Metrovacesa Sets Up A ‘Land Bad Bank’ To Carve Out Its Residential Business

8 July 2015 – El Confidencial

Make someday today (‘Algún día es hoy’). The slogan of Metrovacesa’s new marketing campaign is a declaration of intent regarding the direction that the real estate company has decided to take now that Rodrigo Echenique has taken over as the new Chairman of the company.

In this context, and having closed the refinancing of the company, the Director has set the objective of restoring the company to its past splendour and consolidating its position as one of Spain’s largest real estate companies, capable of competing head to head with Colonial and with the large socimis, such as Merlin and Hispania, which are now establishing themselves amongst the main landowners in the country.

The first step of this ambitious strategy entails a move that the experts in the sector have been pondering for some time…and which the company is already working on: the creation of a bad bank for its land assets. Sources at Metrovacesa say that although the option is already on the table, a final decision has not yet been taken.

The real estate company’s plans involve making a similar move to the one implemented by Colonial five years ago, when it separated its land and development assets and placed them into a newly created company, called Asentia. It was the beginning of an ambitious clean-up plan that was completed last year, when the subsidiary was sold to several funds.

In the case of Metrovacesa, the idea is to separate the residential and land businesses, according to sources close to proceedings, to focus on growing its property business, especially the buildings located in prime areas, which represent 75% of its turnover. The thorniest point of this strategy are the provisions that will likely have to be made to carry out the carve-out, which will be offset when this business is sold, since that will allow it to deconsolidate all of the associated debt. (…)

In its results for 2014, Metrovacesa already included several provisions for losses on certain assets and valued its entire portfolio at €4,800 million. The portfolio comprises: 8 shopping centres and 2 more that are being constructed (one is scheduled to be opened this year and the other has been placed under review); 8 hotels in operation, as well as the hotel that Barceló will manage in the Torre de Madrid; and 34 office buildings, the jewel in the group’s crown, which have a combined gross leasable area of 520,000 m2, in Madrid and Barcelona.

In terms of housing, the real estate company owns 35 developments across ten provinces (…), whilst in terms of land, it is currently marketing plots to individuals in another half a dozen municipalities (…).

But the bulk of the group’s land business comprises developments that are underway in Alicante, where it plans to construct 300 homes in an urban development covering 48,000 m2; Sevilla, with Project Palmas Altas Sur, a plot measuring 679,223 m2 where 2,870 homes will be built; Tarifa, where it wants to build la Ciudad del Surf, with 600 hotel beds, 7,500 m2 of retail space and up to 250 homes; Hospitalet del Llobregat, close to Barcelona, comprising almost 160,000 m2 of buildable space for tertiary use; and Madrid, where the company is trying to obtain permits to build a residential development on the site of the former Clesa factory.

Following the capital increase approved last spring to capitalise the group’s bank debt, the shareholders of Metrovacesa currently include Santander, which holds a 58.67% stake, BBVA (19.42%), Banco Sabadell (13.85%), Popular (7.99%) and other small investors (0.071%).

Once the residential business has been carved out, the entities will have to agree on the best way to maximise the value of their shareholdings, from a range of possibilities that have been put on the table. These include: creating a hotel Socimi, finding a partner to buy some of the capital and listing on the stock market.

Original story: El Confidencial (by Ruth Ugalde)

Translation: Carmel Drake

Mandarin Oriental Enters The Bidding War To Buy The Ritz

12 February 2015 – Cinco Días

A new chapter has begun in the bidding war to buy the Ritz in Madrid, one of the most emblematic hotels in the capital. The property has been on the market for almost two years, but may have a new owner in a matter of days. Mandarin Oriental, one of the largest Asian luxury hotel chains, has set its sights on the hotel, which is currently controlled by Orient-Express and Omega Capital, the investment company owned by Alicia Koplowitz.

The owners of the Ritz have been looking for a buyer for the property for almost two years, which, despite its prime location and the power of its brand, has lost much of its appeal in recent years, due to a lack of investment. This has meant that all of the operators that have shown an interest in acquiring the property have identified the need to undertake a major refurbishment, which has played against a quick sale.

Despite that, Orient-Express, now known as Belmond, and Omega have remained steadfast in their price expectations, which led Marriott to placing an offer for €130 million on the table; the transaction fell through at the last minute, when it seemed like every blessing had been given. The problem was that, by adding the purchase cost to the amount required to reform the property, the buyer considered that the final result was infeasible.

Fairmont took over the reins in the bidding process during the second half of last year, by offering €120 million for the property, whose refurbishment it valued at around €60 million. The luxury hotel chain analysed all kinds of options to try to close the transaction successfully, ranging from reselling the rights of the Ritz brand to Marriott – which would have allowed its rival to use the brand throughout the Iberian Peninsular – to addressing the possibility of operating the asset under its second brand, Raffles.

But, according to several market sources close to the negotiations, Fairmont has now also withdrawn from the bidding, leaving the way open for Mandarin. The Asian player may end up closing this complex transaction, mediated by JLL, through an agreement whereby it takes on a management role, but which, in any case, will allow the Asian chain to establish itself in Madrid, a market that it has been analysing with much interest for over a year.

After acquiring numbers 38 and 40 on the exclusive Paseo de Gracia in Barcelona, overlooking Casa Batlló, the Hong Kong firm opened its first property in Spain at the end of 2009. With this investment now well established, the Asian hotel chain has plans to grow in the country, both in Barcelona and, above all, in Madrid.

Luxury hotels arrive in Madrid

The emergence of Four Seasons in the capital, which has reached an agreement with OHL Desarrollos to open the luxury Canalejas complex, has been a catalyst for the Madrilenian hotel market. The large international chains have set their sights on the city and deals are expected to be signed for properties such as the Hotel Villa Magna, the Hotel Miguel Ángel and the old headquarters of Asturiana de Minas; without forgetting the Edificio España, which was acquired by the Chinese Group Dalian Wanda.

These deals will follow others agreed in the last few months, such as the opening of Barceló’s four star hotel in the Torre de Madrid, the conversion of the Hotel Asturias into a boutique hotel and the transformation of the historical Tio Pepe building into a 5 star hotel.

Omega Capital and Belmond acquired the Ritz twelve years ago for €125 million. The strong impact of the economic crisis on the hotel sector in the capital, with declining tourist numbers and low prices, in addition to the cost of the pending renovation of the emblematic hotel, has taken its toll on the brand, for which an impairment loss of €12 million was recorded in 2013, the last full period for which official results are available.

Original story: Cinco Días (by R. Ugalde)

Translation: Carmel Drake