Blackstone Crowns its Position as the Largest Property Owner in Spain

18 September 2018 – Cinco Días

Blackstone likes Spain. And specifically, the Spanish real estate market. In recent years, the fund manager has made several large purchases linked to property in the country, displaying its enormous financial capacity to handle operations of any size.

In fact, the fund has now become the largest real estate owner in Spain, where it owns assets worth more than €20 billion, according to the figure compiled by Europa Press, placing it well ahead of the largest Socimis, such as Merlin (€11.785 billion) and Colonial (€11.19 billion).

The fund quickly saw an opportunity with the Testa operation, given that some of the shareholders wanted to exit the company, such as the clear case of Merlin, and the willingness of Santander and BBVA to sell.

The acquisition of 50.01% of Testa Residencial from Merlin, BBVA and Santander for €948 million – an operation that is still open to the other shareholders – followed the very recent purchase of the Socimi Hispania, a transaction worth more than €1.9 billion. Initially, Blackstone agreed to acquire the 16% stake owned by the investor George Soros, and then it launched a takeover bid for the rest of the company. In that case, it acquired 46 hotels, which were added to the 15 it had already acquired from Sabadell and whereby the largest owner of rooms in Spain was born.

In July, Blackstone acquired a logistics portfolio from the Socimi Lar España for €120 million. And recently, it was revealed that Blackstone and Centerbridge had teamed up to submit an offer for Santander’s headquarters in Boadilla del Monte (Madrid) amounting to €3 billion, in a bid that ended at midnight yesterday.

In Spain, Blackstone’s largest operation was undoubtedly the purchase from Santander of 51% of Popular’s real estate business for €5 billion. But that was not its only bank-related deal. It also acquired the portfolio linked to the property of the now extinct entity CatalunyaCaixa. The fund created the company Anticipa Real Estate to manage those toxic assets and it has been putting some of those foreclosed homes up for rent through its various Socimis: Albirana and Torbel (flats acquired from Sabadell), which are both listed on the Alternative Investment Market (MAB).

Moreover, one of Blackstone’s first operations was also one of the most contested politically by the leftist groups, when in 2014, it acquired 1,800 social housing properties from the Town Hall of Madrid for around €130 million – those homes currently form part of the portfolio owned by the Socimi Fidere.

Blackstone entered the property market in Spain in 2014 on the hunt for bargains following the crisis, firstly focusing on bank portfolios. But the recent acquisitions of Hispania and Testa take the US giant in another direction. There is enormous liquidity in the market, which has given a great investment capacity to these funds. Now, it is sounding out opportunities in which to invest in through its funds in real estate as an alternative to public debt with higher returns.

This New York-based firm, which is led by Stephen Schwarzman (pictured above) as its President and CEO, is the largest manager of real estate funds in the world, with $19.4 billion in assets under management, according to its results for the first half of the year.

Original story: Cinco Días

Translation: Carmel Drake

The Funds Bidding for Sabadell’s RE Have Until 27 June to Submit Their Offers

24 June 2018 – La Vanguardia

The deadline for the finalist funds to submit their bids to be awarded Banco Sabadell’s four portfolios comprising problem assets, whose combined value amounts to almost €11 billion, will close definitively on Wednesday, 27 June, the date on which the entity will have to choose the winners, according to sources close to funds consulted by Europa Press.

The entity chaired by Josep Oliu is looking to divest its Challenger and Coliseum portfolios, which amount to around €7.5 billion and comprise foreclosed assets (REO) and Makalu and Galerna, worth €2.5 billion and €900 million, respectively, comprising non-performing loans (NPLs).

Nevertheless, according to explanations provided by market sources, Sabadell is only going to be able to deconsolidate the largest portfolio from its balance sheet this year, the so-called Challenger portfolio (worth around €5 billion). The others will have to wait as they need to receive the green light from the Deposit Guarantee Fund (FGD) since the properties that constitute them proceed from the former CAM – Caja de Ahorros del Mediterráneo – a process that could take months (…).

The main international funds specialising in distressed debt and assets in risk of default are bidding for these portfolios. They are proposing significant discounts to their nominal values and their recoveries depends on the guarantee or collateral.

The strong investor appetite for Sabadell’s toxic property comes in a context in which political uncertainty is continuing to rage on the Old Continent. Cerberus, Blackstone, Lone Star and Oaktree are some of the finalist funds to be awarded the first two portfolios, whilst Deutsche Bank, Bain Capital, Oaktree and CPPIB are going to compete for the assets in the other two, according to sources at the funds and banks, speaking to ‘El Confidencial’ and ‘Vozpópuli’.

