Former CEO of Neinor Juan Velayos Joins Alantra

24 June 2019Cinco Dias

Alantra has hired Juan Velayos as a managing partner, tasked with building up a new real estate asset management business in Spain and abroad. Velayos will lead the creation of investment vehicles, while raising funds and directing investment, following the example of such major international firms as Blackstone, Brookfield and Cerberus.

Juan Velayos was Neinor Homes’ CEO until two months ago after Lone Star put him in charge of the firm when it acquired the developer from Kutxabank.

Original Story: Cinco Dias – Alfonso Simón Ruiz

Translation/Summary – Richard D. Turner

 

 

The FROB Recorded a €382M Provision Against its Stake in Sareb in 2018

20 May 2019 – El Confidencial

The Spanish Fund for Orderly Banking Restructuring (FROB) presented its accounts for 2018 this week revealing that it decided to recognise a €382 million provision against its stake in Sareb last year.

In this way, the FROB has now written off 92.3% of its initial investment in the entity chaired by Jaime Echegoyen (pictured above), up from 75% in 2017. If the rest of the investor entities, namely all of the large Spanish banks with the exception of BBVA, do the same, then they will have to recognise losses of around €450 million.

In absolute terms, the FROB’s stake in Sareb is now worth €169 million compared with its initial investment of €2.192 billion. The FROB is Sareb’s largest shareholder with a 45.9% stake, followed by Santander (22.3%), CaixaBank (12.2%), Sabadell (6.6%) and Kutxabank (2.5%).

As the bad bank’s largest shareholder, the FROB typically sets the tone of the provisions for the other entities. Last year, after the FROB increased its cumulative provision to 75%, other shareholders such as CaixaBank and Sabadell recognised extraordinary provisions in their accounts for Q2. This year, the average provisioning rate is expected to increase from around 70% to 90%.

Sareb closed 2018 with losses of €878 million (up by 55%) due to the strong competition in the institutional market and the real estate crisis that still affects much of the country. The bad bank sold 21,152 properties last year and its income from property management soared by 19% to €1.4 billion, but its income from the loan portfolio fell by 16% to €2.2 billion and so total income fell by 5% to €3.7 billion.

The outlook for the bad bank for the next few years is not great and many experts forecast that not even a single euro will be recovered from Sareb.

Original story: El Confidencial (by Jorge Zuloaga)

Translation/Summary: Carmel Drake

Kutxabank Sells a €700M Property Developer Loan Portfolio to Bain

21 December 2018 – Cinco Días

Kutxabank has sold a “problem property developer loan” portfolio with a gross valuation of €700 million to a subsidiary of Bain Capital Credit. The portfolio includes doubtful assets and non-performing loans to property developers, according to a statement issued by the entity chaired by Gregorio Villalabeitia (pictured below).

The divestment includes both loans with mortgage guarantees, secured by land for the most part (48% of the total), as well as finished homes (another 29%). They are located in Andalucía and Euskadi.

The transaction has materialised through a competitive bidding process, which has been coordinated by the investment bank Alantra.

Sources at the vendor bank indicate that there is “a great investor appetite” in the market for this type of asset at the moment, a situation that has encouraged the entity to take the decision to divest these assets, the first operation of this kind that it has undertaken in its history.

The divestment will improve Kutxabank’s results this year and will reduce its exposure in the courts, due to the costs associated with the litigation relating to these assets. The bank has already calculated that, following this operation, its default ratio will improve by 50 basis points to fall below 4%.

The sale of the real estate portfolio will also have a positive impact on the bank’s CTE 1 capital ratio, which will increase by 10 basis points. According to the bank, it will thereby consolidate its position of leadership as the most solvent entity in the country.

Bain Capital Credit, with 200 employees, invests in the entire spectrum of loans, including leveraged loans, high-yield bonds and structured products, amongst others. Bain Capital has been advised in this operation by Copernicus, Aura, JLL and Allen & Overy.

