3 March 2017 – Expansión
The Baraka group still has a month left before it has to close the operation to purchase the Madrilenian building Edificio España from the Chinese group Wanda, but the initial idea of financing the acquisition through a syndicated loan secured by the property itself, is not going to be possible.
The group is going to have to find another way, whereby it either contributes the funds to complete the purchase directly, or it finds a partner to participate with it in the operation.
By way of background, Baraka, the group owned by Trinitario Casanova, signed an agreement to purchase Edificio España for €272 million, in July 2016. To date, it has only disbursed a small amount of that sum, around €20 million, with the remaining balance due before the deadline at the end of this month (…).
The group has already held negotiations with Banco Sabadell and Bankia, as well as with other possible interested parties, regarding the granting of a syndicated loan amounting to almost €300 million. The idea was that it would serve to finance part of the purchase of the building and part of the renovation project, which is going to house a hotel, luxury homes for rent and a retail space, which will include a luxury restaurant and maybe even a casino.
This alternative, in which the group Matutes was initially going to participate, became impossible when Baraka reached a definitive agreement with the hotel group RIU. The deal significantly modified that real estate project, given that RIU agreed to contribute €100 million to carry out the renovation, in exchange for the expansion of the surface area designated to the hotel (to occupy 22 of the floors in the building), at the expense of space initially allocated for rental homes. The plans now involve building a 4-star macro-hotel in the centre of Madrid with 650 rooms, which will be run by the RIU Plaza brand.
However, the contract signed between Baraka and Riu strictly prohibits the mortgaging of Edificio España to finance the purchase operation, and so that ruled out the possibility of the syndicated loan. The banks interested in granting financing for the purchase of the building have asked Baraka to provide other, different, properties by way of guarantee. The group, which operates in the construction, real estate and supermarket businesses, owns several buildings but even combined they do not represent sufficient collateral, say sources in the sector.
One of the pitfalls for financing the operation is the high LTV demanded by the group led by Trinitario Casanova. Baraka has approached the entities to finance between 75% and 80% of the property’s value, however, the entities are prepared to lend only around 65%, say these sources.
Another option is that Baraka, which has sufficient funds, disburses the amount necessary to complete the purchase operation and then the banks finance the renovation project. In total, Baraka must invest around €400 million, from which it will have to deduct the €100 million that RIU will contribute (….) or reach an agreement with a third investor willing to participate in some or all of the project.
In addition, RIU reserves the right to veto any financing operation if it considers that it could endanger the project. (…).
Original story: Expansión (by S. Arancibia and R. Ruiz)
Translation: Carmel Drake