In 24 hours, those interested in acquiring the subsidized housing business of the City Council of Madrid will have to present their binding offers. One of the investors which will finally not be there will be Cerberus Capital, the U.S. investment fund who has a strategic partner and potential coinvestor in the local firm Poniente Capital for its investments in Spain, that is, the financial boutique presided over by José María Aznar Botella, the eldest son of the former president José María Aznar and the current mayor, Ana Botella, as advanced by this publication in 2012.
According to several sources within the real estate sector, the potential conflict of interest between Cerberus and the City Council of Madrid has forced the company to retire from the process at the last minute, avoiding any compliance matter which could affect the operation and its continuity as investor in Spain, where up to now it has only participated in a small operation of acquisition of branches. As it was a known relationship, there was a possibility of someone starting legal procedures should they have won.
Without the participation of Cerberus, the rest of interested candidates are the usual ones in this type of operations, such as the funds Lone Star, CarVal or Goldman Sachs, although in this case the two most interested funds are Blackstone and the special situations vehicle of Morgan Stanley. During the last few months, all of them have visited all subsidized homes and the public plots on sale that are now managed by the Municipal company for Housing and Land and the Institute of Housing in Madrid.
In this case, acquires hope to obtain assets sponsored by the Local Administration that are now deep in debt and with oversized structures, as happens with other public properties (airports, highways, harbors…) The Municipal Company for Housing and Land only owes more than 630 million Euros, has upcoming maturities of 368 million Euros and has no cash o financing in order to continue its current real estate projects. Also, it is carrying out a drastic labor adjustment so as to end up with 38 employees instead of 342.
As well as the financial institutions with their portfolios of mortgages and default credits to developers, the public companies devoted to the real estate development, generally for subsidized housing, are also in the center of the interest of foreign investors. As explained by Cerberus in a report, Spain, Germany, the United Kingdom, Italy and Ireland are markets with outstanding levels of distressed mortgages. In reference to our country, they assure that, in the second half of 2013, “it will be very interesting for opportunistic investors with real estate experience”.
After several months of process, the City Council is decided to consummate its plans for the Municipal Company for Housing and Land, while the Government of the Community of Madrid waits for its turn to do something similar with the Institute of Housing. As for the municipal company, the urgencies of the mayor have taken shape after PriceWaterhouseCoopers, in a recent audit, declared that “the business is loss-making, with a significant amount of outstanding payments which cannot be assumed. The banking debt is not sustainable and the company, which is solvent, has severe problems of immediate liquidity”.
The questioned major Botella prefers to avoid the political cost of future evictions, one of the more worn fronts for the public opinion. According to the Platform for those affected by mortgages, both public companies caused nearly 40 daily evictions during the last months of 2012. “There are cases with debts of around 4000 or 8000 Euros. These are small debts that are leaving people on the street”, as explained last February by the spokesperson Feli Velázquez, who admitted that “the negotiation in order to avoid evictions is much harder with these two companies than with banks”.
Source: El Confidencial