Significant reduction in real estate exposure

With the deconsolidation of its largest portfolio alone, Sabadell’s real estate exposure would fall below the €10 billion threshold, whilst the sale of all four portfolios would reduce its balance to around €4 billion, according to the accounts published by the bank for the first quarter of 2018. Thus, once the transactions have been completed, Sabadell’s accounts will have a much healthier balance sheet.

As at 31 March 2018, the entity had €14.9 billion in problem assets, which represented a decrease of 17.6% compared to the end of the same period a year earlier, when the figure amounted to €18.1 billion. The coverage ratio of the problem assets amounted to 55.2%, after applying IFRS 9, with a doubtful coverage ratio of 56.6% and a foreclosed asset coverage ratio of 53.7%. Similarly, the ratio of net problem assets over total assets stood at 3.1% (…).

A source of liquidity for the banks

In this way, Banco Sabadell is following in the footsteps of other entities such as Santander, BBVA and CaixaBank in the reduction of its heavy backpack of toxic assets, which the financial crisis left on their balance sheets (…).

Original story: La Vanguardia 

Translation: Carmel Drake

Park Street Advisors Pulls Out Of Husa Rescue Plan

9 May 2016 – Expansión

Park Street Advisors, the London fund specialising in distressed assets, which was going to come to Husa’s rescue, has got cold feet. The group has ruled out the possibility of developing the agreement that it had reached with the Gaspart family to create a joint venture to take control of the parent company, Chain, and inject €1.5 million to ensure its continuity.

Sources close to the company owned by the Gaspart family have confirmed that “this operation will not go ahead”, although “they do not rule out possible future collaborations”.

The agreement with Park Street was announced in January last year, when Husa tried to convince its creditors to approve an agreement that proposed a discount of 95% on its €221 million debt. In exchange, the company committed to return €5 million over the next five years, thanks to the agreement with Park Street, and whereby ensure the continuity of the business that has maintained the group.

Joan Gaspart (pictured above) managed to obtain approval for the agreement from the group’s four main companies last summer; the others filed for liquidation. Over the last few months, they have been filing for bankruptcy, with a view to liquidating some of the other small companies, such as Husa Service Hostelería, which recently suspended its payments in Commercial Court number 3 in Barcelona.

Last summer, the agreement with the Treasury and Social Security, to whom Husa still owes €20 million, remained pending.

Although that matter has still not be resolved, the official of Commercial Court number 3 in Barcelona raised preliminary protective measures under which all of Husa’s companies would remain active.

In its heyday in 2007, the chain owned by the former President of FC Barcelona and the President of Tourism in Barcelona, managed around 200 assets, of which around 140 were hotels and the rest were restaurants. The chain currently operates twelve hotels in Spain and Belgium.

But not all of the business was lost. In recent years, prior to the creditors’ bankruptcy, the Gaspart family transferred some of the hotels that it operated, mainly those that worked the best, to another family company called Atiram, which is run by Joan Gaspart’s daughter, María Gaspart Bueno, as the sole director.

Original story: Expansión (by Marisa Anglés)

Translation: Carmel Drake

Project Formentera: Santander To Sell €170M Hotel Debt Portfolio

18 May 2015 – El Confidencial

A new portfolio of hotel debt has just come onto the market. At a time when investors’ interest in these transactions is at an all time high, Santander has put loans worth €170 million relating to 17 hotels up for sale.

A new portfolio of hotel debt has just come onto the market. At a time when investors’ interest in these transactions is at an all time high, Santander, the largest Spanish bank, has decided to pique the insatiable interest of international funds in this type of transaction through the launch of an operation known as: Project Formentera.

It involves a portfolio of loans worth €170 million, linked to 17 hotels. The majority are located in the Community of Valencia and the Canary Islands, which encourages operations with investors interested, primarily, in the holiday segment and in the (Canarian) archipelago.

The portfolio that Santander has just launched joins those being promoted by two of its main rivals, BBVA and Bankia, which have also decided to take advantage of the window of opportunity that has opened to try to offload some of their debts, which include loans that the financial entities are very keen to divest.

According to sources in the market, unlike what may happen in the residential market – a business the banks know very well, since historically they have had the best prepared teams to manage such assets when they fail – the hotel business is a very specialised segment, whose incident rate (casuística) is more difficult for financial entities to manage.

This means that their priority, in general terms, is to try and sell debt, rather than foreclose it and take ownership of assets that they are much less familiar with than residential. If we add the insatiable appetite of the large international investors for the hotel sector, fuelled by the perfect combination of low prices and a strong recovery in the tourism sector, now is the perfect time to carry out these kinds of transactions.

A string of transactions

In fact, at the end of last year, Bankia closed the sale of a batch of hotel loans to Starwood and Sankaty for €400 million (Project Amazona) and is now finalising the second part of that transaction, known as Castle, whose finalists are Apollo, Oaktree and Bank of America. BBVA has also just opened the bidding for 14 hotels it inherited from unpaid loans, a process known as Project Otelo; meanwhile Sareb has just engaged N+1 to manage the sale of a portfolio with a nominal value of €500 million, which is linked to the property developer Polaris World, in an operation known as Project Birdie.

