Year: 2015

Spain’s Real Estate Sector Closed 2014 With A Record High

02/01/2015 – Expansión

The arrival of international funds and the implementation of large REITs have increased investments, with respect to previous years, up to 9 billion euros. Both the total figures and number of operations have skyrocketed. Well-located large shopping centers and office buildings have been the most desirable assets in 2014.

After more than five years of decline in business, the Spanish real estate sector predicted that recovery would arrive in the year 2014. However, the more optimistic reality has exceeded all expectations.

In anticipation of the year-end figures, this is already the second best year in the last decade, surpassed only by 2007, in the boom of the Spanish economy. “The market this year has been proportionally more active than in 2007. A higher number of assets have been purchased, and the prices, when compared with 2007 figures, are much higher,” explained representatives from the research department of JLL Spain.

So far this year, more than 6.18 billion euros have been invested in real estate for tertiary use (i.e. non-residential), according to Deloitte Real Estate.

This figure soars to 9 billion, according to the consultancy group, Aguirre Newman, if we take into account multiple debt portfolios whose securities were real estate assets, and the sale of land and housing.

These figures are double those recorded in 2013, 2012 and 2011, and are explained by a combination of several factors. “2014 was a year in which all the elements were present to favor real estate investment: the improvement of the overall economic situation, the emergence of new players with liquidity and the pressure to invest (the REITs), the return of funding and the need to sell certain closed funds,” says Javier Garcia-Mateo, director of Deloitte Real Estate.
New investors

The new players in the real estate sector, the REITs, are among the most influential reasons for investment growth. Only four major listed real estate companies, Merlin Properties, Hispania Real, Lar España and Axia Real Estate, have invested over 2.4 billion euros. Among their investments was the purchase of Marineda City, a shopping center located in La Coruña (Galicia), by Merlin Properties for 260 million euros, the largest purchase of a shopping center until December 24, 2014.

A few days ago, the British real estate company, Intu Properties, beat this record by paying 451 million euros for Puerto Venecia in Zaragoza. With these last transactions, investment in shopping centers in 2014 amounted to 3 billion euros, the same amount invested across the real estate sector in 2013.

Shopping centers are not the only commercial properties to be the star of large operations. Street storefronts have also been key players in investments. Thus, companies such as Mango bought property in Madrid and Bilbao to create large retail stores; while international funds, such as Axa Real Estate and Deka, bid for being the landlords of the main brands along the Gran Via in Madrid.

As for office buildings, investment has soared over 200% from January to September to 2.4 billion euros, according to CBRE. These figures are due to the purchase of portfolios such as the four buildings located in Barcelona and Madrid held by Blackstone, in addition to the other four buildings that the same fund bought from SAREB a few days ago.

Also noteworthy is the purchase of two properties in Barcelona — Torre Agbar and Paseo de Gracia 111 — which will be transformed into luxury hotels, and the numerous buildings sold by public administrations such as the Generalitat.

“A year of great investment activity has closed and the market should expect the same level of activity for the next year, albeit with some changes in the profile of investors,” says Jaime Pascual, Executive Managing Director of Aguirre Newman.

Original article: Expansión (by Rocío Ruiz)
Translation: Aura REE

Bank Reduces Development Risk To Levels Seen A Decade Ago

02/01/2015 – Expansión

LATEST DATA FROM BANK OF SPAIN / The sector lowers its credit portfolio for real estate development to 156.2 billion, levels not seen since 2004. The balance has fallen 52% from a record 325 billion in 2009.

The Spanish banking sector is leaving financial restructuring behind, having reduced its development risk by half, which has been a major point of weakness throughout the crisis. The sector’s credit balance declined to 156.2 billion in September, according to the latest data published by the Bank of Spain. Thus, financial institutions have placed their stock in the levels seen a decade ago, in 2004, when the housing bubble began to rise.

With this, the bank has cut 52% exposure to real estate development from its June 2009 record, when it was at 325 billion euros.

Factors

Reducing direct exposure to developers is due to several factors. Some of them reflect the fact that risk has not been eliminated in the strict sense, but that balance sheets have been transformed or moved from banks to other economic agents.

In this regard, one of the elements that explains this reduced exposure is the creation of SAREB, also known as the ‘bad bank.’ The financial institutions with public aid transferred a net development loans (with already reduced provisions) of almost 35 billion euros between 2012 and 2013. This risk has stopped pressuring state-backed groups, but has been assumed by the shareholders of the bad bank.That is, by taxpayers, through the Restructuring Fund (Frob), with a share of 45%, and healthy banks: Santander (17%); CaixaBank (12%); Sabadell (7%) and Popular (6%), mainly.

As important or more than this factor are the allocation of assets and debt swaps for property. The bank began to systematically implement this strategy at the beginning of the crisis, in order to ease the financial burden on developers and give the sector some breathing room. Currently, gross property portfolio of banks totaled at 84.5 billion, up 12.6% from 75 billion a year ago.

