Month: October 2015

Centerbridge To Sell Property Services Firm Aktua

30 October 2015 – Reuters

U.S. private equity group Centerbridge Partners has appointed investment banks to sell Spanish property services firm Aktua, five sources familiar with the matter said.

Centerbridge is seeking to take advantage of an improvement in the Spanish property market where valuations of real estate assets are recovering after taking a hit during Spain’s economic downturn.

The New York-based fund has hired Bank of America and Barclays to launch a sales process for the company which offers a wide range of real estate services including property maintenance, rental collection and loan management, the sources said. Bank of America and Barclays declined to comment while Centerbridge had no immediate comment.

Aktua is expected to have core earnings of between €40 million and €50 million this year and could be valued at around €300 million ($329 million), or 7 to 7.5 times its earnings before interest, tax, depreciation and amortization (EBITDA), two of the sources said.

The company, which employs more than 400 people in Spain, has already drawn interest from a series of international buyout funds including London-based Permira, another source said.

Permira, which is in the process of selling two of its Spanish portfolio companies, Cortefiel and Telepizza, declined to comment.

The sale of Aktua has yet to start but bidders are already lining up to examine the asset and its growth potential, the sources said.

Real Estate Rebound

Aktua has roughly €5 billion of assets under management of which €2.4 billion are real estate assets and the rest loans.

Based in Madrid, it makes an attractive consolidation platform for private equity firms which could adopt a so-called buy and build strategy and combine it with other Spanish property management firms, the sources said.

This would generate a flurry of deals giving U.S. investors, which swooped on low-priced Spanish real estate assets during the financial crisis, an opportunity to capitalise on Spain’s economic rebound.

Real estate prices dropped by more than 35 percent in Spain between 2007 and 2014, according to the National Statistics Institute.

Centerbridge broke into the Spanish market in 2012. It paid €100 million to buy Aktua from Spanish bank Banco Español de Credito (Banesto).

Other U.S. investment firms could go down the same route and divest property firms they’ve held for the past three years, one of the sources said.

In 2013, New York-based buyout firm Apollo bought 85% of Santander’s property management unit Altamira for €664 million.

Another Spanish bank, La Caixa, sold 51% of its real estate services arm, Servihabitat Gestión Inmobiliaria, for €185 million in 2013.

Original story: Reuters (by Pamela Barbaglia and Andrés González)

Edited by: Carmel Drake

Carmena Creates ‘”Political Table” To Resolve Operación Chamartín

29 October 2015 – Cinco Días

Manuela Carmena, the mayoress of Madrid, wants to start to resolve the situation known as Operación Chamartín, a town planning project in the North of the city that has been up in the air for more than 20 years now. The project is being led by the company Distrito Castellana Norte, in which BBVA owns a stake of more than 70%; the remaining shares are owned by Grupo San José. In order to move forwards, two working groups will be launched, one political and one technical, comprising officials from the Town Hall.

The Town Hall of Madrid will constitute a so-called “political and social table”, which all four of the political parties that have representation in the local government (Ahora Madrid, PP, PSOE and Cuidadanos) will be invited to join. Neighbourhood associations and the company Distrito Castellana Norte will also be encouraged to participate, according to sources at the Town Hall.

The mega-project, which was initially going to be approved by the PP during the previous legislature, will involve private investment amounting to around €6,000 million, the development of land covering 3.1 million m2 and the construction of up to 17,500 homes, over several phases.

The political table will monitor the conditions that Operación Chamartín will have to fulfil to be accepted, based on those approved yesterday by Ahora Madrid and the PSOE, which in turn rejected proposals made by Ciudadanos to create the table immediately and resolve the project within three months.

Ahora Madrid and PSOE agreed instead to an amendment to replace the proposal submitted by Cuidadanos. That group had released a statement defending the immediate creation of the table with the municipal groups, in order to establish the basic guidelines for resolving the operation within a maximum period of 90 days.

Meanwhile, the representative for Sustainable Urban Development, José Manuel Calvo, responded that it does not make sense to limit the duration of the debate to three months, however he added that there is no doubt that the current situation needs to be resolved soon.

Original story: Cinco Días (by Alfonso Simón Ruiz)

Translation: Carmel Drake

Banking Sector: RE Hangover Continues To Undermine ROE

28 October 2015 – Cinco Días

How to improve profitability has become the great challenge for the Spanish real estate sector now that the chapter involving the clean up of toxic assets from the banks’ balance sheets is coming to an end. The (sector’s) return on equity (ROE) has decreased by 6.8 basis points over the last six years, to 5.3% at the end of 2014, mainly due to the higher capital requirements demanded as a result of the clean-up process. But the current low yields, which will never return to their pre-crisis levels, are due not only to the near-zero interest rates, which are slashing margins, or to the scarce flow of credit. The real estate hangover from the long financial restructuring process is also weighing down heavily on the ROE.

