Metrovacesa Explores Entering the Rental Home Sector

21 February 2019 – El Confidencial

Selling new build homes is still proving to be too much of a challenge for the times that are approaching. As such, another of the listed property developers, Metrovacesa, is evaluating its entry into the rental home sector, an option that its competitor Neinor (advised by Goldman Sachs) also has on the table. According to market sources, it is the first of the large players determined to take that step to fulfil its business plans.

Since the end of last year, the large owners of residential land have acknowledged that they are open to entering the rental market, either as owners or as turnkey suppliers for investors. The challenge, nevertheless, is disembarking in this segment without their margins being affected and therefore being forced to revise their business plans, like Juan Velayos already had to do with Neinor.

For the time being, the real estate company controlled by Santander (49%) and BBVA (21%) has recognised that it is considering rental housing as “a valid strategic option”, although it has not made any firm decisions in this regard, according to public declarations made by the property developer’s Head of Corporate Development. In its case, it will always be as a business to sell to a specialist third party operating in the residential property business.

This strategic reflection affects everyone, although the speeds of adoption will vary. In the case of Aedas, it has been working for some time on different scenarios that may open the door following the end of the current cycle, in which property developers with large land portfolios have been constituted, boosted by investment funds, because its not all about land in the main markets, nor are there infinite buyers for flats costing more than €400,000.

In the case of Metrovacesa, its numbers are the most chunky, since it has the largest liquid land portfolio in Spain, worth almost €2.7 billion, on which it estimates that around 38,000 homes could be built, according to official data. In its case, like with the rest of the listed firms, the largest volume of homes will be handed over in 2020, a short-term horizon, for which conservative estimates are beginning to be made.

The lower economic growth in Spain (2.8% in 2018 and 2.2% in 2019, according to the Bank of Spain) is another indicator of the macro-economic environment that is looming. In this situation, the potential impact that it may have on sales forecasts means that “many value alternative (rental) products as options for offsetting a likely slowdown in sales”, say sources at one of the large real estate consultancy firms.

Original story: El Confidencial (by C. H.)

Translation: Carmel Drake

Sareb Still Faces Challenges Five Years After its Creation

27 February 2018 – Expansión

The bad bank was created with 200,000 toxic assets worth €50.8 billion, inherited from the rescued savings banks. In five years, it has divested 27% of that encumbrance. It has another ten years left to liquidate its remaining stock.

Just over five years ago, Sareb (…) was launched. The creation of the bad bank was made possible thanks to the participation of European funds in the bank rescue and the solidarity of the financial system, which had the capacity to resist the crisis and contribute its grain of sand to the process.

Sareb was created with private capital majority (contributed by the banks, with the exception of BBVA, which refused to participate, as well as insurance companies and a handful of real estate companies) and the remainder was provided by the State through the Frob, in such a way that any equity imbalances and losses that the new company would incur would not be accounted for in the public deficit (…).

The last five years have not exactly been a walk in the park for Sareb (…). Nevertheless, it has generated revenues from the sale of assets amounting to €12.9 billion, which have allowed it to cover its expenses, which, in addition to the cost of its 400 employees, involve: the payment of commissions to intermediary companies (€1.1 billion); the payment of interest (€4.0 billion (…)); taxes (€790 million (…)) and more than €400 million in maintenance costs and service charge payments.

The bad bank’s revenues proceed from the sale of its assets, whose composition has changed considerably since its creation. Currently, Sareb owns almost the same number of properties as it had at the beginning, but after having sold almost 65,000 assets. That is because some of the loans that were transferred to Sareb upon its creation have now been converted into properties through the execution of the guarantees that they secured. In this way, properties now account for 32% of the company’s total asset value, whilst the weight of loans has decreased from 80% to its current level of 68%. The entity’s assets have decreased by 27% to reach €36.9 billion and the debt issued by Sareb, which is guaranteed by the State, currently stands at €37.9 billion, down by 25%.

The company has generated positive margins during the course of its life, although it has only ever recorded losses. In 2016, the most recent period for which figures are available, its losses amounted to €663 million and, although its results for 2017 have not been published yet, the losses are expected to be similar. Reality has imposed itself on the initial business plans. Today, both the entity’s President, Jaime Echegoyen, and the company’s shareholders, understand that one possible objective would be for the entity to be liquidated within 10 years without having needed any new capital contributions and for some of the investment to be recovered, around 60%, with the remaining 40% having to be written off.

The President of Sareb understands that the company is fulfilling the basic purpose for which it was created, albeit with difficulties: the sale of damaged assets from the entities that received public aid, because, it does not have any other levers that would allow it to offset the possible losses that it would incur if it accelerated its sales.

Sareb only generates revenues from the sale of its assets and that is forcing it to adjust its sales prices a lot more so as not to incur losses. In this regard, it is totally different from the other financial institutions, for whom the damaged real estate assets account for only part of their balance sheets and, therefore, they can divest them at lower prices, since they receive other revenues that generate sufficient margins for them.

Original story: Expansión (by Salvador Arancibia)

Translation: Carmel Drake