The transfer of loans to bad debts (considered irrecoverable and given at 100%) and sales, still emerging, of developer credit portfolios to vulture funds have also contributed to lowering stock. In October, for example, Bankia sold a loans portfolio to real estate companies with a nominal value of 335 million euros to the Anglo-Saxon hedge fund, Chenavari. Sabadell, CaixaBank and BMN are also discussing developer sales credit, which is scheduled to be closed soon.

Looking ahead, analysts believe that the activity of the real estate sector and the continuing process of risk reduction of banks will be slow. Experts from International Financial Analyst (AFI) predict that the total portfolio of developer and constructor loans, which in September totaled at 205 billion (156.2 billion in loans to developers and 48.8 billion more to constructors), will amount to 198 billion at the end of 2014. In 2015, the number should be reduced to 187 billion (with a quarterly decrease of 5.8%), and in 2016, it may even reach 179 billion euros (-4.3%).

Profitability

The institutions and investment firms agree that development risk is no longer a source of uncertainty for the Spanish financial system. The arrears of these companies, with dubious loans of around 58.5 billion, is 37%. This exposure, however, is properly covered by the financial reform and restructuring of the real estate sector, which has placed the average coverage levels at around 50%. For the next year, AFI experts estimate that the default rate will remain at 34.3%, decreasing to 30.8% by the end of 2016. However, this exposure remains a major disadvantage in terms of profitability, which is the main challenge being faced by Spain’s financial system. Although not by disturbing amounts, institutions assume that they will have to keep making provisions to cover the deterioration of their real estate portfolios. For its high default rate, this risk also entails significant capital consumption as well as an increase in expenditures for the operational costs of maintaining their enormous portfolios.

Original article: Expansión (by M. Martínez)

Translation: Aura REE

 

Banco Popular Rescues San José Realtor And Takes Over

02/01/2015 – ABC

The San José Real estate group has been saved by the bell

Saved by the bell. The San Jose Group has found a white knight to save it from the dire straits of bankruptcy, as the ABC reported yesterday. Banco Popular and its partner, the Värde Partners fund, will take control over the realtor of the new holding company, after managing to swap its debt for equity stocks of the division which was completely unprofitable.

As the newspaper was informed, according to the announcement to be made today by the company, headed by Jacinto Rey, to the National Securities Market Commission (CNMV), the conditions of the previous syndicated loan are breached and they must start all over again from scratch, leading to a new company with new owners in its real estate division.

Thus, the new agreement reached between the directors of Grupo San José and the creditor banks is divided into three parts: Firstly, the creation of a new holding company — Grupo Empresarial San José, under the leadership of the current president Jacinto Rey, which will assume a debt of 100 million euros; secondly, this holding will also own the construction company, with a debt amounting to 250 million; and thirdly, the so-called “unsustainable” debt (in financial terms) — over 1.2 billion — will remain in the real estate company. This debt originates from San José’s takeover bid from 2007 for the Valladolid-based realtor Parquesol, which is what Banco Popular, the Värde Partners and Marathon Asset Management funds will capitalize on.

The real estate division will thus become property of the creditor banks. 80% of it will be controlled by Popular, Värde and the Marathon fund. Banco Popular and Värde are going to integrate it into their real estate joint venture, where the former holds 49%, and the latter, 51%. The remaining 20% will be split among the rest of the creditors – JP Morgan, Deutsche Bank and SAREB.

The agreement reached with its main creditors–Banco Popular and Värde–will boost the financial viability of the new business group, which will resume its traditional activities as a construction company but with a very limited amount of debt in order to continue with its expansion plan, especially towards Latin America.

Up until yesterday, San Jose had debt of over 1.6 billion. Its major creditor from the beginning was Banco Popular, with a debt amounting to 476 million (a figure that includes the part coming from Banco Pastor, which was acquired by Popular). Currently, Värde Partners, a partner headed by Angel Ron (its real estate and cards division) has become its largest creditor over recent months, holding claims to 52% of the total liabilities from the banking syndicate, i.e. 868 million.

The fund has been steadily doing away with most of the debt piled up by the company from the financial institutions that have been trying to get rid of it — Santander, BBVA, Sabadell, Barclays and Abanca. Bank of America has been the intermediary. Yesterday, Grupo San José rose 11.59% on the stock exchange, as the new agreement was coming.

Original article: ABC
Translation: Aura REE

CaixaBank And TPG To Revamp Servihabitat’s Board

02/01/2015 – El Mundo

CaixaBank and the US investment fund TPG have renewed the board of Servihabitat, the real estate company in which they are stockholders with a 49% and 51% stake, respectively. So, Anthony Michael Muscolino will continue to be president of the company on behalf of TPG, while Julian Moreno Cabanillas will go on as its CEO, appointed by both stakeholders.

Original article: El Mundo

Translation: Aura REE