According to AFI’s calculations, the sector has accumulated non-performing assets amounting to €238,000 million – including doubtful loans and foreclosed assets – which are generating zero yields and are consuming capital and provisions. In short, they could be reducing the sector’s annual profitability by up to 5.4 percentage points.

AFI says that some of these assets are actually generating negative returns, due to the management and maintenance costs associated with them. And the company calculates that if they were sold at their net book values – even ignoring the fact that some assets may be accounted for at higher than market value – and the liquidity obtained was reinvested in loans to households and companies, then “the sector could achieve an average annual return of 3% and moreover, it would save the provisions associated with those assets, which we estimate represent 10% of their net book value”. AFI added that this saving would result in around €13,000 million, a result that would finally release the burden of these assets, which still represent 8.8% of the sector’s balance sheet.

Modest expectations

The firm emphasises that “in order to improve returns, we need to accelerate the digestion of these unproductive assets”. However, its estimation of the improvement in Spanish banks’ ROE in the coming years does not exceed 6% or 7%.

AFI also points out that the decrease in the ROE in recent years has not been greater mainly thanks to the ECB, whose policy has allowed financing costs to be lowered and high capital gains to be generated on fixed income portfolios. Even so, it warns that the carry trade profits on these portfolios are not going to be repeated and it adds that unrealised gains on fixed income portfolios have decreased by more than 50% in 2015, due to the sales that have already been made and the valuation at market prices. “Therefore, the sector now needs to look for recurrent sources of profitability”.

Original story: Cinco Días (by Nuría Salobral)

Translation: Carmel Drake

Sabadell Launches €1,000M 5-Year Bond Issue

28 October 2015 – Cinco Días

Banco Sabadell has issued 5-year mortgage bonds amounting to €1,000 million, with a coupon of 0.625%, after applying 0.48 percentage points to the midswap index (the interest rate on risk-free money over a certain period). Commerzbank, Goldman Sachs, Lloyds Bank and Société Générale were the underwriters of the issue.

Sabadell initially planned to place €750 million, but requests were received for €1,500 million, and so the company decided to increase the volume. Sources close to the placement also highlight the quality of the orders.

The requests have been made by more than 80 international investors. Sources at the underwriting banks explain that Sabadell has become “the first bank in the south of Europe capable of undertaking an issue amounting to €1,000 million; in recent weeks, the maximum size has been €750 million”.

This bond issue comes a week after Cajamar completed its own debt issue, also placing 5-year mortgage bonds. That issue amounted to €750 million, whereby exceeding its initial objective of €500 million.

Cajamar set the placement price of the issue at 80 basis points above the midswap index (the benchmark rate for long-term issues) to offer a fixed annual coupon of 1% and a yield for investors of 1.22%. The underwriters in that case were Santander, JP Morgan, Natixis, Nomura and Deutsche Bank.

Original story: Cinco Días

Translation: Carmel Drake

INE: Mortgages Increased By 25.8% In August

28 October 2015 – Público

The number of new mortgages signed for house purchases increased by 25.8% in August, compared with the same period a year earlier, as 19,272 new loans were granted. Nevertheless, and according to the data published yesterday by the National Institute of Statistics (INE), if we compare the figures in August with those of July, then the number of new mortgage signings decreased by 11.9%.

The total volume of mortgages granted to purchase homes in August amounted to €2,010 million, an increase of 26.5% YoY, but a decrease of 11.9% compared with the previous month. Moreover, the average size of those mortgages increased by 0.6% YoY to amount to €104,318, although in comparison with July, this figure represented a decrease of 0.1%.

89.2% of the mortgages constituted in August had variable interest rates, compared with 10.8% that had fixed interest rates. Euribor was the reference rate used for the constitution of most new variable rate mortgages, specifically it was used in 91.8% of the new contracts of this type.

The average interest rate (at the beginning of the contract term) for mortgages granted to buy homes was 3.25%, i.e. 13.4% lower than the rate recorded in August 2014. The total number of mortgages registering changes to their conditions in the property records in August amounted to 13,205, i.e. 14% fewer than in August last year.

By autonomous region, the following CCAAs registered the highest number of new mortgages for homes in August: Andalucía (3,722), Madrid (3,450) and Cataluña (2,545). The autonomous regions that recorded the highest YoY increases were: La Rioja (up by 65.9%), Valencia (58.3%) and Navarra (36.5%). On a YoY basis, only two regions recorded decreases, namely Aragón (-5.2%) and the Balearic Islands (-2.1%). (…).

