come to buy portfolios of assets in Spain, and this is why they need to acquire a company specialized in asset management and real estate services”, the consulted sources explain.

Up to twenty-five Spanish and foreign investing groups showed their interest in CatalunyaCaixa Inmobiliaria. With the aid of N+1, the bank controlled by FROB made a selection of a group of eight funds that entered the phase of binding offers, as advanced by Expansion on the 7th May. At the end, Catalunya Banc received six proposals made by the funds TPG, Carlyle, Cerberus, Wilbur L. Ross, Kennedy Wilson with Värde Partners and Magic Real Estate

This last company was the only Spanish candidate and now it has acquired together with Blackstone the housing development sold by the Town Council of Madrid.

The chosen offer has been the one made by Kennedy Wilson and Värde Partners, who have agreed to take on the whole staff at CatalunyaCaixa Inmobiliaria, made of 195 workers. Eduard Mendiluce will remain as head of the company with headquarters at El Prat (Barcelona), who will dissociate himself from Catalunya Banc and will no longer be a part of its managing board. The sale should be formalized in the last quarter of the year.

With headquarters in Beverly Hills (California), Kennedy Wilson is specialized in the sale of properties through auctions and had already collaborated with CatalunyaCaixa in the sale of the Murcian resort Hacienda del Álamo. The company, list in the NY Stock Exchange, manages assets of 12.000 million dollars and has an office in Madrid led by Ronald Lafever. It invested 306 million Euros in July in the acquisition of properties from the Irish bad bank.

On the other side, Värde Partners is another opportunistic fund with headquarters in Minneapolis and offices in London, who had no previous investments in Spain.

Along with Servihabitat and Solvia, CatalunyaCaixa Inmobiliaria has one of the most important teams of specialized professionals in the commercialization of awarded properties from banks. In 2012, the company sold 7275 properties for 1500 million Euros and rented 1408 properties.

In this operation Kennedy Wilson and Värde Partners – who have created a joint company – are not acquiring a single real estate asset, as CatalunyaCaixa Inmobiliaria is only a services company. The 50.000 properties and the assets for 8700 million Euros it manages belong to Sareb (6400 million Euros) and Catalunya Banc (2300 million Euros).

The bank presided over by José Carlos Pla transferred to Sareb most of its awarded properties in December. A third of the 6000 million Euros transferred to Sareb were awarded properties and two thirds were credits to developing companies.

The bank did not transfer all properties valued below 100.000 Euros and the credits below 250.000 Euros. Catalunya Banc also retained all properties located in other countries. There is a resort with 900 moorings in Vilamoura, in the Portuguese Algarve and three plots located in Poland, one of them in the center of Warsaw where an office building is planned.

CatalunyaCaixa Inmobiliaria manages and commercializes all these assets and, in exchange, receives a fixed and a variable commission from Sareb and from Catalunya Banc. Its expenses are mainly the salaries of its workers and the contract to use the software platform from the bank. The agreement takes into account the use of the network of 1163 branches of Catalunya Banc as a privileged selling channel.

The objective now is to expand the portfolio of assets managed by CatalunyaCaixa Inmobiliaria, which could reach management agreements with other companies, although the majority of new assets it will manage will come from acquisitions made from now on by Värde Partners and Kennedy Wilson in the Spanish market.

Catalunya Banc, which should be auctioned by Frob in October, assures that the sale of CatalunyaCaixa Inmobiliaria will generate benefits and will allow a further disinvestment plan to concentrate in retail banking. The institution, which will execute a dismissal program to lay off 2250 employees, has put on sale the network outside Catalunya.

The institution has returned to benefits in the first semester, with earnings of 183 million Euros. With this sale, Catalunya Banc is the first institution to get rid of its real estate platform. Bankia Habitat and Servihabitat (subsidiary of La Caixa) have started similar processes, which have not been closed yet. The funds Cerberus and Centerbridge are the candidates to acquire the subsidiary of Bankia, while TPG and Bridgepoint are fighting to acquire 50% of Servihabitat Gestion.

Sareb awards real estate assets valued at 100 million Euros to the venture capital fund HIG.

The awarded portfolio is made of nearly a thousand properties, located mainly in the Valencian Community, Andalusia, Murcia, the Canary Islands and Madrid. Several firms such as KPMG, which has acted as a financial advisor, Baker & McKenzie, Ashurts and Monthisa have participated in the operation.

Sareb, known as the “bad bank”, finished yesterday the awarding process of its first package of real estate assets, known as “portfolio Bull” to the venture capital fund HIG Capital, which will close the operation through its subsidiary Bayside Capital.

As announced by Sareb , the portfolio of assets awarded to HIG is valued at 100 million Euros and is made of a total of 939 properties located in Andalusia (275), the Canary Islands (129), Cantabria (5), Catalonia (38), the Valencian Community (343), the Balearic Islands (19), Madrid (86) and Murcia (44).The package also includes 750 annexes (garage spaces and storage rooms) and trade premises.

