2 December 2015 – Cinco Días
Value around 2,778 properties per day. Broadly speaking, that was the contemporary Herculean task that the Bank of Spain entrusted to Sareb when, after more than a year and a half of deliberations, it published legislation on 2 October to govern the accounts of the bad bank.
The new regulations gave the firm until the end of the year to re-appraise at least half of its portfolio – it must complete 100% of its re-appraisals by the end of next year – to value its assets at market prices.
The exercise involves the valuation of 250,000 properties, some of which are physically owned by Sareb and others, which serve as collateral for the problem loans that the bank inherited, in just three months. The company expects to complete this milestone by block booking the sector’s largest appraisal companies and taking advantage of a couple of valuable concessions to the rules.
The first, and perhaps most important, is that not all of the appraisals require an expert to actually visit the properties to perform the valuations in situ. These, known as ECO appraisals, are typically used when granting mortgages, and in this case are only compulsory for the valuation of Sareb’s assets worth more than €1 million.
Next, for completed residential properties, the bad bank may rely on statistical valuation models. The company is hoping to use this option whenever possible, according to sources close to the process, which will allow it to quickly re-appraise 43% of the value of its foreclosed real estate assets and 36% of its loans. In total, around 40% of the total value of the €45,000 million assets that it holds.
Finally, the regulations allow Sareb to develop its own methodological models to establish the price of very specific non-residential assets worth less than €1 million.
The option of avoiding thousands of visits and appraiser measurements in the field will allow Sareb, which finds itself in a race against the clock, to save precious time.
Nevertheless, the race is a bit more relaxed than it might seem a priori. Although in theory, Sareb must comply with the obligation to re-appraise half of its portfolio before the end of 2015, in reality, it will be sufficient for the bad bank to request that the appraisals be completed before 31 December, even if some of them are not actually completed until January 2016.
In any case, the task must be completed before the company presents its results for the current year, given that it must recognise provisions in its income statement for the losses that it detects.
As a result, Sareb has commissioned almost all of the appraisal companies approved by the Bank of Spain that have coverage across the country and that invoice more than €1 million per year, in response to the mandate issued by the financial supervisor.
Beyond the small concessions described above, Sareb expects to achieve its objective thanks to the fact that it has already completed some of the work. On the one hand because its everyday commercial activity requires it to value all of the assets it puts up for sale, which has enabled it to accumulate a significant number of updated appraisals during the year.
On the other hand, given that the first draft of the accounting legislation was published a year and a half ago, Sareb’s team has been preparing itself for the consequences that it knew would arise when it was finally approved. In this way, the firm led by Jaime Echegoyen has created a cross-company working group to boost the rate of appraisals being performed and to make use of them to speed up its sales at the same time.
Original story: Cinco Días (by Juande Portillo)
Translation: Carmel Drake