The ‘German Bad Bank’ Acquires Gran Vía, 68

18 May 2015 – El Confidencial

The building located at number 68 Gran Via, which used to belong to Carlyle, has a new owner: the ‘German bad bank’, FMS Wertmanagement, the equivalent of Sareb in Spain.

The building located at number 68 on the coveted avenue in Madrid has a new owner. FMS Wertmanagement, more commonly known as the ‘German bad bank’ – the equivalent of Sareb in Spain – has acquired the property, which was the first acquisition made by the private equity firm Carlyle in Spain at the end of 2005.

This asset used to belong to the real estate fund Carlyle Europe Real Estate Partners II (CEREP), which filed for bankruptcy in March 2012. It is estimated that the fund paid €45 million and so had to obtain a loan from the German entity Hypo Real Estate to finance the transaction – Hypo was taken over by the German Government in 2009 – and the debt has ended up in the hands of FMS. According to sources close to the transaction, this asset, which is currently worth around €21-23 million, has had lots of suitors.

In fact, in addition to FMS, the holding company that owns the investments of the businessman Manuel Jove (Inveravante) and the US fund, Autonomy, which has an opportunistic profile and arrived in Spain in 2013, both submitted bids.

In the context of the bankruptcy, the sale has been conducted by the bankruptcy administrator; and all indications suggest that FMS could have acquired the building for the amount of the debt, around €40 million. The sources consulted by this newspaper say that the German bad bank intends to seek a buyer for the property, at a time when the Spanish real estate market has taken off (again), and in an area (Madrid’s Gran Via) that has sparked so much interest and activity over the last year and a half.

Carlyle’s real estate ‘troubles’ in Spain

We have to go back almost ten years to see Carlyle’s first foray into the real estate sector in our country. At the end of 2005, the firm bought this property, which dates back to the beginning of the 20th century, from the Urconsa group – it was formerly owned by La Unión and Fénix Español – with a view to renovating it and turning it into luxury apartments. With a surface area of 7,600 m2, comprising three retail floors and eleven additional floors for residential use, it is totally empty at the moment.

Carlyle had intended to build 75 luxury apartments, preserving the original façade of the iconic building in the centre of Madrid. Its commitment to the real estate sector in Spain was clear and it expected to have the renovation completed within two years. However, its plans took a turn for the worse.

The Town Hall of Madrid did not grant the construction licence until April 2008, according to Cinco Días, and by 31 October 2010, only one of the commercial premises was leased out.

“We are delighted to have made our first investment in Spain. The residential market in Madrid is buoyant and we think that there will be strong demand for these new apartments in a building as impressive as this. We hope that this will be the first of many investments in Spain”, said Rachel Lupiani, Director of Carlyle Real Estate, after the deal was announced. She was responsible for closing the transaction, which was advised by the consultancy firm CB Richard Ellis and the law firm Clifford Chance.

In Spain, Carlyle also acquired land on Calle Alcalá in Madrid and the Telefónica headquarters in Barcelona – for which it paid €219 million in 2007.

The German bad bank is now looking for a buyer

The German bad bank, which operates in a similar way to Sareb, was created in 2010 with assets from the nationalised bank Hypo Real Estate. These included almost €900 million of non-performing assets and loans, including the debt relating to Gran Via, 68.

Just like in the case of Sareb in Spain, FMS is now looking for buyers for many of its non-performing assets and loans. In fact, at the beginning of this month, it sold the Gaudí debt package, which it had also inherited form the nationalised Hypo Real Estate, to the Californian fund Oaktree. That portfolio included debt relating to the Hotel Arts de Barcelona, a five-star property managed by Ritz-Cartlon, as well as another luxury hotel located in the Portuguese town of Cascais, five shopping centres, four office buildings, 17 storeooms and other residential and industrial assets.

Original story: El Confidencial (by E. Sanz and R. Ugalde)

Translation: Carmel Drake

Manuel Jove Invests With His Marineda Partners Again

16 April 2015 – Expansión

After selling the Marineda shopping centre in La Coruña last summer to the Socimi Merlin Properties for €260 million, Manuel Jove (pictured above) and his partners are now working together on some new real estate projects.

The founder of Fadesa and his partners, the businessmen José Collazo and Modesto Rodríguez, have carried out two increases in the share capital of their company, Starco Invest. The company, created in September 2007, is 50% controlled by Manuel Jove, through a subsidiary of his holding company Inveravante, whilst Collazo and Rodríguez each hold a 25% stake.