Original story: Cinco Días

Translation: Carmel Drake

Project Makalu: Sabadell Puts €2.5bn Portfolio Up For Sale

21 March 2018 – Vozpópuli

Banco Sabadell is stepping on the accelerator to complete its balance sheet clean up as soon as possible. After months of negotiations with the Deposit Guarantee Fund (FGD), the Catalan entity has decided to place on the market its first large portfolio proceeding from CAM’s Asset Protection Scheme (EPA). In this way, it has distributed information to investors about Project Makalu, comprising €2.5 billion in assets from the former Alicante-based savings bank, according to financial sources consulted by Vozpópuli.

This operation comprises foreclosed assets and unpaid loans from companies and individuals covered by the EPA. It follows another portfolio that has been on the market for a few days, Project Galerna, comprising €900 million in non-performing loans.

KPMG is advising Sabadell on both operations, which together comprise assets and loans worth €3.4 billion.

The group chaired by Josep Oliu has been negotiating with the FGD for months to try to kick-start these operations. The aim is that they will be followed by two more portfolios taking the total value of the assets for sale to €12 billion and whereby reset the entity’s real estate calculator. The issue is not simple because the sale of these loans may generate a hole for the Fund that would impact the State deficit.

Strategic plan

The Catalan entity announced at the recent launch of its strategic plan in London that it maintains the objective of reducing its exposure to problem assets at a rate of €2 billion per year. With the sale of Project Makalu alone it would more than exceed that goal.

The bank held €15.2 billion in problem assets at the end of 2017, but the forecasts indicate that that figure will fall below €9 billion by 2020: €4 billion in doubtful loans and €5 billion in foreclosed assets. And that is without taking into account the divestments that are now being worked on with the FGD.

Project Makalu is the fourth largest portfolio of problem assets ever to be put up for sale by a Spanish bank, behind only Popular’s Project Quasar, amounting to €30 billion, purchased by Blackstone; BBVA’s Project Marina, amounting to €13 billion, acquired by Cerberus; and Project Hercules, amounting to €6.4 billion in mortgages from Catalunya Banc, which was bought by Blackstone.

Meanwhile, Project Galerna is similar to Project Gregal, which Sabadell sold less than a year ago to three funds: Grove, D. E. Shaw and Lindorff. That portfolio comprised loans linked to consumers, without real estate guarantees, which had already been fully written off, and so all of the proceeds from the sale were recorded directly as gains.

Precedents

Besides Gregal, Sabadell closed two other major operations last year: Normandy, comprising €950 million in property developer loans, which was acquired by Oaktree, and which also proceeded from CAM’s EPA; and Voyager, comprising €800 million, which was purchased by the largest pension fund in Canada.

The latest operation launched by Sabadell joins others recently placed on the market by Sareb, BBVA, Cajamar and Kutxabank.

Original story: Vozpópuli (by Jorge Zuloaga)

Translation: Carmel Drake

Project Sintra: BBVA Engages PwC to Sell €1bn of Toxic Loans

13 March 2018 – Voz Pópuli

BBVA does not want to waste any more time on the real estate clean-up exercise. In the last few days, the entity chaired by Francisco González has launched a €1 billion portfolio on the market: Project Sintra, according to financial sources consulted by Vozpópuli. It is being advised in the operation by PwC. Neither the bank nor the consultancy firm wanted to comment.

This portfolio is the penultimate step for BBVA in the reduction of its real estate exposure to zero, after the agreement it reached with Cerberus to transfer €13 billion of foreclosed assets, as this newspaper revealed. That sale, Project Marina, is still pending the necessary authorisations and is scheduled to be closed in the middle of this year.

The balance of BBVA’s divestments is as follows: before Project Marina, the entity had a gross exposure (not including provisions) of almost €16 billion, which will end up at just over €3 billion. Of that figure, two-thirds relate to unpaid loans linked to land and completed developments, with a coverage ratio of 54%.