And so the list goes on. A few weeks ago, the German bad bank FMS Wertmanagement sold the portfolio known as Gaudí to Oaktree for close to €500 million – a batch of problem loans linked to, amongst others, the iconic luxury hotel Arts de Barcelona, as well as another high-end property in Cascais (Portugal), five shopping centres, including Plaza Éboli and Heron City, several storage buildings, and residential and industrial assets.

Moreover, the large financial entities that signed the €152 million syndicated loan with the Basque property developer Urvasco, which, in turn, owns the hotel chain Silken, have spent the last few months selling their stakes both in this debt, as well as in those linked to certain establishments, including the Puerta de America hotel in Madrid; Bank of America is taking advantage of this window to enter through the ‘front door’ of what is considered to be the last great Spanish hotel chain up for sale.

Original story: El Confidencial (by Ruth Ugalde)

Translation: Carmel Drake

Amendment To Insolvency Law Creates “Bonkers Rule”

24 April 2015 – Expansión

The latest amendment to the Spanish Insolvency Act (Royal Decree-Law 11/2014, dated 5 September) has totally changed the rules of the game for investors in distressed debt.

Although it has gone relatively unnoticed amongst other novelties that have grabbed the attention of scholars (such the new cram-down majorities or the special provisions in the transmission of business units), the new rule to calculate the value of securities over the assets of insolvent companies is of great importance for the debt business.

Pursuant to this new rule, securities (basically mortgages and pledges) will no longer cover the initially agreed amounts in insolvency proceedings in those cases in which the receiver’s report had not been issued when the reform entered into force. The “privileged credit” is now capped at the (current) fair value of the collaterals, reduced by 10% to cover foreclosure expenses, minus the amount of any higher-ranking debt.

The new rule, without clear precedents in the main jurisdictions of our legal environment, has been received in some cases with suspicion and in others with shock by top foreign firms with ambitious investment projects in distressed debt. Especially by private equity funds and investment banks having set their sights on portfolios of secured debt owned by financial entities that need to “clean up” their balance sheets and reduce their exposure to the real estate sector (eg. Sareb); transactions that generally have a strong insolvency component. It is also a disincentive for the players of the incipient “direct lending” industry, the most genuine expression of the “shadow banking” phenomenon. These players are thus pushed to request additional guarantees or higher interest rates for refinancing (in a sector with a high cost of capital per se). With financial models ready and binding offers filed, such last-minute surprises are not welcome by potential new lenders. Certain City executives have baptized the amendment as the “bonkers rule” (“regla de locos”), and expressed their wishes for the Government to stop moving the goalposts during the game. As Ignacio Tirado ironized in Expansión (“Trotski y la reforma concursal”, 13 November 2014), it looks like there is a Trotskyist hiding among the Government’s ranks, because of the “permanent revolution” theory being applied to the Insolvency Act.

Leaving the pure economics and irony aside, it is shocking from a legal standpoint that a cornerstone of real estate law such as mortgage liability (with Registry publicity versus third parties) loses all effectiveness upon the filing for insolvency. We are aware that Insolvency Law is a law of exception, which requires a balancing of interests, but we do not believe that choking half a dozen basic tenets of mortgage law for the sake of the utopian “par conditio creditorum” principle (“all creditors should be treated equal”) contributes to enhance payment to creditors, or the continuity of the debtors’ business. On the contrary, it impairs the legitimate expectations of creditors to protect their claims, it contravenes the basic rules of legal certainty (Article 9.3 of the Spanish Constitution) and creates instability by giving rise to interpretative and transitory right issues.

The constant amendments to the Insolvency Law (two on average per year from its entry into force on 1 September 2004), including material changes such as the one we have analyzed, give an image of a fluctuating legal system, always a step behind economic reality, driven by the unchanged and stubborn percentage of companies that end in liquidation. No one has thought that the key could be to facilitate their recapitalization; not to put spokes in the wheels of investors.

Royal Decree-Law 11/2014, together with the so-called “second opportunity law”; RDL 1/2015, are being processed as new draft bills (“proyectos de ley”), so they are subject to new amendments. Maybe it would be a good idea to listen to the market and that legal certainty prevails over a questionable “insolvency justice”. Especially when two core objectives for economic recovery are at stake: attracting foreign capital and cleaning up banks’ balance sheets.

Original story: Expansión (by Antonio García García)

Translation: Dentons

Charles Blackburn Quits Deutsche Bank For Oaktree

13 April 2015 – CoStar Finance

Charles Blackburn, head of Deutsche Bank’s EMEA commercial real estate special situations group, has quit the investment bank after nearly 10 years and is expected to join Oaktree Capital Management later in the summer, CoStar News has learned.