At the end of March, the shareholders of Starco conducted two capital increases amounting to €12,526 million and €6,263 million, respectively, according to data recorded in the Commercial Register. In the case of the first, the operation was completed through a monetary contribution. Meanwhile, the second transaction was performed through the contribution of an asset, namely a plot of land occupying around 10,700 square metres, which has been approved for tertiary (residential) use.

The plot of land is located on the La Grela industrial estate in La Coruña and according to real estate sources, it was purchased from a financial entity. Until a few months ago, the textile company Caramelo, in which Jove also holds a stake, had its headquarters on this site. However, the company had to transfer the land to its creditor bank as part of the bankruptcy process, which it has been immersed in since April 2013.

The partners of Invest Cos have confirmed the acquisition of this land and said that they do not yet know what the land will ultimately be used for.

After selling his company, Fadesa, to Fernando Martín for more than €2,200 million in 2007, Manuel Jove created the company Inveravante, through which he has invested in numerous real estate and renewable energy projects.

Meanwhile, Jove joined forces with Modesto Rodríguez, José Collazo and José Souto (who no longer holds a stake in Starco) to undertake the Marineda real estate project, which mainly focused on the shopping centre, but which also included a hotel (which was also transferred to the Socimi last year) and an office building.

Jove and his partners generated a profit of around €50 million from the sale of Marineda, according to sources close to the transaction. In September, the businessmen wound up the company Invest Cos and since then they have been jointly managing the offices.

Original story: Expansión (by R. Ruiz)

Translation: Carmel Drake

The State Will Lose €1,000m From Martinsa’s Liquidation

4 March 2015 – Expansión

The collapse of the real estate company will result in losses of €1,000 million for Bankia and the ‘bad bank’.

According to experts, Blesa assumed ‘a high risk’ in the company for ‘possible favourable treatment’.

The State will become the biggest loser following the largest liquidation in Spain’s history. The bankruptcy of Martinsa Fadesa will have already cost Bankia – due to the loans it inherited from the savings banks it acquired – and the bad bank Sareb more than €1,000 million and this amount may end up exceeding €1,3000 million, according to sources from the real estate sector.

The Chairman of Martinsa Fadesa, Fernando Martín (pictured), has filed for the company’s liquidation after he failed to reach an agreement with its creditors, led by Sareb. The bad bank holds debt of more than €1,400 million that it inherited mainly from Caja Madrid, but also from other nationalised savings banks. According to sources at Martinsa, it would have been less costly for the bad bank – whose financial risk is guaranteed 100% by the State – to accept an agreement with Martín, because then it would have been able to recover at least 25% of its debt, but that now becomes impossible due to its bankruptcy.

Yesterday, various vulture funds offered to purchase Martinsa Fadesa’s debt for a discount of up to 96%, given the high probability that all of the creditors will lose the bulk of the funds they lent, according to market sources.

Sources at Sareb responded that, “unfortunately, the best option is the one that has gone ahead; there was no viable alternative in terms of (the real estate company’s) continuity”. At the bad bank, whose primary shareholder is the state-owned FROB, with a 45% stake, they think that it too early to talk about and quantify losses. They still think that they will be able to recover the amount loaned to Martinsa Fadesa from the liquidation of its assets in the full course of time.

Sareb is Martinsa’s main creditor with its aforementioned debt of €1,400 million, followed by CaixaBank (€908 million) and Banco Popular (€580 million). In total, the real estate company’s debt amounts to €7,000 million and the creditors consider that only €800 million of the real estate company’s assets have any value; they are going to dispute them to avoid Sareb taking a clean sweep.

The background to this disaster began in 2007 when, according to expert reports from the Bank of Spain, Caja Madrid became “one of the entities that assumed the most risk in the merger of Martinsa and Fadeas” when it assumed exposure in the real estate company amounting to €1,032 million “of which only 28% was secured”. The experts maintain that the then Chairman of Caja Madrid, Miguel Blesa, was incited by the offer of “possible favourable treatment” from the real estate company created by Fernando Martín. The person responsible for granting the loan at Caja Madrid, Carlos Vela, was hired by Martín as the new CEO but, one year later, he was recruited back to the savings bank again by Blesa, days before the real estate company logged its first suspension of payments. Subsequently, Caja Madrid’s exposure to Martinsa was taken on by the new BFA-Bankia group, together with other amounts from Bancaja and the other savings banks that were integrated as part of the merger. And in 2012, the European Union conditioned its bailout of the Spanish banking sector on the creation of Sareb, amongst other measures. The then new Chairman of Bankia, José Ignacio Goirigolzarri, transferred the toxic assets to Sareb at a discount of more than 50%, which represented the State’s first loss of more than €500 million in the case of Martinsa, although the entity did not disclose the actual amount. Other nationalised savings banks did the same thing, whereby converting Sareb into Martinsa Fadesa’s largest creditor.