With this new operation, BBVA wants to be crowned as the first major entity to get rid of its inheritance from the crisis. Last year, Santander closed the sale of €30 billion from Popular to Blackstone, but it still has €11.7 billion left to divest.

The same stars

With Project Sintra, BBVA has now awarded the mandate for three consecutive operations to PwC. It did so with Project Jaipur, worth €600 million, which was acquired by Cerberus; and Project Marina, which had the same advisor and buyer.

The latter operation generated unease amongst certain funds, which complained to the bank because it had not opened a competitive process, but instead chose to negotiate one on one with Cerberus. Sources close to that operation defended that a bilateral sale could optimise both the price and an auction, thanks to the threat of opening the process to more rivals.

In this way, BBVA is one of the entities that has decided to accelerate the sale of portfolios during the first quarter, like Sareb, which is finalising the sale of between three and four packages: Nora, Bidasoa, Dune and Slap, with a combined volume of €3.2 billion.

One of the most fashionable assets and one that entities are increasingly including in their portfolios is land. In this way, Sareb is preparing an operation containing land only and Kutxabank is evaluating a similar process.

Original story: Voz Pópuli (by Jorge Zuloaga)

Translation: Carmel Drake

Azora Postpones the Liquidation of its European RE Investment Fund

6 March 2018 – Expansión

Strategy / The manager is asking the shareholders of Azora Europa 1, including Sabadell, Bankia, Abanca, Manuel Jove and the President of Ebro Foods, Antonio Hernández Callejas, to extend the divestment period.

With renowned shareholders, the firm Azora Europa 1 has convened an Extraordinary General Shareholders’ Meeting on 21 March, where it is going to address a change of strategy. The company was created by the heads of Azora in 2005 with the aim of looking for real estate investment opportunities. Two years later, when the real estate bubble burst in Spain, the firm started its journey with investments from Sabadell, Bankia, Kutxabank and Abanca, the businessman Manuel Jove – President of the holding company Inveravante and founder of the real estate company Fadesa –, and the President of the listed company Ebro Foods, Antonio Hernández Callejas.

Azora Europa 1 chose Eastern Europe as its primary investment destination and rental properties as its main asset. Thus, between 2008 and 2015, Azora Europa undertook 10 real estate projects in Poland and another one in the Czech Republic. During that period, Azora’s fund closed its investor period with a total volume of €410 million, of which €140 million corresponded to own funds.

Ten years after its launch, its directors terminated the fund’s journey and requested authorisation from its shareholders to initiate the divestment process. Nevertheless, one year on, the company has taken a step back from that initial plan and is going to ask its investors to postpone its complete liquidation. The fund, which at its height accumulated a dozen properties, two for residential use and the rest for office use in Poland and the Czech Republic, has decided to divest the residential complexes and the Galerías Louvre in Prague, and exclusively hold onto its office portfolio in Poland. The reason given is the high returns offered by those assets, say sources at Azora. It is a portfolio leased almost in its entirety and which includes, amongst others, the headquarters of BNP Paribas Fortis in Krakow and the Harmony Office Centre in Warsaw, whose main tenant is Millennium Bank.

Now, the heads of Azora (the company that also manages the Socimi Hispania) are going to have to obtain approval from their shareholders, on 21 March, to extend the initial divestment period. At the meeting, the subject of a capital reduction will also be addressed, for a maximum amount of €6.16 million.

Valuation

According to the latest published accounts, Azora Europa 1’s real estate investments were worth €260.7 million as at December 2016, compared with €269.5 million a year earlier. In 2016, the fund recorded revenues of €30.6 million, of which €12.8 million proceeded from the sale of properties (compared with €1.8 million generated from the same concept a year earlier). In that year, Azora Europa 1 recorded losses of €3.73 million, primarily due to provisions recorded for the impairment of tax credits.

