Project Normandy: Sabadell Sells NPL Portfolio To Oaktree

9 January 2017 – Catalunya Press

Oaktree, the US fund has won the latest auction of problem assets by Banco Sabadell, as part of Project Normandy. The US fund will pay €250 million for a portfolio of overdue real estate loans worth €950 million.

Oaktree will acquire the assets for a discount of between 25% and 30%, however, the finishing touches still need to be agreed for the operation, which means that it may not be formalised for another month or so.

Oaktree will absorb 500 loans to property developers, amongst others, than Sabadell inherited when it purchased CAM. The loans are secured by property developments, retail premises and land, but their borrowers ran aground following the outbreak of the crisis. Two different strategies are now being pursued: restructure the loan in exchange for a reduction below the price paid (above 25-30%); and/or acquire the assets by legal means and join forces with local property developers (in some cases the same developers whose assets are being repossessed) to carry out the project.

Thanks to Project Normandy, Sabadell has cleaned up more than €8,000 million of problem assets from its balance sheet, whereby reducing the balance from €26,000 million to less than €18,000 million.

In addition to Banco Sabadell, other entities such as Sareb have also closed divestments in recent weeks.

Original story: Catalunya Press

Translation: Carmel Drake

SIMA’s Director Confirms That The RE Recovery Is Underway

10 May 2016 – Fotocasa

The Director of Madrid’s Real Estate Fair (SIMA), Eloy Bohúa, praised the “good” impressions in the real estate sector at the start of the 18th Fair, which he considers will serve as “confirmation of the recovery”.

With more than 200 exhibitors, 25% more than last year; a larger surface area, up by 30%; and more diverse international presence, with exhibitors from 12 countries, SIMA began with a “good prospects”, boosted by positive feelings at the Investment Forum, the pre-cursor to the fair, which more than 300 people attended. (…).

Bohúa explained that 2015 was the year of recovery, although the first signs of recovery were actually seen in Autumn 2014. He expects the “confirmation” of the recovery to be seen this year, but said that “we must be cautious and ensure that the sector does not repeat the same mistakes of the past”, something that “is present in everyone’s minds”.

During the opening of SIMA 2016, the acting Ministry of Development, Ana Pastor, observed that the real estate fair was “busier than ever”, and noted that data in the real estate sector “is continuously improving”.

In this vein, she said that growth in the sector amounted to 4.5% in 2015 and that 50,000 jobs were created in the sector last year (…).

This recovery was reflected at SIMA in data such as the supply of properties at the fair, which this year depended less on the Community of Madrid than in previous years. Whilst in recent years, it was customary for the supply in Madrid to account for 60% of the total supply at the fair, this year that figure amounted to less than 50%.

In addition, for the first time since the burst of the real estate bubble, the supply of off-plan projects for sale at SIMA exceeded the number of turn-key products, in such a way that the proportion of new projects to property developments (stock) this year was 60%:40%.

68% of the developments marketed at the fair relate to primary residences, of which 83% are unsubsidised and 17% have some kind of protection/subsidy; the remainder are holiday homes.

Markets operating at different speeds

In terms of the stock left in Spain, Bohúa explained that it is different in major capitals, where the recovery first started, given that there “sales are growing”, and the stock “is being drained off very quickly”. By way of example, he said that he estimates that around 5,000 new homes are left, which means the stock will run out within eight months.

And in the major capitals, there is “minimal stock that is not significant in terms of the market”, which is why Bohúa thinks that “now is the time to start new projects in response to a thriving demand”.

Other areas of the Peninsula are experiencing a different situation – particularly where the recovery is happening “more gradually”, i.e. in smaller population nuclei. In the holiday home segment, there is “a lot of activity and a great deal of interest from buyers and investors” in certain areas, such as along the Costa Blanca and the Costa del Sol, but again “the stock is not being absorbed at the same speed along the entire coast”, which means there the markets are operating “at different speeds”.

Investor appetite continues despite uncertainty

Regarding the possibility that the political uncertainty may affect real estate investments and purchase decisions, Bohúa acknowledges that uncertainty affects all economic sectors and “we are seeing slow downs and delays in decision making, but that is only natural because investors want certainty”.

Nevertheless, he said that investor appetite is “still high”. (…).

“There is no risk of investors fleeing from Spain because the fundamentals of the Spanish economy are in place”, he said. (…).

Original story: Fotocasa

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

Irea’s Warning: Carmena’s Policies Will Drive Up House Prices

29 March 2016 – El Economista

The shortage of land in Madrid and the blocks against several major urban development projects have brought a familiar face back to the Spanish capital, in the form of: speculation. This situation has not gone unnoticed by the opportunistic funds, who have unpacked their bags as they plan to stay in Spain for a while.

According to Mikel Echavarran, the CEO of the real estate consultancy Irea, “within a couple of years, we are going to have a serious problem in terms of the availability of good land in Madrid for the development of homes and, therefore, we can expect to see inflation”.

