Moody’s: The Average LTV on Residential Mortgages Amounted to 64.6% in Q1 2019

30 May 2019 – El Diario

According to the latest data from INE, more and more people are taking out a mortgage to buy a home in Spain. 30,716 mortgage contracts were signed in March, up by 15.8% YoY.

Many buyers are attracted by rising house prices (investment growth), which the ratings agency Moody’s considers is something “positive”. However, with personal savings rates in freefall, banks are having to lend more than ever to enable families to afford their homes.

Specifically, the percentage that the loan granted represents over the appraisal value of the property (LTV) amounted to 66.5% in Q4 2018, its highest figure ever. That figure moderated slightly to 64.6% in Q1 2019 but many families are now asking to borrow 65%-70% of the value of their homes, which means a greater risk for banks and a higher probability of defaulted payments.

According to Moody’s, whilst a portfolio with an average LTV of more than 80% has a default rate of more than 6%, a portfolio with an average LTV of less than 60% has a default rate of 1%.

Nevertheless, although some banks are now lending mortgages with LTVs of 100% in certain cases, the percentage of loans with LTVs of more than 80% is lower than it was before the crisis. Such mortgages currently account for 13.1% of the total compared with 17% in 2006.

Moreover, according to Moody’s, mortgage borrowers are better off today than they were at the outbreak of the crisis as they are in a better position to afford interest rate rises and other changes in the market thanks to the strict criteria that the financial entities have applied when granting loans in recent years.

Original story: El Diario (by Marina Estévez Torreblanca)

Translation/Summary: Carmel Drake

Marathon & Colliers Team Up to Finance €200M of Land Purchases in Spain

25 April 2018 – Expansión

MCAP, one of the funds managed by Marathon, is going to offer financing to property developers and cooperatives for the acquisition of finalist land amounting to €200 million.

The current objective of many international investment funds is to take advantage of the strong performance of the house buying market in Spain at the moment, either through the launch of their own property developers or by forming alliances with third parties.

The latest to join the bandwagon is the US manager Marathon Asset Management. The firm has announced that it is going to allocate €200 million to finance the purchase of finalist land in the Spanish market through its London-based subsidiary.

The resources, which come from funds managed by MCAP Global Finance UK, will be shared between property developers and cooperative managers in search of alternative financing and bridge loans for their projects.

The objective is to finance up to 75% of the land value (LTV) depending on the commercial viability of each project, explained sources at Colliers Internacional, Marathon’s partner in this plan. “We expect to close financing agreements amounting to more than €100 million over the next six months”, said Mikel Echavarren, CEO of Colliers International.

The team at Colliers plans to close the first agreements with cooperatives and property developers that are carrying out projects located in Madrid, Málaga, Valencia and Sevilla over the next few weeks. The minimum investment volumes will amount to between €2 million and €3 million.

Original story: Expansión (by Rocío Ruiz)

Translation: Carmel Drake

BBVA, the First Bank on the Iberian Peninsula to Return to Financing 100% of Property Values

2 April 2018

BBVA recently began advertising mortgages that will cover 100% of a property’s value, or even more than 100% of the bank’s valuation should the selling price exceed that figure. The Spanish bank’s move is a part of its strategy to attract clients.

Spain’s BBVA has taken another step in its strategy of attracting customers and in recent weeks has offered mortgages that cover 100% of a property’s value, or even more, than 100% of the bank’s valuation should the selling price exceed that figure. It has thus become the first bank on the Iberian Peninsula to offer such conditions, which until now has only been offered, on a very limited basis, to specific clients who were acquiring foreclosed properties from the banks themselves, a major burden on the banking system, El Economista reported.

In Portugal, to date, there is no bank that is returning to these practices, very common before the financial crisis.

This type of mortgages, which central banks consider high risk, were granted by all credit institutions at the time of the credit boom and was one of the causes that led to the collapse of the sector, with the housing bubble (in Spain).

The recovery of the economy and construction, coupled with the need for the bank to increase profitability through an increase in business, led BBVA to give up its commercial policy.

Until now, the bank offered differentiated prices on its mortgages based on the clients’ monthly income, that is, based on their ability to pay (effort rate). Currently, this segmentation is focused on the financing request, known as Loan to Value (LTV), that is, the money that the client receives over the assessed value when acquiring any type of property for first address, says El Economista.