Original story: Expansión (by Rocío Ruiz)

Translation: Carmel Drake

Kutxabank Prepares the Sale of Residential Land Worth €700M

26 February 2018 – Eje Prime

Kutxabank is awakening from its lethargy in the Spanish real estate sector. The Basque bank, which resulted from the merger of three savings banks from the region (Kutxa, BBK and Caja Vital), wants to get rid of 40% of its portfolio of toxic assets, which would mean launching onto the market a portfolio of land and promotions worth between €500 million and €700 million.

This operation will be the second most important divestment to be undertaken by the financial entity, after it sold its real estate arm, Neinor Homes, to the fund Lone Star, back in 2015 for €930 million.

The objective of the bank is to take advantage of the good times that the residential market in Spain is currently enjoying to place its assets with international funds and new property developers, according to Vozpópuli.

This option that Kutxabank is considering comes at a time when the sector is complaining about the lack of developable land, which means that it is likely that the bank will easily find groups interested in acquiring its land. The plots are largely inherited from the merged Cajasur, a Cordoban entity that BBK integrated in 2010.

If it carries out the transaction, Kutxabank would join Santander and BBVA on the roadmap of Spanish banks with respect to real estate. The sale of a large part of the property held by two of the country’s major financial institutions last year, both to US funds, set a course that other smaller banks are now starting to follow.

Original story: Eje Prime

Translation: Carmel Drake

Norwegian Pension Fund Acquires 4.8% of Neinor Homes

17 January 2018 – Expansión

The Norwegian Pension Fund has acquired a 4.8% stake in the share capital of the property developer Neinor Homes. This package, acquired through the manager Norges Bank Investment Management has a market value of around €70 million. The sovereign fund of the Nordic country is positioning itself as one of the key investors in the company led by Juan Velayos, together with several other international funds, including Wellington Management Group, with an 8.5% stake; Fidelity (6.8%); Adar Capital Partners (5.2%); Invesco (5.01%); King Street Capital Management (3.9%); and the Bank of Montreal (3.25%).

The Norwegian Fund first acquired shares in the company when it debuted on the stock market last year and has taken advantage of the two accelerated placements made by the US fund Lone Star to strengthen its position in the share capital of the property developer. Lone Star exited the capital of the company, which it constituted three years ago with the purchase of the real estate subsidiary of Kutxabank, a week ago, after selling the 12.5% stake that it still controlled.

In March 2017, the US fund placed 40% of the shares that it owned on the market as part of the stock market debut, and in September, it sold off another 27% stake through an accelerated placement that generated proceeds of €395 million and decreased its participation to around 13%.

Incentives

Finally, a week ago, Lone Star sold an additional 12.5% stake for €173 million – also through an accelerated placement. Following that sale, Lone Star retained 350,918 shares in Neinor, representing approximately 0.4% of the firm’s share capital, which it is reserving in order to agree the requirements for the incentive plan for directors.

The company’s shares closed at a price of €18.54 yesterday, having fallen by 0.64%.

Original story: Expansión (by Rebeca Arroyo)

Translation: Carmel Drake

Spain’s Banking Sector Fears ECB Stress Tests

27 November 2017 – Voz Pópuli

Spain’s banks are facing a new perfect storm, albeit on paper. In an already difficult scenario in which the financial institutions are having to adapt to the new provisioning requirements (IFRS 9), they are also having to deal with the upcoming stress tests that are being prepared for 2018.

If we take an analogy by way of example – what is happening in the banking sector is equivalent to what would happen to a student if a decision was taken to change the language of his/her class and then a few months later force him/her to take an entrance exam in that new language. The entities have gone to the wire to try and persuade the authorities to examine them in their native language (based on their current provisions) but the European Banking Authority (EBA) and the ECB have outright refused.