Meanwhile, the autonomous regions that loaned the most capital for the constitution of mortgages for homes were Madrid (€489.4 million), Andalucía (€331.4 million) and Cataluña (€304.5 million).

The experts expect the number of house purchases to keep increasing

The leading real estate websites in Spain expect house sales to continue to increase over the coming months, given the normalisation of the sector and the decrease in prices following the burst of the real estate bubble. (…).

The experts at fotocasa.es think that this positive trend will continue during 2015 and into 2016, but they add that we should be “cautiously optimistic” since the current figures are still a long way off of the levels recorded in 2005. “The mortgage statistics are very closely linked to the increase in credit from the banks and the significant decrease in house prices that we have seen in recent years”.

Original story: Público

Translation: Carmel Drake

INE: Land Sales Increase By 10.5% In 8m To Aug

27 October 2015 – Cinco Días

This week has seen the conclusion of the two major annual events in Spain’s real estate calendar: the Real Estate Trade Fair in Madrid (SIMA) and Barcelona Meeting Point. In addition to a sharp increase in the number of private visitors, this year more companies have wanted to be present at both events, because the figures clearly show that more houses are being sold, at higher prices (the price decreases have now come to an end across most of the country) and most importantly, new properties are being constructed once again.

Given that land is the raw material required to launch new developments, it was crucial for funding to return to this segment of the market as well, and the statistics show that the trend there is now reversing. Not only are more mortgages being granted to acquire homes and complete developments abandoned due to the crisis, loans are also being granted once more to buy land. (…)

According to the latest available statistics, compiled by INE, for the period from January to August 2015, 48,905 plots of land were sold in Spain during the first 8 months of the year, an increase of 10.5% compared with the same period in 2014 (when 44,237 plots were sold). If this trend continues, 2015 will close with a significant increase on the number of plots of land sold last year (65,821), breaking the downward trend that began in 2007 (the first year this data was collected) when 195,269 plots of land changed hands.

What are investors looking for?

In terms of whether more or fewer mortgages are being granted on the plots of land being sold, the figures do not yet reflect an overwhelming improvement (…).

Again, according to INE, between January and July (the data for August is published today), 4,897 mortgages were granted for plots of land, a decrease of just 1.6% compared with the same period last year, when the number amounted to 4,979. Like in the case of land sales, if the trend in mortgages granted for land is maintained between now and the end of the year, then 2015 will close with an increase in the number granted for the first time since 2009.

For the experts and everyone now working in the real estate sector (including the banks, the Socimis and the new servicers), the fact that financing has returned to the land segment is very good news, since this will revive the construction of new builds. Above all, we are now starting to see studies that show that one of the imbalances on the horizon in the market is the lack of offices, developable land and industrial warehouses in prime and other good locations in cities, which is what exactly national and international investors are looking for.

Finally, if this trend continues and improves, it will be a great relief for the banks, since 37.8% of the almost €80,000 million in foreclosed real estate assets that last year weighed down on the balance sheets of the main Spanish financial entities (Santander, BBVA, CaixaBank, Sabadell, Popular, Bankia, Bankinter, Kutxabank, Unicaja, Ceiss, BMN, Liberbank, Ibercaja-Caja3, Novagalicia and Catalunya Banc) related to land, the same percentage as for finished homes, which accounted for 37.1% of the total, according to a study by the Department for Research and Economic Analysis at La Caixa.

Original story: Cinco Días (by Raquel Díaz Guijarro)

Translation: Carmel Drake

Project Goya: Ibercaja To Sell Loans To Oaktree For €350M

27 October 2015 – Expansión

Ibercaja continues to take steps to clean up its balance sheet as the rumour mill runs rife about mergers in the sector.

The Aragonese entity is negotiating the finishing touches on the transfer of one third of its portfolio of property developer loans to the US fund Oaktree, with a nominal value of €900 million, according to financial sources. The agreed price will amount to between €350 million and €400 million.

This will be the largest divestment undertaken by Ibercaja to date and fits within the current clean up strategy that the medium-sized entities are accelerating ahead of going public or merging next year.

The sale forms part of Project Goya, which Ibercaja put up for sale before the summer, guided by the investment bank N+1.

This portfolio comprises debt from 124 Spanish property developers and is secured by finished housing and developable land. In total, the loans are linked to almost 2,200 homes and other residential assets, primarily located in Andalucía, Madrid and Cataluña.

