GS & Cerberus Exit ‘Project Elcano’ Due To Political Uncertainty

24 June 2015 – El Confidencial

Banco Popular, led by Ángel Ron (pictured above), is seeking to divest real estate assets worth €500 million (Project Elcano), but the political uncertainty in Spain is making investors nervous.

According to sources close to proceedings, the main candidates in the running to take over Popular’s portfolio – namely, the private equity fund Cerberus and Goldman Sachs – have decided to postpone investment until after the general election in November, by which time the current uncertain outlook in the country should have cleared.

The same sources add that these two candidates have indicated to Popular that, given the situation in the country following the results of the municipal and regional elections and the subsequent (political) agreements being made, they are not willing to pay the price demanded by the bank; i.e. if the entity really wants to sell, then it will have to lower its (price) expectations.

Ron’s response has been negative because he is not willing to assume additional losses over and above the provisions already recognised against this portfolio. Moreover, other parties are interested in the operation, which means that it could still go ahead before the elections. A spokesman for Popular declined to comment on this information.

This withdrawal is not an isolated case. The uncertainty generated following 24-M (the municipal and regional elections held on 24 May) has had a dual effect amongst the large international investors: firstly, it has made them cautious and slam down on the breaks, whereby delaying numerous deals. Secondly, it has made them reduce their bids, which has punctured the emerging bubble that was forming in the Spanish market, particularly with respect to high quality assets. (…).

Nervousness in the market

Thus, Popular is the latest victim of this new environment in the Spanish market. However, investors and asset managers consider that the case of this bank in particular in more concerning. They are worried about Popular’s sizeable exposure to real estate (it holds around €11,000 million of RE on its books, net of provisions), because they consider that it is not sufficiently provisioned and its latent losses may require new capital contributions. As a result, the announcement that it was going to divest an initial package of €500 million assets generated relief in the market.

For this reason, these latest problems around closing the sale have made some players in the market very nervous. Yesterday, that resulted in decreases of 1.16% on the stock exchange on a day of increases for the Ibex. Popular’s share price has increased by around 15% this year, i.e. by more than the rest of the sector, with the exception of BBVA and Sabadell, however its valuation still falls below those of the major players in the sector at 0.76 times its book value. (…).

Original story: El Confidencial (by Eduardo Segovia)

Translation: Carmel Drake

Who Are The New Advisors In The RE Sector?

8 June 2015 – Expansión

The ‘big four’ audit firms and the investment banks are starting to advise on deals in the property sector, where specialist firms, such as Aguirre Newman, CBRE, JLL and Knight Frank, have been operating for more than 30 years.

Specialisation versus multi-disciplinary teams. The real estate investment boom in Spain is attracting both specialist consultancy firms and new players from the world of audit and banking. All of them are competing to advise on the major property transactions, both on the purchase and sale of companies, as well as of individual assets. This market saw investments reach €2,500 million during Q1 2015.

The large specialist consultancy firms arrived in Spain three decades ago. Having established themselves in the Anglo-Saxon markets, they were looking for other markets to advise companies and investors in their search for properties and land.

Such was the case of Jones Lang LaSalle (now JLL), Richard Ellis (now CBRE) and Knight Frank, which still lead the market for consultancy and transaction advice, together with a Spanish company: Aguirre Newman. The latter, created by Santiago Aguirre and Stephen Newman, is the only Spanish firm that competes with the multi-nationals to advise on large transactions.

Besides these four large firms, there are other international companies such as BNP Paribas Real Estate, previously known as Atisreal, Savills, Catella and the US firm Cushman & Wakefield.

(…)

Now, the RE teams from the large auditors – known as the big four – are entering the market. They have strengthened their teams in recent months, hiring staff from the real estate consultancies, and are taking advantage of the synergies they can offer with other departments (legal, tax, financing) to secure advisory contracts….Many international investors prefer this one-stop-shop model, especially when they are in a hurry to close a deal.

(…)

In this way, PwC has just advised on one of the largest transactions in the RE sector, the sale of the Ritz Hotel in Madrid (pictured above). PwC acted on the buy-side, advising Mandarin Oriental, whilst the vendors – Omega Capital (Alicia Koplowitz’s investment company) and Belmond (formerly Orient-Express) – worked with JLL. PwC has also advised on other recent transactions, such as the sale of the Plenilunio shopping centre to Klepierre.

Meanwhile, Deloitte Real Estate advised the US fund Tiaa Henderson on its purchase of the Islazul shopping centre in Madrid for €230 million, as well as on the sale of a batch of office buildings to the largest Socimi in the market, Merlin Properties. KPMG’s RE team is working with Credit Suisse to jointly advise Bankia on the sale of its Big Bang portfolio, the largest RE asset portfolio seen to date. It also advised Cerberus Capital and Orion Capital Management of their purchase of 97% of Sotogrande, amongst others.

The investment banks are also competing well with the consultancy firms and the big four, especially on the larger deals. They tend to receive buy-side or sell-side mandates for individual buildings and companies with asset portfolios.

In this way, N+1 is currently working with Popular on the sale of a RE portfolio, known as Project Elcano, worth €415 million. It is also working with Sareb on the disposal of part of the Polaris World portfolio.

Nevertheless, although there may be cases in which an investment bank works by itself on a RE transaction, the work performed by the large firms and the consultancies is usually complementary. The banks provide the financing and structuring advice; the RE consultancies value the assets.

(…)

Original story: Expansión (by G. Martínez, D. Badía and R. Ruiz)

Translation: Carmel Drake