Blackburn is thought to be taking up a senior role continuing a remit for distressed real estate debt and equity investments at the US private equity firm, having already left Deutsche Bank.

Earlier this morning, CoStar News revealed that Oaktree has moved to exclusive negotiations to acquire FMS Wertmanagement’s Project Gaudi CRE loan portfolio for a price thought to be just north of €500m.

At the turn of the year, Blackburn’s Deutsche Bank team won NAMA’s €287m Project Boyne, loans secured by property developer Willie Smyth, paying around €95m, and just before Christmas the team also won a €234m tranche of the Project Kaplan NPL from Sareb.

The most significant NPL win of last year by Blackburn’s team was the acquisition of around €1.5bn in tranches from IBRC’s giant €9.3bn Project Stone NPL, acquiring the two largest tranches by nominal balance and the highest quality of assets in the loan portfolio.

Deutsche Bank also won tranches of IBRC’s Project Quartz and NAMA’s Project Spring.

Blackburn joined Deutsche Bank in September 2005, prior to which he spent three years at O’Connor Capital Partners.

All parties declined to comment.

Original story: CoStar Finance (by James Wallace)

Edited by: Carmel Drake

Bankia And BMN Both Put NPL Portfolios Up For Sale

27 March 2015 – Expansión

Divestments / Bankia and BMN are seeking to replicate the transaction completed by Catalunya Banc in 2014 on a smaller scale. The market expects a “boom” in these sales in 2015.

After two years divesting shareholdings and bad debts, Bankia considers that the time has come for it to transfer some of the non-performing mortgages that it deems to be unrecoverable. The entity led by José Ignacio Goirigolzarri has put a portfolio amounting to €1,300 million up for sale, of which more than €900 million relate to unpaid mortgages. BMN has also put a similar package of loans up for sale, amounting to €160 million, of which €52 million relate to mortgages.

Investors have received these operations with a great deal of anticipation, because since Catalunya Banc transferred a portfolio of problem mortgages amounting to €6,500 million to Blackstone last summer, no other entity had decided to follow suit.

After the step taken by Bankia and BMN, a number of entities are expected to join the band wagon and put some of their real estate loans to individuals up for sale.

Change of course

Until now, the bank had been reluctant to sell mortgages to opportunistic funds for reputational risk reasons. To avoid this, Bankia and BMN have decided to exclude loans relating to subsidised and social housing (from their portfolios). Moreover, sources in the financial sector explain that overseas funds may offer more alternatives for non-performing loans than the banks, since they purchase the loans at a discount and so can offer discounts themselves. These investors, just like the banks, must comply with the Code of Good Practice developed by the (Ministry of) Economy in 2012.

The sale launched by Bankia forms part of Project Wind, advised by KPMG . In total, the portfolio contains overdue loans amounting to €1,300 million, which are split into three sub-portfolios: mortgages; loans to SMEs and real estate developers, secured by properties, worth €180 million; and unsecured loans amounting to €210 million.

The mortgage portfolio comprises 4,300 loans, with an average value of €214,000. Most of the mortgages were granted to purchase property in Cataluña (32%), Madrid (25%) and Valencia (18%). Furthermore, 83% of the 4,300 non-performing loans are involved in judicial proceedings.

These types of transactions allow banks to remove non-performing assets from their balance sheets, release provisions and devote new resources to new more profitable activities.

Foreign funds will monitor this transaction very closely, especially those who have purchased a real estate platform in recent years: Cerberus (Haya Real Estate), Apollo (Altamira), Centerbridge (Aktua), TPG (Servihabitat), Blackstone (Catalunya Caixa Inmobiliaria) and Värde Partners y Kennedy Wilson (Aliseda). Having purchased the real estate management platforms in 2013, these investors are now keen to nurture (feed) them with their own assets, and whereby obtain profitability from their investments.

In addition to this transaction, Bankia has two other deals in the pipeline: the sale of hotel loans – Project Castle – for which it has received non-binding offers of between €200 million and €300 million; and the transfer of syndicated and bilateral loans amounting to €500 million – Project Commander – which Deloitte is advising.

On a smaller scale

In the meantime, BMN has put a similar portfolio up for sale to that offered by Bankia as part of Project Wind. It amounts to €160 million, of which one third are unpaid mortgages. The sale of this portfolio, known as Project Pampa, is being managed by N+1. Almost all of the 300 mortgages included in this portfolio are secured by properties in Cataluña.

BMN hopes to close the sale of its portfolio by the end of May. In the case of Bankia, the transfer process may last until the middle of the year.

Original story: Expansión (by Jorge Zuloaga)

Translation: Carmel Drake