Goldman Sachs and Blackstone are also competing in the final stage of the process alongside Oaktree. These types of portfolios tend to be placed in the market for around one third (of their nominal value), therefore Ibercaja looks set to make a gain of €50 million more than it initially expected.

With the sale of these kinds of assets, Ibercaja is looking to fulfil two main objectives: clean up its credit portfolio and obtain resources – free up provisions – to use in its recurrent business.

Express clean-up

After Bankia, the entity led by Amado Franco is the Spanish group that has taken the most decisive strategy to divest its real estate portfolio. Both entities have launched operations to drastically reduce their real estate exposure. In the case of Bankia, this strategy is focused on Project Big Bang – comprising assets amounting to €4,800 million – for which it has so far received offers from Oaktree and Cerberus.

Meanwhile, in addition to Project Goya, Ibercaja has another project underway known as Project Kite. There it is looking to sell the majority of its foreclosed assets: 6,900 residential units, 1,300 premises and industrial warehouses and 600 plots of land, worth €800 million. (…).

For Oaktree, this operation would enable it to strengthen its strategy in Spain. The fund has already closed two large purchases in recent months, namely: the problem debt from the German bad bank, FMS, in Spain, with loans secured by hotels, such as the Arts de Barcelona hotel; and a portfolio of unpaid mortgages from Bankia.

Original story: Expansión (by Jorge Zuloaga)

Translation: Carmel Drake

Meridia Buys Nestlé España’s HQ For €40M

27 October 2015 – Expansión

Meridia is continuing to invest in the Spanish real estate market. The firm has acquired the Spanish headquarters of the Swiss multinational Nestlé, located in Esplugues de Llobregat (Barcelona). The office complex has a total surface area of 50,000 m2 and according to sources in the sector, Meridia paid €40 million for the properties.

The facilities comprise two office buildings and around 600 parking spaces. Nestlé will remain as the tenant of the first building, the larger of the two, under a long-term lease contract. The second building, which is currently empty, will be leased to third parties or to Nestlé itself, according to statement issued by the multinational food company yesterday. The operation still needs to be formally registered but a preliminary agreement has now been signed, according to sources close to the process. The vendor has been advised by JLL and the buyer by CBRE.

Yesterday, sources at Nestlé said that the sale “was based on the desire to focus exclusively on our real estate assets in the industrial sector”. They also said that the change in ownership of the land and Nestle’s Spanish headquarters “will not have any impact whatsoever on the activity undertaken at the company’s headquarters, which has been conducted on this site for 40 years”.

Investment of €10 million

Over the past two years, Nestlé has invested almost €10 million in the renovation of the larger building, which houses its headquarters.

Thanks to the elimination of shared spaces and the conversion of all of the floors into open spaces, they have managed to concentrate all of the teams into one building.

The investor’s return on this operation is unknown. According to sources in the real estate sector, the rental price for offices in this area near Barcelona range between €6/m2/month and €10/m2/month.

Original story: Expansión (by Marisa Anglés)

Translation: Carmel Drake

Investment Funds & Socimis Revolutionise RE Sector

26 October 2015 – Expansión

The real estate sector is recovering well. During the first nine months of 2015, purchases of offices, commercial and logistics assets, hotels and residential properties amounted to €10,800 million, representing an increase of 57% compared with the same period last year. After more than five years of severe economic difficulties, the return of investment, at the hands of investment funds and Socimis has breathed a new wave of optimism into the sector.

“After a really tough economic crisis, we were almost in a coma and the arrival of these funds is invigorating the market”, said Juan Antonio Gómez-Pintado, President of the Association for Real Estate Developers in Madrid (‘Asociación de Promotores Inmobiliarios de Madrid’ or Asprima), who together with Rafael González-Cobos, President of Grupo Inmobiliario Ferrocarril and Gecopi; Alberto Fernández-Aller, Corporate Director of Prinex Real Estate; and Manuel del Pozo, Assistant Director of Expansión, were responsible for opening the forum ‘The New Era of the Real Estate Sector in Spain: Investment funds and Socimis’.

The event, organised by the newspaper Expansión, in collaboration with Drago Capital, Gómez-Acebo & Pombo, JLL, Neinor Homes and Merlin Properties, and with Prinex as the technological partner, served to highlight the evolution of the market in recent years and the impact the Socimis have had on the strong investment figures recorded in the sector.

46% of the capital invested in Spain so far this year has come from Socimis, an investment vehicle inspired by the REITs in the USA, first launched in the 1960s, which did not arrive in Spain until 2009. As the Corporate Director of Prinex Real Estate explained, they are “a mechanism that allow us to hold much more open asset portfolios, without any major legal or regulatory obligations and with great tax advantages”.

