5/03/2014 – El Confidencial
The Public Administration (called AAPP in Spain) has been applying the trial-and-error method to the real estate property sales for the last three years. The period of time has been marked by several talk-of-the-town failures, like for example the macro-auction of 100 properties organized by Correos, out of which only 10 have been sold, or the cause celebre of 50 units put on sale by the Andalusian Government that finally turned out to be a fiasco. (…).
However, not all of the transactions were unsuccessful. To illustrate, very important sales have taken place, like the one of 3.000 tenant houses sold to Goldman Sachs by IVIMA (Institute for Housing in Madrid) for €201 million; almost 2.000 units bought by Blackstone from the EMVS (the Municipal Housing and Land Enterprise of Madrid) for €125.8 million; or the 13 properties acquired by AXA Real Estate from the Catalonian Government for €172 million.
The three large transactions were conducted in the second half of 2013, at the moment designated as the turning point for the Spanish economy. (…) The numbers speak for themselves: in 2013, the AAPPs gained €560 million from the real estate asset sales, multiplying by 40 the 2012 score (€14.5 million).
But why some transactions meet with success and other fail?
1. Bad moment for sales:
In 2011, talks on rationalising public spaces and cutting in costs went on and many experts claimed that the Public Administration should have been selling the property two years earlier when prices were the highest. The AAPPs could not sell the sticky stock in 2012 either, as the risk premium soared up in the third quarter by 638 basic points and, what made matters worse, no investor wanted to look at Spain, let alone take the risk and pay down.
In 2013, the risk premium got under control again – currently at 200 basic points – and Spain returned on the investment map. (…) Once more, some of the transactions failed, like the auction of 15.000 dwellings put up by IVIMA at the end of 2013 that found no buyer. (…).
2. An auction is not the ideal measure:
Mikel Echavarren, the CEO of Irea, explains that “Auction is undoubtlessly the most transparent method, however information about a property or an asset is usually incomplete, and so are the payment conditions. Altogether with deposit and warrant required for a bidding, the expenses may reach 25% of the property selling price.
“The public tender proceedings hamper international investors, even if assets are of good quality.” (…) For instance, the sale of the premises of the Ministry of Environment Protection at 12 Paseo de Recoletos Street in Madrid, was put up for auction by the City Council and sold at the third tender to Industrial and Commercial Bank of China (ICBC) for €21.8 million. (…).
3. Asset prices are not adjusted to the market:
For Echavarren, deposit amount often outbids potential buyers. And the more of them, the better price could be obtained. (…) Nonetheless, the price shall follow movements on the market. Certainly, a research is ought to be carried out in order to specify which purchaser will be the most adequate for each property.
4. Alternative for an auction:
Specialists agree that public tender proceedings must be replaced by other transparent and concurrent measures. (…)
5. Direct marketing as the last option:
Once tender not attended, assets are put on direct sale. It involves much more straightforward procedures, however the fading interest in the product might cast a problem.
6. Lack of asset sales advertising:
Investors do not always know what is currently on sale or how to obtain information about the assets. Because of that, many tenders went unnoticed, harming all parts.
Other institutions decided to hire real estate companies for product packing and seeking a buyer for each. So did, for example, the Ministry of Defence, the Home Office, the Community of Madrid, the Regional Governments of Catalonia, Aragón, the Basque Country or Aena, that published their property on various websites. Company Addmeet offers its services to them the most actively and effectively (…).
7. The Administration as a tenant does not guarantee success:
It turns out that majority of the buyers preferred not to have any public organism as a leasee. “Not in vain, as you cannot evict them in case of lack of rental payment”.
8. Short-term divestment strategy.
“Three years ago the Public Administration owned no subsidized homes for sale or included in rationalization plan but now all of them have such units. What is more, their mentality is not set at the long-term. (…).
Original article: El Confidencial (Elena Sanz)
Translation: AURA REE