The Funds Acquired €60bn of Banking ‘Assets’ in 2017

3 January 2018 – El Economista

International funds’ appetite for Spanish real estate is proving insatiable. And that was reflected in the final days of 2017, which saw a frantic year-end in the market for the sale by banks of debt portfolios secured by real estate collateral. On the basis of the operations that were underway during the final months of the year and the transactions that were actually closed, it is estimated that debt with a gross book value around €60 billion was sold in 2017, compared to €22 billion in 2016. Of that total volume, Blackstone was, undoubtedly, the great star, with its acquisition of the largest real estate portfolio ever sold in Spain and one of the largest ever sold in Europe.

The US fund agreed with Santander to purchase 51% of all the toxic assets – doubtful loans and foreclosed properties – from Popular, which had a gross value of €30 billion. A record operation in Spain, which the bank chaired by Ana Botín closed to clean up the balance sheet of the recently acquired entity.

Cerberus was the other major purchaser of 2017, after it acquired Anida and BBVA’s real estate assets with a gross value of €13 billion, through the creation of a joint company in which the fund will hold a majority 80% stake and BBVA will retain a 20% share.

Those two operations are a clear reflection of the dynamic role that funds are playing in the Spanish real estate market, given that in addition to having provided the impetus for the new generation of property developers, they are also serving as the main clean-up tool for financial institutions. “The funds have played a fundamental role, given that they have put a price on the portfolios and have provided capital to execute purchases”, explains Manuel Ángel González Mesones, Partner in Corporate Finance for the Financial sector at KPMG in Spain, who states that in the primary market – the sale of portfolios directly by the banks – property developers, the other great consumers of debt with real estate collateral “have not been particularly active, given that their criteria are very selective”. Nevertheless, “the large property developers have been buying foreclosed assets in a selective way for years from both financial institutions and different market players, such as Sareb and funds that have acquired those assets through the purchase of portfolios”.

In this sense, Emilio Portes, Director of Financial Advisory at the real estate consultancy firm JLL, highlights that, although the role of the funds has been key, the property developers have also played their part, by converting themselves into “instrumental vehicles for the funds in terms of the development of the land acquired in portfolios such as NPLs – doubtful loans – and REOs – foreclosed assets”. Thanks to that intense activity in which, in addition to Blackstone and Cerberus, other players have also featured, including Bain, Goldman Sachs, Oaktree, De Shaw, Deutsche Bank, Lone Star and Apollo, the banks have managed to decrease the volume of toxic assets relating to the real estate sector by almost half in one year, from more than €132 billion to around €75 billion. To that figure, we have to add the €40 billion sold by Sareb, which means that the total clean up figure amounted to €115 billion by the end of 2017.

That figure is still well below the almost €400 billion that was reached at the height of the crisis, but it also well above the less than €10 billion that was registered before the burst of the bubble (…).

More moderate operations in 2018

According to González, “Activity will continue to be significant, but due to the size of the entities that still have assets let to sell, I don’t think that we will see such large operations this year. The focus will certainly be more on transactions with nominal values of between €500 million and €2,000 million, although that could lead to an equally successful year…”.

Original story: El Economista (by Alba Brualla)

Translation: Carmel Drake