This differentiation applies to both variable rate and fixed-rate mortgages. In the first case, which is encouraged by the expectations of an increase in the price of money from 2019, BBVA offers Euribor plus a spread of 0.99%, except in the first year if the so-called LTV is less than 80%. If this percentage is higher, the spread increases to 1.25%. The bank also admits that solutions can be found if the client needs a larger loan to buy a home, which could be instrumented through the signing of a consumer credit or personal loan.

This greater flexibility in the lending policy leads, however, to more demanding conditions of association. Customers, in order to access the advantages of the loan, must have contracted not only the direct debit of the payroll or pension but must have a life insurance, a home insurance and a pension plan with a minimum annual contribution of 600 euros. In case the LTV exceeds 100%, the bank may require additional guarantees to the mortgaged apartment, in order to guarantee the recovery of the value granted, reports El Economista.

Original Story: Jornal Econômico – Maria Teixeira Alves

Photo: Susana Vera / Reuters

Translation: Richard Turner





British Fund Intu Finalises Purchase Of Xanadú For c. €520M

10 March 2017 – Expansión

The British private equity fund Intu is finalising the completion of a record deal in the Spanish real estate market with the purchase of the Xanadú shopping centre (in Arroyomolinos, Madrid) from Ivanhoé Cambridge for around €520 million, according to market sources.

The purchase – which the fund has been negotiating in exclusivity since January – will represent the largest operation involving a shopping centre in the history of the Spanish market, whereby exceeding the €495 million that Deutsche Bank paid for Diagonal Mar (Barcelona) last August, the €451 million that Intu paid for Puerto Venecia (Zaragoza) and the €375 million that Klépierre paid for Plenilunio (Madrid).

CBRE and the law firm Clifford Chance have advised Intu during the operation, whilst Eastdil has advised Ivanhoé, which bought Xanadú from the Mills Corporation in 2006, along with two other shopping centres, one in Canada – Vaughan Mills (Ontario) and one in Scotland – Saint Enoch (Glasgow) – for a combined value of around €770 million.

The operation will be financed by Santander, Crédit Agricole, CaixaBank and BBVA with a loan to value (percentage value of the asset that is covered by the loan) of 40%.

In parallel, Intu is looking for a partner to whom to transfer 50% of the share capital in Madrid Xanadú 2003, the company that owns the shopping centre. Market sources point to the Canadian fund CPPIB as a possible ally. Both firms are already partners in two other Spanish shopping centres owned by Intu: Puerto Venecia (Zaragoza) and Parque Principado (Asturias).

One of the other candidates interested in acquiring the asset was TH Real Estate, but it was pipped at the post a few months ago by Intu, as revealed by Expansión on 31 January.

With this operation, Intu, which has plans to develop new shopping centres in Málaga, Valencia, Mallorca and Vigo, is strengthening its position in Spain and picking up one of the trophy shopping centres in Madrid to boot.

The shopping centre, constructed in 2003, has a total surface area of 153,695 m2 spread over two levels and 220 stores. Its tenants include Inditex, El Corte Inglés, Hipercor, Bricor, Decathlon, Primark and Apple.

Xanadú Madrid receives almost 13 million visitors per year and generates sales of around €230 million.

The shopping centre houses an indoor ski area – the only one in Spain and the largest in Europe – covering around 18,000 m2, as well as 15 cinema screens, a mini-golf course, a mini theme park, themed restaurants and a bowling alley.

In addition, Ivanhoé signed an agreement with Parques Reunidos last summer to construct an aquarium in Madrid Xanadú. Both companies reached an agreement with Viacom International Media Networks, a division of Viacom, to construct a theme park based on Nickelodeon characters in Xanadú.

Original story: Expansión (by R. Arroyo and R. Casado)

Translation: Carmel Drake

Baraka Seeks Financing For Edificio España Purchase

3 March 2017 – Expansión

The Baraka group still has a month left before it has to close the operation to purchase the Madrilenian building Edificio España from the Chinese group Wanda, but the initial idea of financing the acquisition through a syndicated loan secured by the property itself, is not going to be possible.

The group is going to have to find another way, whereby it either contributes the funds to complete the purchase directly, or it finds a partner to participate with it in the operation.

By way of background, Baraka, the group owned by Trinitario Casanova, signed an agreement to purchase Edificio España for €272 million, in July 2016. To date, it has only disbursed a small amount of that sum, around €20 million, with the remaining balance due before the deadline at the end of this month (…).