As well as the shortage of land, we are also seeing blocks imposed against most of the major urban planning developments in the capital. “These projects still require a push and the Town Hall is not up to the job”, says the CEO, who warns that with its new policies, the Town Hall led by Manuela Carmena (Ahora Madrid) “is going to cause exactly the opposite of what it seeks; house prices are going to increase”. Echavarran forecasts that developable land prices will rise “by at least 10% over the next two years, and in some cases by even more”.

Some players are already speculating

“Housing developments inside the M30 are almost anecdotal” and the funds are aware of this situation, which is why some are already speculating with land, although not in an obvious way. “They have purchased land to develop some of it and sell the rest”, explains Echavarren.

That was a common practice during the boom years. Developers used to buy up large plots of land, develop one phase and wait for that phase to push up the value of the remaining land. With the sale of that remaining land alone, they would recover all of their investment.

According to the CEO, another tactic being employed in the development sector is the purchase of office buildings for conversion into residential use. “Financing is available for end buyers with very good conditions and also to developers looking to convert properties into homes for buyers of a certain level”.

And it is not only changes of use that are being financed, developments themselves are also being funded. “If you purchase land, the bank will only give you financing when you have received sufficient pre-sales, normally around 30%”, explains the CEO of Irea. “Once you have made the 30% pre-sales, the bank gives you 100% of what you have left and may even lend you up to 50% of the cost of the land. As such, you are really well funded, for between 60% and 75% of the final sales price”, says Echavarren, who adds “if I were managing an opportunistic fund, I would recommend buying land in Madrid”.

Original story: El Economista (by Alba Brualla)

Translation: Carmel Drake

RE In 2016: The Experts Are Cautiously Optimistic

31 December 2015 – El Economista

Experts in the real estate sector continue to talk about the improvement experienced in the market in 2015 with caution; and they consider that 2016 will be the year of stabilisation following almost a decade of severe crisis. But, above all, the experts believe that we will see new homes being constructed once again next year.

That is according to the statistics published by the Ministry of Development for construction permits (…).

Given that it takes around 18 months for a new development to be constructed, in 2016 we can expect to see the inauguration of properties for which permits were granted at the end of 2014 and during 2015.

In this way, the President of the Spain’s Property Developers’ Association (APCE), Juan Antonio Gómez-Pintado, believes that investment funds and Socimis will both continue to be key players in 2016, although he says that the role of “property developers will become increasingly important and we will probably see (more) joint operations between these players”.

Such operations are already taking place in certain areas where new build properties are scarce, with investors approaching traditional property developers to leverage their experience in the sector in exchange for providing financial muscle. (…).

Other forecasts for next year

With this outlook, Beatriz Toribio, Head of Research at expects to see a YoY increase in the price of second-hand housing in 2016, for the first time in eight years, as well as a lower rate of growth in terms of sales volumes, not because of a decrease in activity, but because the comparison will be made against figures from 2015, which will not have the same “step effect” that we have seen in 2015, with respect to the 2014 figures. (…).

Stabilisation or recovery

Against this backdrop, the experts have differing opinions when it comes to naming the current situation in the real estate sector. Juan Fernández-Aceytuno, the Director General of Sociedad de Tasación, thinks that 2016 could be the year of “consolidation”, but warns that several uncertainties still exist in the market.

Beatriz Toribio also thinks that it is still too soon to be talking about recovery because at the moment, house sales represent just one third of the volumes recorded ten years ago”, and so she prefers to describe it as the “normalisation” of the sector.

The main challenges facing the sector

In terms of the main challenges facing the real estate sector in 2016, Toribio believes that the main one is having the capacity to construct homes that new buyers actually want to purchase, in terms of quality, design and energy saving features, at prices that they are willing to pay, as well as reducing the housing stock at the same time.

According to Fernández-Aceytuno, the sector needs to open the market up to the demand that has been building up during the crisis to drain the stock of unsold properties. Finally, APCE has said that the sector’s main task for 2016 is to cultivate “more transparency” and to improve its image.

Property developers want a Housing Minister

In any case, given the political uncertainty following the general elections on 20 December, property developers in Spain believe that “having a Secretary of State or Minister for Housing would be more than justified” given the sector’s weight in terms of GDP. (…).

Original story: El Economista

Translation: Carmel Drake

Sankaty Buys CAM’s RE Companies From Sabadell

4 December 2015 – Expansión

The fund Sankaty is finalising the purchase of a large package of real estate subsidiaries from Banco Sabadell, which the entity inherited from CAM. The US investor, which is itself a subsidiary of Bain Capital, has won a competitive auction held as part of Project Chloe, which will be signed before the end of the year, according to market sources.

The operation includes stakes in the companies’ shares, as well as debt, together worth €800 million. According to various sources, the sales price will range between €200 million and €250 million, which represents a discount over the nominal value of around 30%.

By purchasing the companies’ shares and debt, the fund will exert direct control over their real estate assets: land, work-in-progress property developments and finished properties.