Partnerships

Moreover, the entry of international capital is also helping to professionalise the sector, as well as to support the recovery of Spanish property developers and real estate companies, hit hard by years of paralysis and lack of investment. “All of the funds coming into Spain are looking for support from companies that already know the environment. They are using their capital to undertake operations with Spanish developers”, said Fernández-Aller. “They generate capital movement, investment and jobs. The Socimis are helping to create a professionalised stock of homes for rent”, added the President of Grupo Inmobiliario Ferrocarril. (…).

Meanwhile, the participants highlighted the threat that political instability poses to the recovery of the real estate sector. One example, they indicated, is Madrid, where all of the major urban planning operations (Canalejas, Chamartín and Edificio España) are currently on hold.

Large cities

The recovery of the real estate market is happening in a very uneven way and, for the time being, is limited to the major cities only, such as Madrid and Barcelona, and some coastal regions. (…).

Meanwhile, Juan Velayos, CEO of Neinor Homes, emphasised the profound transformation that the Spanish real estate market has experienced over the last 18 months and said that he was convinced that the mistakes that led this sector – which accounted for 25% of the country’s GDP at its height – to the brink of disaster, will not be repeated.

“What we are seeing in Spain is an absolute transformation of the industry. I do not think that the banks will let what happened before with the RE bubble happen again. We are not going to see any projects without equity. It is going to be a sector that, for the first time, builds what customers actually want. If we do not understand that (basic premise), then customers are not going to buy homes from us”, concluded Velayos.

Original story: Expansión (by Javier G. Fernández)

Translation: Carmel Drake

Barcelona, Madrid & Costa Del Sol Lead Residential Recovery

26 October 2015 – Expansión

Two terms are key in the residential market: “trend” and “it depends”. The first has a clear rationale: investment in housing is a long-term phenomenon and as such analysis should be kept as far away from the short-term as possible. The second serves as a wildcard, in one of the most fragmented markets of all. For example: Is now a good time to invest in a home? Well, “it depends” on where, because the real estate recovery is happening at, at least, two speeds.

On the one hand, we have medium-sized cities with a lot of stock and less established areas, which are weighing down on the results. On the other hand, we have the large real estate centres and main tourist destinations, which are experiencing a resurgence.

According to a survey conducted by the Network for Qualified Property Consultants (RAIC or ‘la Red de Asesores Inmobiliarios Cualificados’) for Expansión, 73.9% of the professionals in the sector think that the three main leaders of the real estate recovery will be Madrid, Barcelona and the coastal regions.

17.39% believe that the leaders of the real estate recovery will be Barcelona and Madrid only, whilst 4.35% put thier money on the cities in the north of Spain. A similar percentage back the Mediterranean Coast.

Madrid and, above all, Barcelona, are experiencing a new period of real estate expansion. House prices increased by 7.4% in Barcelona during Q3 2015 and by 0.2% in the capital, according to Tinsa.

The third most preferred region for investment, since it is recovering so well, is the Costa del Sol, which, unsurprisingly, is regarded as the “leading indicator” of the sector. When prices rise in Marbella and the surrounding area, prices in other areas tend to follow suit.

Javier García-Mateo, Partner in the Financial Advsiory team at Deloitte explains: “Crises always start on the coast, but so too do the recoveries, above all on the Costa del Sol. It was in Marbella that we first began to see price decreases in 2007”. He considers that now is a “good time” to buy on the coast of Malaga. “And the feeling there is even better than in many of the major cities. The coast is a much more volatile market, where the decreases are very acute, but so too are the increases. And demand there is European, not just Spanish”.

Foreigners are the main players. José Antonio Pérez, Professor of Real Estate at IPE, says that purchases by foreigners “are growing twice as quickly as those made by Spaniards, on the coast”. “For the most recent developments sold off-plan in the Costa del Sol and Levante, more than two thirds have been bought by citizens with 12 different nationalities; they demand and pay more, and almost always pay in cash”, added Pérez.

The coast in Alicante is starting to recover strongly too, according to Jorge Ripoll, Head of Research at Tinsa, the largest appraisal company in Spain.

The consultant José Luis Ruiz Bartolomé emphasises another major focus of the residential growth: the metropolitan areas of the large cities. “Opportunities in the labour market are clearly found in Madrid, Barcelona, Valencia and other large cities, and that is leading to migration, particularly young people, to the peripheries of these cities”, he says. “That is where homes need to be built”, he adds.

Original story: Expansión (by Juanma Lamet)

Translation: Carmel Drake