The group has already held negotiations with Banco Sabadell and Bankia, as well as with other possible interested parties, regarding the granting of a syndicated loan amounting to almost €300 million. The idea was that it would serve to finance part of the purchase of the building and part of the renovation project, which is going to house a hotel, luxury homes for rent and a retail space, which will include a luxury restaurant and maybe even a casino.

This alternative, in which the group Matutes was initially going to participate, became impossible when Baraka reached a definitive agreement with the hotel group RIU. The deal significantly modified that real estate project, given that RIU agreed to contribute €100 million to carry out the renovation, in exchange for the expansion of the surface area designated to the hotel (to occupy 22 of the floors in the building), at the expense of space initially allocated for rental homes. The plans now involve building a 4-star macro-hotel in the centre of Madrid with 650 rooms, which will be run by the RIU Plaza brand.

However, the contract signed between Baraka and Riu strictly prohibits the mortgaging of Edificio España to finance the purchase operation, and so that ruled out the possibility of the syndicated loan. The banks interested in granting financing for the purchase of the building have asked Baraka to provide other, different, properties by way of guarantee. The group, which operates in the construction, real estate and supermarket businesses, owns several buildings but even combined they do not represent sufficient collateral, say sources in the sector.


One of the pitfalls for financing the operation is the high LTV demanded by the group led by Trinitario Casanova. Baraka has approached the entities to finance between 75% and 80% of the property’s value, however, the entities are prepared to lend only around 65%, say these sources.

Another option is that Baraka, which has sufficient funds, disburses the amount necessary to complete the purchase operation and then the banks finance the renovation project. In total, Baraka must invest around €400 million, from which it will have to deduct the €100 million that RIU will contribute (….) or reach an agreement with a third investor willing to participate in some or all of the project.

In addition, RIU reserves the right to veto any financing operation if it considers that it could endanger the project. (…).

Original story: Expansión (by S. Arancibia and R. Ruiz)

Translation: Carmel Drake

The Socimi VBA Will Debut On The MAB In November

16 August 2016 – El Confidencial

Another new Socimi, VBA Real Estate, is planning to list on the stock exchange and has decided to accelerate its debut. It is now working against the clock ahead of its listing on the MAB (Alternative Investment Market) in November. But that is just the beginning, given that the company hopes to move onto the main stock market and to start competing with the large Socimis in the field, in other words, with Merlin, Hispania, Lar and Axiare.

In fact, its strategy on the stock market partially replicates those adopted by these large vehicles, given that the reason why VBA is debuting on the MAB is not just to comply with the legal requirements imposed on Socimis to benefit from their special tax regime. In this case, VBA also wants to raise money to finance new purchases and grow in size, a policy that would involve future capital increases, and that means that its upcoming debut on MAB will be structured as an IPO (Initial Public Offering or Oferta Pública de Suscripción or OPS).

To accompany it on its stock market debut, the Socimi has hired Renta 4 and Aguirre Newman, and has also hired professionals from firms such as PwC and McKinsey to comprise its management team, with David Calzada at the helm, as the CEO of VBA.

The Socimi already owns assets for rent in its portfolio, comprising 166 homes, 17 parking spaces and 68 storerooms, spread over four complete buildings; as well as others, scattered across several properties. It has performed these operations with a net direct profitability of 5%, without gearing, and a discount of between 10% and 30% on the market value, which has allowed it to accumulate an increase in its asset value of 34%.

To build this portfolio, VBA has invested €14 million, after having analysed operations worth €420 million and having raised €16.2 million, as well as having closed financing amounting to €3 million. With its upcoming debut on the stock market, the Socimi hopes to secure another €15 million, which will allow it to continue to progress towards its investment objective of €100 million.

According to its roadmap, the company hopes to have a gearing or Loan to Value (LTV) ratio of close to 50%, an ambitious challenge, given that it currently amounts to 16%.

Diversified shareholding

To give credibility and transparency to these numbers, VBA subjects its accounts to a quarterly review and publishes the corresponding financial statements, along with a valuation of its assets, a policy that adopts in order to provide a period point of references to investors interested in investing in its shares. This approach means that it is already complying with the practices of the (main) stock market, even though the obligation does not apply to MAB-listed companies.

Currently, the Socimi’s share capital is owned by 35 different shareholders, from Israel, USA and Spain, and none of them owns more than 15% individually. Part of its decision to accelerate its debut on the stock market (it could have waited until 2017) was based on the fact that several investors are interested in buying its share capital, but they will only do so once the company is listed.