The new provisions mean a radical change in the model. Until now, the banks recognise losses when their loans are impaired, in other words, when non-payments begin. Under the new system, the banks will have to anticipate advance signs of impairment.

A report from the consultancy firm Alvarez & Marsal estimates that the potential impact of the new IFRS 9 provisions on the stress tests is 465 basis points. More than half of that amount will come about in the first of the three years covered by the exercise, which reflects that from now on, crises are going to hit banks faster.

Impact

If we apply these calculations to the latest official figures from the sector (published on Friday as part of the EBA’s transparency exercise), the result in the loss of one-third of the regulatory capital (CET 1). Even so, they are stress test scenarios and so will not necessarily happen.

KutxaBank and Bankia were the entities with the largest buffers in the last year of transparency, with more than 14% of capital, although the group chaired by José Ignacio Gorigiolzarri will see its figure reduce once it completes its takeover of BMN. They are followed in the ranking by Unicaja, Abanca, Sabadell and Liberbank.

Another finding from the data published as part of the transparency exercise is that Spain’s banks have moved away from those of other peripheral countries (Portugal, Italy, Ireland and Greece) in terms of delinquency.

Original story: Voz Pópuli (by Jorge Zuloaga)

Translation: Carmel Drake

Baupost Finalises Purchase Of Luxury Property Developer Levitt

19 October 2017 – Expansión

The luxury real estate construction sector is retaining its shine. One of the property developers that survived the previous cycle, Levitt-Bosch Aymerich, is on the verge of changing hands. A consortium of American investors, led by the fund Baupost Group, is holding exclusive negotiations to purchase the property developer that specialises in luxury homes, which has a market capitalisation around €200 million.

Sources in the sector explained to Expansión that the operation is in the due diligence phase (the assets are being audited) and that, although no agreement has been reached yet, the operation may be closed soon if the negotiations continue.

Baupost will team up with a local operating partner, Alpine Grove, for the operation. The advisors on buyer include PwC and the law firm Garrigues, on the legal side. Meanwhile, Deloitte Legal is the legal advisor on the sell-side.

According to the latest available information from the Mercantile Register, Levitt-Bosch Aymerich’s net equity amounted to €162 million at the end of 2016. The company recorded a turnover of €61 million and an attributable net result of almost €6 million. Besides Baupost, several other US investment funds that are very active in Spain also submitted bids for Levitt. In this way, market sources indicate that Lone Star, Värde and Castlelake all expressed their interest in the company over the last 12 months.

Levitt, founded in 1929, with the construction of a luxury residential development in New York, arrived in Spain in 1971 with the help of José María Bosch Aymerich, who died in 2015.

In 1973, the company undertook its first development on the Monteclaro urbanisation on the outskirts of Madrid. Since then, it has constructed several high-end developments in Madrid and Barcelona, as well as some office complexes.

In this regard, in October 2014, the company sold five office buildings in Madrid to Merlin for €130 million in order to focus on its residential business.

The firm is currently working on some developments in Valdemarín (Aravaca), in one of the most exclusive areas of Madrid as well as on the El Juncal urbanisation in Alcobendas, amongst others.

Shopping fever

If this deal is closed in the end, it will join the fever of property developer sales that has been happening in Spain in recent years. Examples include Lone Star, which purchased Kutxabank’s real estate subsidiary Neinor in 2014 for €930 million. Also, in February, Värde acquired Vía Célere for €90 million and merged it with DosPuntos – the former real estate subsidiary of the SanJosé group -. In addition, that same fund purchased Aelca from Grupo Avintia for €50 million in June 2016.

Meanwhile, Castlelake, which started to back the Spanish housing market back in 2013 with the purchase of land, launched Aedas Homes just a year ago. Other investors are also backing the market through agreements with local groups to build homes, such as the case of Morgan Stanley and Gestilar, and Green Oak and Ibosa, amongst others.

Original story: Expansión (by Rebeca Arroyo)

Translation: Carmel Drake