This is the first real estate operation carried out by the so called “bad bank” in the wholesale market where several consultants, such as KPMG, as a financial advisor, Baker & McKenzie, Ashurts and Monthisa have participated. The design of the operation, structured through a Banking Assets Fund (BAF), (the first one created in Spain, according to Sareb) and which will operate as a joint venture, will allow the “bad bank” to participate in the future benefits. The bad bank will have a participation of 49% in this investing vehicle, onto which all real estate assets from the “portfolio Bull” will be transferred, while HIG Capital will own the remaining 51%.

In accordance with the terms of the transfer, the properties being transferred to the BAF will be managed by an independent operator chosen by the investor, the Spanish company Monthisa, with a long experience in the real estate management.

Belén Romana, president of Sareb, has pointed out the interest arisen among foreign institutional investors. In her opinion, “the quality of the offers shows the confidence all investors have in Sareb and in the recovery of the Spanish real estate market”.

Those in charge of the bad bank assure that when deciding for the offer of HIG Capital they have taken into account “the structure of distribution of the earnings and the presented business plan, which provided a higher potential return on the investment made”.

HIG Capital, has a portfolio of more than 10.000 million Euros and in Spain, where it has a significant presence, it is led by Jaime Bergel.

The Mediterranean real estate companies throw themselves into the Russian buyers.

Russian money has revitalized the luxury market, together with the Chinese and Arab money, and has revitalized the Spanish real estate market, mainly the one at the Mediterranean coast. In view of this situation, the agencies have decided to throw themselves into them to improve their sales. Last year there was a big increase in the number of Russian millionaires wishing to buy high segment houses, looking for sun and quality of life. And the descent of the Spanish housing sector due to the crisis has helped the entrance of an eager medium class this year, a tendency that should increase in the next few months.

“There are very good opportunities right now in homes at the coastline and the Russians have money that they wish to spend in order to obtain sun and beaches, this is what they are looking for”, David Scheffer, managing director of Engel & Völkers in Spain, points out. All real estate companies have seen an opportunity and have started to attend tradeshows in Moscow or St. Petersburg. They have also hired Russian staff to talk to potential customers and have started to publish their web pages and leaflets in that language. “We need to adapt”, a spokesperson for Look & Find declares. Solvia, the real estate company of Banco Sabadell, has moved in this direction, opening up its webpage in Russian in order to “take advantage of this growing tendency”.

Buyers in the luxury segment are owners of companies of a certain size, they have money and live “in an ugly and cold country”, and this is why they have found the perfect holiday destination in Spain and they want their own home, “and they can afford it”, Scheffer explains.

They buy houses with prices ranging from five to ten million Euros, although the real estate agencies specialized in these customers also point out that there are sales of properties with two digits. The foreigners dominate the luxury real estate market and the Russians represent approximately 15% of the customers received by agencies. “The Spaniard is currently the seller”. On the other hand, the entrance of Arabs has increased after the halt of the last few years. However, Chinese citizens do not have any interest in buying, as confirmed by the main international agencies with presence in the Mediterranean coast.

The rich Russians have been followed by the medium class. The fall of the housing prices in Spain since the peak in 2007 is over 37% and has speeded up this year as a consequence of the end of the tax benefits, according to the figures by Tinsa. The fall of the second quarter was of 10,5%. This situation has affected mainly metropolitan areas and the Mediterranean coast and has helped the entrance of the medium class in the Spanish real estate sector.

The Russian, Chinese and Middle East millionaires are the ones that have helped the growth of the luxury segment in general, and this has had an influence in the rental market of trade premises. A report by the real estate company Cushman & Wakefield published this week points out that the majority of the luxury groups such as Louis Vuitton (LVMH), Max Mara, Prada, Kering or Richemont have seen a great increase in sales in the last year, which has forced these brands to increase the number of square meters in their shops in those cities where they were already present and to open up stores in new cities.

The lack of space in the “luxury streets”, such as Serrano in Madrid or Passeig de Gracia in Barcelona has two consequences: the price per square meter will rise as there is more demand than offer and they are starting to look for first floors in order to extend their stores vertically.

The experts at Cushman & Wakefield point out that in the last two or three years Barcelona has seen a greater growth of investors in prime store locations, as these brands had less presence there. Nevertheless, in view of the increase in business since 2012, they expect a “greater growth of the luxury brands in Madrid in the next few months”.

The housing development grows at the slowest pace in the decade.

The housing development in Spain reached 25382 million units at the end of 2012, which means an advance of 0,5% in reference to the previous year, the smallest annual growth in the last decade, according to the Ministry of Infrastructure.

71,3% of the housing development corresponds to principal residences, which reach 18,11 million units, although they have barely grown an 0,11% when compared to 2011.

A higher growth, 1,7%, can be found in the secondary residences development which finished 2012 with a total of 7,27 million units, 28,7% of the total.

Since the beginning of the crisis in 2008 and until the end of 2012, Spain added 1,35 million units to its housing development, half of the amount added in the previous five years (2,55 million units), during the construction boom.

During these years, the total stock of homes grew at annual rates of up to 2,5%, which contrasts with the increases of 0,5% and 1,3% seen since the crisis started.