Madrid, Málaga, Valencia, Sevilla and Bilbao are the cities where VBA has set its sights. It tends to close its investments in specific areas and neighbourhoods outside of the centre of those capitals, focusing instead on more popular areas, where rental prices are more affordable.

Original story: El Confidencial (by R. Ugalde)

Translation: Carmel Drake

C&W: Spain Will Be A Key Country For RE Lenders In 2016

22 February 2016 – Mis Oficinas

Spain will continue to represent a very attractive market for entities wanting to lend money to the real estate sector in 2016, according to “The European Lending Trends” report published by Cushman & Wakefield, the global leader in real estate services. This conclusion has been drawn on the basis of surveys completed by 60 European lenders, who contributed €80,000 million in loans to the real estate sector in 2015.

11% of the entities that responded to the questionnaire expressed a clear interest in granting loans to (companies in) Spain over the coming months. That figure is higher than the 9% obtained in the previous report compiled by Cushman & Wakefield. This upward swing in Spain is the largest increase recorded in Europe.

Meanwhile, the survey shows that average financing conditions have also improved in Spain. In Madrid, average leverage levels are close to 59% (previously they stood at 54%), whereby surpassing those recorded in comparable cities – Milan stood at 57% and Lisbon at 50%. Similarly, average margins have reduced, but Madrid still generates returns of 185 bps, well above those recorded in the established markets of central and northern Europe. In the previous report, average margins in Madrid amounted to 210 bps.

According to Pablo Kindelán, Associate in the Capital Markets team at Cushman & Wakefield, “this report confirms a trend that is mirroring real estate investment in Spain, with significant interest from investors, record levels of activity and decreasing yields. The improvement in financing conditions highlighted in this report can only serve to facilitate investment activity”.

According to the report, average loan-to-value, LTV, ratios in Europe range between 55% and 66%, with the highest ratios recorded in Frankfurt and Paris (64%), followed by London (63%). The debt funds are willing to lend at higher LTVs than those typically granted by commercial banks and institutions, and only a few lenders want to expand through speculative developments.

In terms of margins, there are significant variations in the averages by country. In this sense, Stockholm records margins of 130 bps, Frankfurt and Paris generate margins of 140 bps, whilst Lisbon registers margins of 250 bps. Milan is the only other city (in Europe) where margins exceed 200 bps. (…).

Original story: Mis Oficinas

Translation: Carmel Drake

‘High Risk’ Mortgages Account For 15% Of New Loans

4 January 2016 – Cinco Días

For the first time since 2008, all of the major indicators in the real estate market, including house prices, ended last year on a positive note. The improvement in employment was, undoubtedly, the factor that contributed the most to the increase in the sales volume and prices of homes. The second was credit. Not only did the number of operations continue to increase, also the Bank of Spain even highlighted in one of its reports that there had been a certain “relaxation” in the criteria for granting some kinds of loans.

One of the statistics that the supervisor publishes analyses the characteristics of new mortgages. According to this data, during the third quarter of 2015, the percentage of mortgages granted with an LTV of more than 80% increased to account for 15% of all new home loans granted. These mortgages are classified as high risk, since if the property decreases in value, the mortgage holder runs the risk of entering into negative equity, which is when the debt or liability (the mortgage) exceeds the value of the asset (the home).

The figure of 15% does not represent a series maximum, but it does fall at the top end of the range. The statistic was first published in 2004, when of this type of (high risk) mortgage accounted for 15.40% of the total volume of mortgages granted. By 2006, at the peak of the previous reale estate bubble, such mortgages reached their maximum, representing 18% of all new operations. It was not until the end of 2008, when the approaching crisis began to give its first clear warning signs, that these high risk mortgages decreased to their minimum level, of 10.30%.

The experts agree that this figure of 15% does not represent a concern yet, but they are certain that the Bank of Spain will be more vigilant this time around regarding entities that may be tempted to abuse such loans. The same sources explain that banks tend to end up granting high LTV mortgages, representing almost 100% of the appraisal value, when they relate to homes that have been held in their portfolios for a long time. Furthermore, they use these more favourable terms to speed up sales “although that does not mean that they do not perform the relevant solvency studies of the clients to which they are granting the loans” say sources at one appraisal company

Moreover, the fact that property prices are now on the rise once again dispels this higher risk, to a certain extent. On average, new mortgages now represent 62.4% of the appraisal value of properties, with an initial term of 22.8 years and an average interest rate of 2.5%.

Original story: Cinco Días (by Raquel Díaz Guijarro)

Translation: Carmel Drake