Deloitte: Residential Property Developers Set Their Sights on Consolidation

1 March 2018 – Expansión

The residential sector is on a roll. After years of significant declines in property development activity in Spain, the housing industry recorded its best year since the crisis in 2017, with a total of 500,000 transactions, of which almost 85,000 involved new homes, although the evolution of house sales is still light years away from the levels seen in 2007.

In this context, prices also recovered, recording an increase of 6.6% between 2014 and the third quarter of 2017, albeit with significant differences by province. This recovery in prices came after a cumulative decrease of 27.3% between 2008 and 2014, according to data reflected by Deloitte in its report The Residential Development Handbook. According to that analysis, there are currently 2,150 developments underway, with 114,000 homes being built. Of the total new developments, almost 80% are located in just 10 provinces.

This recovery is happening in the context of a favourable macroeconomic evolution with GDP growth of 3.1% in 2017, a reduction in unemployment and a favourable demographic makeup: Spain has 21 million citizens aged between 25 and 55 years, who may become potential buyers.

Moreover, financing is working in favour of house sales as the banks have opened the credit tap once again, although with greater demands on borrowers and more rigorous controls.

Alberto Valls, Partner responsible for Real Estate at Deloitte, explains that there is “growing unmet demand, which extends beyond the 10 main provinces”. In this sense, sources at the Deloitte have identified 272 hotspots where both demand and prices are growing, unemployment is decreasing and the market dynamics are favourable. “One third of those hotspots are not being covered by any property developers”, explains Gonzalo Gallego, Partner at Deloitte in the Financial Advisory Real Estate team.

These hotspots are located in 158 areas of the country. Specifically, Madrid and Barcelona account for more than 35% of them. In this context, funds such as Castlelake, Cerberus, Blackstone and Värde saw an opportunity in the wake of the recovery and have set up shop in the country. Others, such as Lone Star, have already completed their cycles, and with the sale of its entire stake in Neinor, which has been listed for less than a year, has collected its gains.

For Valls, the Spanish market continues to offer opportunities for investors to create value. “They are continuing to invest through alternative structures: alliances in projects, purchases of property developers and development of platforms for their subsequent debuts on the stock market”, he says.

The Partner responsible for Real Estate at Deloitte also recalls that, despite the creation of new players, the residential market in Spain is “highly fragmented”. And he predicts: “The market for real estate property developers is going to become more concentrated”.

Specifically, the five largest property developers in Spain account for just 6% of the market in terms of units handed over and 12% of the units under development. If we compare those figures with other more mature markets, the Top 5 British property developers account for 39% of the total units handed over, whilst the top five French developers account for 42%, according to data from Deloitte.

Large listed companies

Placing the focus on the large listed property developers, Metrovacesa, Aedas and Neinor, which have a combined stock market capitalisation of €5.2 billion, together, they own a portfolio of land with capacity for the development of 61,500 homes. Their French counterparts Nexity and Kaufman Broad, which have a combined market value of €3.3 billion, own land for the development of 72,100 homes. Meanwhile, the eight largest property developers in the UK, including Persimmon, Taylor Wimpey and Barratt, which have a combined market capitalisation of €37 billion, have potential land for around 300,000 homes.

Original story: Expansión (by Rebeca Arroyo)

Translation: Carmel Drake

Experts Predict Mergers Between RE Servicers

30 March 2016 – El Mundo

The real estate servicers that emerged from the financial institutions are driving housing developments, taking advantage of the recovery in the sector in areas with demand, and also the growth in rents. Experts predict that we will see mergers between these entities over the next few years in order to reduce costs.

Servihabitat, owned 51% by the TPG and 49% by CaixaBank, currently manages €51,000 million of assets for financial institutions, Sareb, investment funds, holding companies and large landowners, and whereby leads the ranking of servicers in the Spanish sector. Of the total, €21,000 million relate to financial assets and €30,000 million relate to real estate assets. The company also has 59 developments under assessment and under construction, containing more than 2,500 homes, as well as 38,000 contracts for rental assets.

The Executive Director of Servihabitat’s real estate business, Juan Carlos Álvarez, has explained that the firm has completed 18 developments containing 707 homes over the last three years. Moreover, it finishes an average of 15,000 homes per year from developers who have left projects unfinished, given that most of the financial assets that it manages relate to developers who have filed for bankruptcy; it deals with just a handful of mortgages to individuals.

Whilst at the beginning of the crisis, it was common practice to pursue court proceedings and “daciones en pago” to manage financial real estate assets, now the strategy involves making the real estate assets supplied as collateral more attractive to sell them at the best price possible, says the Director of Financial Assets, Agustín Melchor.

Solvia, the real estate arm of Banco Sabadell, has also gained a lot of weight in the multi-client servicers field, although its two main clients are the bank led by Josep Oliu and Sareb. It manages more than €28,000 million of assets, of which more than €5,300 million are financial assets, and it also manages land under development worth €4,200 million, and more than 10,000 rental properties (worth more than €2,500 million).

In the development sphere, it has constructed more than 3,400 homes since 2011 and currently has 34,426 properties up for sale, including homes (13,634), parking spaces, storerooms, retail outlets, offices, warehouses, plots of land and others, such as moorings and buildings under construction. It has 23 new property developments underway – 21 that it is constructing on behalf of clients and two that it is marketing itself – which contain more than 1,100 homes, primarily in the areas of Barcelona and Madrid, Levante and Andalucía.

Rental properties as a business

Although Servihabitat and Solvia do not own any assets themselves (they manage them on behalf of their clients), Anticipa Real Estate (owned by the fund Blackstone and created with 40,000 mortgages from CatalunyaCaixa) specialises in buying up mortgages and properties to focus on the business of rental homes. Thus, its strategy involves long-term management, rather than the liquidation of assets, and in 2015, it acquired developer loan portfolios from CaixaBank and Sareb for around €1,000 million and 5,000 homes in total; it also agreed to buy 4,500 homes from Banco Sabadell – 3,000 of which are currently rented out.

Of the portfolio of mortgages under management, 25% pay normally, whilst the remaining 75% pay with varying degrees of default. Anticipa plans to apply “dación en pago” arrangements to the majority of its problem loans. To date, it has signed 3,000 agreements in total. Following the “dación en pago”, most borrowers leave the home, but 5% remain, with a reduced rental price under a three year contract, explained the CEO of Anticipa, Eduard Mendiluce.

The future of the sector

Experts predict that there will be mergers between the servicers over the next few years, as the banks de-couple themselves from these companies and new investors look for economies of scale to reduce their costs, according to the Esade Alumni Real Estate Club. One of the first examples has been the Norwegian company Lindorff, specialist in non-performing loans and recoveries, which has acquired Aktua, the real estate services company of the former Banesto: “We expect to see more operations”, say sources at the Club.

Moreover, the distancing of the banks is going to force these companies to look for new clients and choose between offering end-to-end real estate services to third parties and becoming real estate companies. Sources at the Club expect that the major banks will sell their servicers and that over the long-term, there will end up being four operators in Spain after the concentration process: Servihabitat and Solvia, as integrated service companies and Neinor Homes (the fond owned by Lone Star) and Anticipa as real estate companies, the first focusing on development and the second on rental properties.

Original story: El Mundo

Translation: Carmel Drake