In the last decade (2002-2012) the stock of homes has added a total of 4,35 units, with an evolution from 21,03 million homes at the end of 2001 up to 25,38 million Euros at the end of 2012.

Four regions (Andalucía, Cataluña,Valencian Community and Madrid) gather more than half of the total stock of homes (56,5%). Andalucia has 4,4 million homes, while Cataluña has a total of 3,88 million residences, the Valencian Community, 3,15 million and Madrid, 2,9 million homes.

On the other side, the regions with the most reduced stock are La Rioja with 200.183 homes at the end of 2012, Navarra (312.305 homes) and Cantabria with 360.627 homes at the end of last year.

Colonial bleeds to death.

Colonial bleeds to death. The Spanish real estate company, instead of recovering from its frail economic situation, has registered 308 million Euros in the red in the first half of the year. This means an increase of 73% in reference to the same period of 2012.
Asentia, its bad bank, is the main burden for this company specialized in prime assets. For this reason, the main target for Colonial is to get rid of this company, still on sale. Without taking into account the effect of the housing and land business of Asentia, the results of Colonial would reach a benefit of 87 million Euros, 9% less.

The real estate company is also considering all kind of alternatives to overcome its precarious situation and to reduce the debt of the mother company in around 600 or 700 million Euros, a debt which reaches more than 2000 million Euros.

The debt of the company reaches 75%, as declared by its managing director Pere Viñolas, at the last shareholders meeting. The sale of assets or the extension of capital are its two main chances. Although the company presided over by Juan José Brugera has not taken a decision yet.

The company is also considering the sale of the jewel of the crown: its French subsidiary, Société Foncière Lyonnaise (SFL). As well as in Spain, the office market is starting to feel the effects of the weakening of the French economy although the prime assets are still holding on. SFL also contributed with up to 12 million Euros to the accounts of Colonial, 24% more compared to the same semester in 2012.

As for the office market in Barcelona and Madrid, the company points out in its results that the prices are reaching “historically low levels”.

BMN decides against eliminating the minimum level clauses from its mortgages.

BMN considers that, after revising its mortgage portfolio, there are no reasons for eliminating the minimum level clauses that affect 27% of the portfolio. In fact, BMN does not think it is “appropriate” to eliminate the so called “minimum level clauses” affecting around 27% of the mortgage portfolio of the group on the 30th June 2013, after carrying out an analysis of these conditions following a request from the Bank of Spain.

The regulator sent a letter to the bank on the last 25th June requesting the analysis of the impact of the decision of the Supreme Court that declared these conditions void when there was a lack of transparency.

“After evaluating the “minimum level clauses” of BMN, it can be concluded that they are not affected by the decision”, the institution explains in an announcement sent to the National Share Market Association.

For this institution, whose 65% is controlled by the State, the sentence does not affect its clauses as it understands that they were agreed according to regulations of the Bank of Spain and were negotiated individually with each client.

“According to BMN, it is not appropriate to eliminate these clauses existing in its mortgage portfolio”, the institution explains.

The great five Spanish Banks sell 32971 properties until June.

Banks are great real estate companies. The managing subsidiaries of their properties are the Spanish companies which sell more homes, much more than any real estate company. So, Santander, BBVA, Popular, Sabadell and La Caixa, the great non nationalized banks that share most of the banking  business in Spain after the concentration experienced by the sector have been able to sell 32971 properties in the first half of the year.

All institutions are fairly happy with the behavior of their real estate subsidiaries. (…) La Caixa leads the sales of properties with a total of 9189 registered operations; Banco Santander follows closely, with 8300 sales; Sabadell with 7747; BBVA with 6617, and finally Banco Popular, with 1065 transactions.

Nothing at all like the 847 operations processed by RedPiso, for instance, or the 600 sold by Gilmar Grupo Inmobiliario, both located in Madrid and two of the biggest real estate companies nowadays. Both, however, value their year as a good one and improve their figures from the previous year. But banks play with their two secret weapons: an always negotiable price and a cheaper financing for their properties.

When organizing their real estate assets, these five institutions have evolved in a similar way: they have created a “perimeter” in the form of a subsidiary or internal “bad bank”, where they gather all their awarded assets – foreclosures and assignment in payment – and credits to developers. They have also separated the management of these assets in separate subsidiaries, that is, the commercial machinery to sell them, and in some cases, they are even thinking of selling that managing company.

Also they all inform about the units that exit their balance and not about those entering their books. They do not detail how many of these properties are garages, storage rooms, homes, land or trade premises. Nor do they inform about the price or the discount applied.

For banks, the other side of the story is the number of assets that enter their balance – which is growing -, the loss of value that needs to be applied to these assets and the provisions that need to be done. During the first half of the year, all institutions have chosen to increase the awarded assets in their balances and to reduce the exposure to the developing sector, accepting assignments in payment and reductions of value of their portfolio.

At the end of the first half of the year, the net value – subtracting the provisions that have been made – of the portfolios of awarded properties of the five banks reached 22041 million Euros.

According to the institutions, the number of confiscated properties in the hands of BBVA (6081 net million Euros) and La Caixa (6160) were the highest ones, followed by Santander (3618), Sabadell (3320) and Popular (2862).