Investment Funds Clean Up Spanish Real Estate Sector

6/06/2014 – El Pais

A solitary fund will acquire the €6.5 billion worth of real estate loans of CatalunyaBanc. The purchaser will obtain a 40% discount as two thirds of the portfolio consist of sub- or non-performing loans.

This is the “Hercules Project” with which name it has been registered in the European Real Estate Loan Sales Market by Cushman & Wakefield. It was put up for an auction after the sale of “Octopus” portfolio for nearly €3.5 billion to Lone Star and JP Morgan (a 25% discount).

Twelve investment funds submitted their non-binding offers for “Hercules” but given the magnitude of the portfolio, the smallest will have to give it up. The higest odds of purchasing the lot have the following alliances: Blackstone & TPG, Cerberus & Goldman Sachs, Apollo & Centerbridge and Marathon & Pimco & Deutsche Bank.

Many large investors acquired a real estate servicing platform over the past two years and many bought big stakes in them. “In 2014, the interest in Spanish real estate, especially the residential segment, boosted. Vulture funds and family offices present on the market since 2012 have got their hands full. Value-added investors are the last to arrive”, says Borja Goday, director of Corporate Finance in the Property Sector at KPMG Spain. Value-added accept higer risk, seek 12%-14% returns, renovate assets to resale or rent more expensive and they are ready to develop.

Although flocks of real estate experts act in the property market, still a lot is left to do. They assure at least 10 years must pass before all repossessed assets find new owners and still one third will remain unsold. “The problem will not hit Madrid, Barcelona, Marbella and the Islands where prices will even rise by 3% – 5%”, Mikel Echevarren from Irea adds. More problematic may be sales of stock in Seville, Valencia, some coastal areas with true troubles in case of mainland Castellón, areas of Murcia or unfinished orbital housing developments around Madrid.

In turn, Spain´s bad bank, Sareb, is on the verge of auctioning contracts on its €50 billion asset load management. In parallel, the firm is negotiating on the sale of the “Crossover” land portfolio, encouraged by the recent sale of 17 plots for €80 million to Castlelake.

Moreover, Sareb will grant 2.000 houses for social renting within 5 years. It is on the brink of signing a contract on 600 units with Catalonia.

Real-Estate-Owned Assets in Banking Balances

For March 2014, Bankia possessed €4.2 billion in foreclosed assets (€2.7 billion provisioned) marketed by Bankia Habitat/Promontoria, plataform acquired by Cerberus for between €40 and €90 million, during 10 years. €8.95 billion are sub-performing loans (over 3 months of default).

Santander reports €10.3 billion in REO assets in its balance. Net loans make 5.2 billion (€2.65 billion provisioned), €3.5 billion in foreclosures (€2 billion provisioned) and €1.5 billion in stakes. Around 43% of the entirety of repossessed assets are buildings valued at €1.44 billion, while 63% is land worth of €2.16 billion.

Popular carries developer and construction default of €11.6 billion, out of which €6.49 billion is provisioned and nearly €2.25 billion sub-performing. Moreover, its owns €12.69 billion in all types of construction and land.

BBVA sells its €14.17 billion REO load itself, out of which €1.75 billion corresponds to residential assets, €4 billion to developer REO and €7.8 billion to developer loans.

CaixaBank has got a €20.77 billion risk.  Default on loans to individuals represents € 3.7 billion, while to developers €10.9 billion. Servihabitat markets the properties after 51% of it has been bought by TPG.

Banco Mare Nostrum (old Caja Murcia, Sa Nostra and Caja Granada) ended up with a €1.2 billion real estate worth after transferring €5.8 billion to SAREB. The entity sold its property manager for 10 years to Centerbridge for €50 million.


Original article: El País (by Susana Blázquez)

Translation: AURA REE