This is Sankaty’s second major operation in Spain in 2015. In May, the fund acquired 40 large real estate loans from Bankia, worth €500 million.

Like many other overseas investors, Sankaty is committing itself to the acquisition of land and work-in-progress property developments in the hope of benefitting from the recovery of the Spanish economy, with an improvement that is already taking shape in the real estate market. These funds are joining forces with local property developers and, by purchasing at deep discounts, are hoping to obtain returns on their investments of up to 20%.

For Project Chloe, Sankaty will delegate the management of the assets to Altamira Inmuebles, the management platform owned by Apollo (85%) and Santander (15%), which has advised the fund during the process.

For Sabadell, this divestment is the latest in a series of similar deals undertaken in recent months, such as Project Cadi, which involved the transfer of €240 million of property developer loans to the US giant Pimco and the platform Finsolutia. In addition, it sold a portfolio of written-off receivables worth €800 million to the Malaysian fund Aiqon and it is negotiating the transfer of 3,000 rental homes, as part of Project Empire.

Exposure to real estate

Just like the rest of the Spanish financial sector, Sabadell is trying to reduce its exposure to real estate by combining the sale of homes through its network – its subsidiary Solvia is responsible for this – with the sale of portfolios to large international funds.

The bank, led by Josep Oliu, has one of the highest degrees of exposure to the real estate sector, due, in large part, to its purchase of CAM in 2011, although that was partially covered by an asset protection scheme (un ‘esquema de protección de activos’ or EPA) of up to €14,000 million. The entity has been working for several quarters now to reduce its volume of problem assets, which amounted to €22,350 million in September, and in recent months it has managed to stabilise its balance of foreclosed assets at €9,200 million, i.e. it has reached the point where the amount of (newly foreclosed) properties being incorporated onto its balance sheet is lower than the amount (of previously foreclosed properties) it is selling.

As the entity explained when it presented its results for the third quarter, it sold 7,654 foreclosed assets between January and September 2015, which represented an increase of 6% compared with the same period in 2014, and it achieved this even though it offered lower discounts on those properties compared with prior year.

Original story: Expansión (by J. Zuloaga)

Translation: Carmel Drake

ACI: RE Inv’t Will Exceed €13,000M In 2015

12 November 2015 – Expansión

The Association of Real Estate Consultants (‘Asociación de Consulturas Inmobiliarias’ or ACI) forecasts that total investment in 2015 will fall below the maximum levels achieved in 2007.

The real estate sector will close 2015 with investment amounting to almost €13,000 million, which represents an increase of around 6-7% with respect to 2014, but still falls short of the maximums recorded in 2007, according to forecasts from the Association of Real Estate Consultants.

In fact, ACI expects that real estate investment will increase again in 2016, as a result of the continuing capital flows. According to the President of ACI, Ricardo Martí-Fluxá, investment in the sector during the first nine months of the year amounted to €10,800 million, which exceeds the total amount spent in 2014 as a whole.

In this sense, ACI considers that the real estate sector is going through a period of boom and consolidation, supported by, amongst other factors: the increase in business confidence, the creation of jobs, financing, low rates of interest and liquidity in the market, mainly thanks to foreign investors.

House prices in Madrid will increase by 3%

In this context, the association forecasts that house prices in the municipality of Madrid will grow by almost 3% by the end of 2015, an estimate that Martí-Fluxá acknowledges “falls short”, given that prices are likely to rise again between 2015 and 2016.

ACI also predicts an increase in the number of transactions in 2016, given the scarce supply of quality properties and an improvement in project financing in the future.

Within the residential segment, 128 property developments (7,000 m2) have been sold in the city of Madrid and prices have varied the most in the districts of Retiro and Tetuán since 2014, with increases of more than 4%. At the opposite end of the spectrum, Moncloa and Chamartín have recorded decreases of 3% and 2%, respectively.

When asked about the situation in Cataluña, the association says that international investors are not really worried about the political uncertainty and although some hotel projects in Barcelona have been put on hold, the ACI members (which include Aguirre Newman, CBRE, JLL, Knight Frank, BNP Paribas Real Estate, Cushman & Wakefield and Savills) are not overly concerned.

Offices and shopping centres

By segment, ACI expects average office rental costs in prime locations to increase by 6.5% between 2015 and 2019. It also expects the shortage of prime products to continue next year and for demand to increase, driven by growth in PIB and employment. In fact, the quarterly volume of new office rentals has exceeded 111,500 m2 in Madrid for the first time since 2008 and 315,000 m2 in Barcelona.

In terms of shopping centres, supply remains very limited and ACI expects 630,000 m2 of new gross leasable space to come onto the market between 2015 and 2016. In 2016, investors’ interest in the shopping centre market will remain high and institutional investors will continue to participate. Socimis and new investment funds are expected to be very active, as are “family offices”, with the notable presence of Brazilian and Venezuelan families. (…).

Original story: Expansión

Translation: Carmel Drake