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Novo Banco to Open Huge New Headquarters in Lisbon
21 July 2018
Novo Banco will sell its other offices, including on Avenida da Liberdade, and forecasts earnings of €10 million with the change.
Novo Banco will sell its offices in Lisbon, including on Avenida da Liberdade, building its new headquarters, which will concentrate all of its services and departments and about half of its employees in Portugal.
The site chosen is a parcel of land, owned by the bank, measuring over 130,000 square meters (m2) located next to Amoreiras. In addition to the new office complex, the bank also intends to develop a residential and commercial area there in the next phase. In fact, the area slated for housing and retail stores will cover a much larger area than the offices, which will account for just 30%, or 40,000 m2, of the total.
According to Expresso, the project is expected to cost between €100 million and €120 million, but the bank isn’t expecting to pay out those funds. Novo Banco is planning on financing the development with the sale of its aforementioned real estate portfolio. The portfolio consists of a total of 10 buildings. Just the building on Avenida da Liberdade – which measures 15,000 m2 and is in one of the best areas of the city – could be worth €50 million, say market sources.
In addition to not wanting to spend money on the new project, the bank hopes to achieve operational gains estimated at up to €10 million with this huge operation – whose economic rationale is being studied by Deloitte. It is the amount that Novo Banco hopes to save by replacing all of its offices in the capital – many of which are old and have not undergone any recent upgrades – with a single, more modern building.
An official source at the bank stated that “no decision has been made. Novo Banco is considering all of its options for reducing costs and increasing operational efficiency. ”
This issue is important since Novo Banco is controlled by the US Lone Star Fund (which bought 75% in October) but is also still 25%-controlled by the Resolution Fund, a state-owned entity that is financed by banks operating in Portugal, thus involving public money. The way in which it manages its assets is, therefore, a sensitive issue: it depends on how much the state has to get involved in injecting money into the bank.
Novo Banco Sells More Assets
To take advantage of the market’s current momentum, Novo Banco has been selling some of the real estate assets on its balance sheet, but that is not the principal reason for the operation in Lisbon. At the moment it has a total of 13 properties for sale, between offices, apartment blocks and even land, located in Lisbon and Porto. According to Expresso, these assets are mostly vacant and include properties that were once occupied by the bank and others whose owners failed to pay their loans to the bank and were foreclosed upon. The portfolio includes two buildings in Cedofeita, and in Lisbon, two office buildings on Álvares Cabral, one on 5 de Outubro, one on Andrade Corvo and one on Rua Prior do Crato. There are also three apartment buildings in Areeiro, Estrela and Carnide and two parcels of land, one in Ajuda and another in Sintra and a building in Miraflores; Alto do Duque.
Novo Banco was created in August 2014, following the resolution of Banco Espírito Santo (BES). Lone Star paid nothing for the acquisition but agreed to inject €1 billion. In exchange for allowing the sale to go ahead, the European Commission demanded a series of measures that caused the bank to reduce its operations, namely through the sale or closing of operations and a reduction in bank branches and personnel.
In 2017, the bank suffered losses of €1.3954 billion, in a year in which it recognised more than €2 billion in impairments (provisions for potential losses). It resorted to the contingent capital mechanism (negotiated with the Portuguese State at the time of the sale), requesting that the Resolution Fund recapitalise the bank, which happened at the end of May, with an injection of €792 million. However, the Resolution Fund did not have all the required funds and the Portuguese lent it a €430 million.
It is likely, therefore, that the state will be called to provide further injections of capital into Novo Banco. This is provided for in the sale agreement and may happen again through the contingent capitalization mechanism, which provides for an inflow of cash from the Resolution Fund if there are losses in its asset portfolio; but there may also be a direct recapitalization of the state, which has been authorized by Brussels if Lone Star or other private investors fail to come forward. That possibility has already been accepted by the Minister of Finance.
In June, Público reported that Novo Banco transferred the management of thousands of properties, valued at hundreds of millions of euros, to Hudson Adviser, one of whose principal shareholders is Lone Star itself. The deal provides for the assets to remain on Novo Banco’s balance sheet while Hudson manages the properties, preparing them for an eventual sale.
Restarting Halted Projects
At the same time, the bank is taking advantage of some land it received in 2014, after the bankruptcy of the real estate developer involved in the project – Vasco Pereira Coutinho’s Temple. This after several unsuccessful attempts to sell the land, despite the appearance of Portuguese and international potential buyers.
The failure to sell the land was related to the requested sales price of €200 million. According to market sources, that price “was too high”, even though it was one of the most desirable properties in Lisbon, similar to the former Flea Market (Feira Popular) in Entrecampos. The land has an excellent location, facing the Hotel Epic Sana on Avenida Engenheiro Duarte Pacheco, and Rua da Artilharia 1. Its size (more than 130,000 m2) also made it highly attractive for any potential real estate development, since the city council approved any type of construction on the site, including offices, housing, retail and hotels.
In fact, the initial project, which was initially planned by Temple 13 years ago and was to be called Campolide Parque, provided for the construction of about 65,000 m2 of housing and 65,000 m2 of office buildings, a hotel and even a central square with green areas and an artificial lake.
Change Will Not Be Immediate
According to market sources, developing an office building of this kind can take at least three years from the start date, and this project is not yet close to getting started.
Expresso learned that Novo Banco’s management is looking for a top-level architectural project and has already contacted many architects, including some of the most prestigious ones in Portugal, including the Ateliê Aires Mateus, but has yet to make a final decision. The housing and retail part of the venture, which will occupy a larger area, is likely to take even longer, since Novo Banco’s objective is to start off with its new headquarters, making it an anchor for the second phase of the project.
On the other hand, the planned sale of the buildings in central Lisbon, including the bank’s current headquarters on Avenida da Liberdade, can begin sooner – to take advantage of the market’s current momentum and the interest of foreign investors in this type of property. However, any sale at the moment would need to be a sale and leaseback operation, as Novo Banco will need to continue to occupy its offices until its new headquarters are ready.
Original Story: Jornal Expresso – Ana Baptista, Filipe Santos Costa and Pedro Lima
Photo: Tiago Miranda
Translation: Richard Turner