Sareb was confident that, having purchased the debt at a discount, it would be able to recover and even make a profit on its exposure, if Martinsa Fadesa managed to improve its situation, however that proved impossible. Last year, Fernando Martín offered the bad bank a refinancing agreement, which involved a haircut of 66% in return for becoming a shareholder. Sareb ruled that option out as it questioned Martín’s management and the fact that the Chairman had earned a fixed salary of €1.5million per year despite the company’s woes.

Sources close to the property developer say that this salary “is negligible compared with the €2,400 million that he himself lost following the acquisition of Fadesa” and they deny that representatives from Sareb and from other banks had requested his departure during the final weeks in return for accepting the haircut. “They have not made that request in any of the meetings, on the contrary, they have asked him to continue at the helm”.

The creditor banks indicate that, like with all liquidation cases, there will now be an investigation to determine whether Martín is criminally liable; they criticise the fact that he has embarked on expensive adventures in recent months, such as filing the lawsuit against the former owner of Fadesa, Manuel Jove. “The legal costs of the defeat against Jove may exceed €60 million”. “False”,  reply Martinsa, “they will be less than €20 million”,.

Either way, the figures are vast, and mean that the real estate company becomes a symbol of the rise and fall of the property boom that was supported by the savings banks.

It now remains to be seen who will administer the complex liquidation process. The favourite, KPMG, may be conflicted out because it has worked with Sareb in the past.

Original story: Expansión

Translation: Carmel Drake

The Banks Reject Martinsa’s Plan And Plunge It Into Liquidation

27 February 2015 – Expansión

The real estate company owned by Fernando Martín has liabilities amounting to €6,600 million.

In 2008, the real estate company Martinsa filed for the largest bankruptcy in Spain’s history.

On Thursday, the creditor banks put a final end to the adventure that Fernando Martín first began back in 2006. Then, the property developer from Valladolid, who appeared in the Forbes list of the richest men in the world, was evaluating the purchase of the Galician company Fadesa, a real estate giant with assets valued at more than €13,000 million located in 13 countries.

The financial institutions plunged Martinsa Fadesa into liquidation, by definitively rejecting the proposed agreement that Martín submitted to Commercial Court number 1 in A Coruña on 30 December, as they considered it to be “unacceptable”, according to comments from various creditor banks. The company has liabilities of €6,600 million, of which €5,500 million relate to financial debt.

In 2008, Martinsa Fadesa filed for Spain’s largest ever creditor bankruptcy, with a debt that amounted to €7,800 million at the time. Although the company reached an agreement to exit from that judicial process, it admitted last year that it was incapable of meeting the obligations of the (revised) agreement for the second year in a row, and it warned of an equity imbalance of €4,473 million. All of that led directly to its liquidation. Following the reform of the bankruptcy laws, Martín presented successive proposals, baptised with the name Aurora Plan, to the creditor banks, to renegotiate the debt. The bank rejected them time and again.

The latest plan, which was presented to the court unilaterally, proposed a 70% reduction to the debt balance and the liquidation of some of the liabilities through deeds in lieu. As a sweetener, Martín included the share of the capital that he thought he would obtain from a potentially favourable sentence in the lawsuit that he had brought against the former owner of Fadesa, Manuel Jove. He filed a claim for €1,576 million against him, on the basis that the sale had gone ahead despite certain irregularities. Martín’s plan involved slimming down the property developer to leave it with a structure of €883 million in assets and €489 million in liabilities.

Financial sources agree that they never accepted any of these conditions: they thought that the discount was excessive, that the assets held overseas were overvalued by 417% and that Martín was going to retain ownership of the best plots of land and properties in the portfolio. In the end, the Supreme Court ruled in favour of Jove and ordered Martín to pay the legal costs, which had risen at least €60 million, an amount the company simply cannot afford to pay.

The negotiations with the banks were led by a group of four banks, comprising Sareb – the bad bank – CaixaBank, Banco Popular and Abanca, which held almost 60% of the financial debt. The entities – altogether the company owes money to around twenty – decided to take control of the real estate company, just like they did with Metrovacesa and Colonial, respectively. Industry sources explained that most of the entities had already made provisions against their loans to Martinsa Fadesa, which filed for bankruptcy in 2008. However Sareb has not, since it acquired the toxic loans from nationalised banks at substantial discounts.

The real estate company, which employs around 70 people, does not have any developments underway. Therefore, in the end, the banks preferred to let the company fail, and for the judge to set in motion the process of orderly liquidation, whereby subjecting the company’s assets to a strict valuation.

Original story: Expansión (by Lluís Pellicer)

Translation: Carmel Drake

Sareb Holds Board Meeting As Martinsa’s Deadline Looms

26 February 2015 – Cinco Días

Sareb held an ordinary Board meeting yesterday (as it does once a month) with the case of Martinsa Fadesa on the table. The creditor banks of the real estate company have until today, Thursday, to decide whether or not to approve the new proposed agreement presented by the company to avoid its liquidation. According to financial sources, the debt obligations that Sareb holds in Martinsa Fadesa amounted to €1,457.8 million as at June 2014. The (real estate company’s) second largest creditor is Caixabank with €907.9 million.

Martinsa Fadesa submitted a new proposed agreement to avoid its liquidation to its creditors on 30 December, since it is unable to make some of the payments stipulated in the previous agreement. Under the new proposal, the company highlighted that if it won its claim in the Supreme Court against Manuel Jove, the former chairman of Fadesa, against whom it had filed a multi-million euro lawsuit, then it would allocate the resources to pay its creditors.

Fernando Martín (pictured above) agreed the purchase of Fadesa from Manuel Jose between 2006 and 2007, in a transaction valued at €4,045 million. In 2008, Martinsa Fadesa filed for bankruptcy, the largest ever case in Spain, with debts of approximately €7,000 million. In 2011, the company reached a payment agreement with its creditors and so emerged from bankruptcy. That same year, the company decided, in its shareholders’ meeting, to file a social responsibility claim against Jove and the former CEO of the company, Antonio De la Morena, for €1,576 million. The former Chairman of Fadesa, who is now the Chairman of the Inveravante group, said then that the measure was “absolute nonsense”. The Commercial Court number 1 in La Coruña and the Provincial Court of La Coruña rejected the claim filed by Martinsa Fadesa, and so the company appealed to the Supreme Court. This month, the Supreme Court also rejected Fernando Martín’s claim.

The blow dealt by the Supreme Court to Martinsa Fadesa damages the real estate company’s prospects of avoiding liquidation even further. In addition, the Supreme Court ordered the company to pay all of the legal costs, which will require the immediate disbursement of several million euros (up to €60 million, according to legal sources).

Between January and September 2014, Martinsa generated turnover of €95.2 million, an increase of €24.5 million on the same period in the previous year, and it recorded losses of €201.6 million (vs. losses of €322.9 million during the first three quarters of 2012). In 2013, the group lost €652 million, and recorded negative equity of €4,288 million.

Like many other real estate companies, despite having a negative net equity balance, Martinsa avoided the requirement for dissolution under the Companies’ Act, thanks to Royal Decree Law 10/2008, which removes the requirement to account for impairments relating to real estate investments. Martinsa’s financial position is clearly very delicate and may be further compounded by the fact that the Government may decide not to renew the relevant regulation this year.

Representatives of the creditors met with the company last week and called for the departure of Fernando Martín as owner and shareholder, according to sources. Although liquidation may seem like the most logical course of action for the company, the same sources do not rule out the possibility of a last minute agreement being reached to avoid that measure.

Original story: Cinco Días (by Alberto Ortín Ramón)

Translation: Carmel Drake

Merlin Properties Takes Out A Mortgage On Marineda City

19 February 2015 – La Voz de Galicia

Merlin Properties has taken out a ten-year loan with a fixed interest rate of 2.66%.

Merlin Properties, the listed real estate investment company (Socimi), which acquired the Marineda City shopping centre from its developers (the businessmen Manuel Jove, José Collazo and José Souto) last July, has just signed a loan for €133.6 million and has secured it with the A Corunian retail complex. The loan, signed with Allianz Real Estate, has been taken out for a ten-year term, at the end of which all of the principal will be repaid, at a fixed interest rate of 2.66%, according to a statement sent by the company to the National Securities Market Commission (Comisión Nacional del Mercado de Valores or CNMV).

With this loan, which sources at the company assure will not be used to finance the purchase of Marineda, on which it spent €260 million, Merlin increases its gross financial debt to €1,144 million, which is equivalent to 39% of the value of the company’s assets. Sources at the Socimi say that they are continuing to work on the financing of other real estate assets in their portfolio, whilst ensuring that they do not exceed their leverage limit of 50%.

Marineda City is the largest shopping centre in Galicia and the second largest in Spain by surface area. It was opened in 2011 and has a buildable surface area of more than half a million square metres, of which 196,000 sqm are leasable. The retail complex received 15.1 million visitors in 2014, i.e. 15% more than in the previous year.

Original story: La Voz de Galicia

Translation: Carmel Drake