Project Ánfora: BBVA Studies €1bn+ Offers from Cerberus, CPPIB & Lone Star

19 November 2018 – Voz Pópuli

BBVA has chosen the three finalists who are going to compete for the largest portfolio of assets currently on the market, Project Ánfora. The entity is holding negotiations with three major North American funds, Cerberus, CPPIB and Lone Star, according to financial sources consulted by Voz Pópuli.

Up for grabs: a portfolio a real estate loans worth €2.5 billion. Some of the offers exceed €1 billion, according to the same sources.

BBVA expects to conclude the process before the end of the year to whereby end 2018 in the best way possible. It will be the last set of annual accounts with Francisco González as President, and at the current pace, they could be closed with one of the largest profits in the group’s history. The entity earned €4.3 billion to September; its record annual profit to date is €6.1 billion, which is registered in 2007.

In addition to Project Ánfora, BBVA has just closed Project Marina: the sale of its real estate arm Anida and of assets worth €13 billion to Cerberus. Nevertheless, the transfer of a large part of those assets, which proceeded from Unnim, is pending authorisation by the Deposit Guarantee Fund (FGD).

Property to zero

Following those two operations, and others in the past – such as the sale of its stake in Testa – the property left on BBVA’s balance sheet is going to almost immaterial. With that, the CEO, Carlos Torres, hopes that the real estate unit will stop weighing down on the group’s income statement from 2019 onwards.

The favourite of the candidates to purchase the €2.5 billion portfolio is Cerberus. Not only because of the appetite that the US fund has been showing regarding the purchase of real estate assets in Spain, but also because of the interest that it will have in Divarian, the new Anida, continuing to manage the assets.

CPPIB (Canada Pension Plan Investment Board) is the other entity that is backing the Spanish market most heavily, through its stake in Altamira and the acquisition of portfolios from Sabadell and BBVA.

Meanwhile, Lone Star has started investing more money in Spain following the changes in its management team and because it wants to gain volume to make its acquisition of CaixaBank’s property profitable.

Original story: Voz Pópuli (by Jorge Zuloaga)

Translation: Carmel Drake

Spain’s Banks Set to Sell €120bn+ in Problem Assets This Year

4 July 2018 – Cinco Días

Spain’s banks are stepping down on the accelerator to put an end to the property hangover, although it will still take another two or three years for them to get rid of all of the excesses left over from the financial crisis. And that is not so much due to the leftover real estate portfolios but more because of the portfolios of non-performing loans, a caption that is continuing to augment the balance sheets of financial institutions.

In this way, the experts hope that this year will see a new record in terms of the sale of portfolios, for an approximate total of €120 billion, including the macro-operations from Santander and BBVA, announced last year but completed this year. Without them, the figure could amount to more than €51 billion, slightly higher than in 2017, which would increase to €80 billion if Sareb manages to sell a €30 billion portfolio.

Pressure from the European Central Bank (ECB) and the Bank of Spain, as well as that exerted by the market itself, is causing financial institutions to opt to sell their portfolios of problem assets in single operations wherever possible, rather than selling them off in a piecemeal fashion, in light of the prospects of rising prices.

Interest from opportunistic funds to invest in Spain and, also forecasts for even greater price rises for real estate assets in the future, are leading the banks to take advantage of the opportunity to clean-up their balance sheets between this year and next, just 10 years after the start of the crisis, explain several experts.

“The funds have large amounts of liquidity. Moreover, interest rates are still at historical minimums (still negative) and so financing can be obtained at very low prices, hence their interest in buying large portfolios of assets linked to property. They want to take advantage of the current climate”, explains Íñigo Laspiur, Director of Corporate Finance CBRE España.

All of the experts agree that the sale by Santander of Popular’s property to Blackstone, an operation announced last year, but ratified at the beginning of this year, for a gross amount of around €30 billion, was the trigger that caused the banks to decide to divest their portfolios on a mass scale.

Since that operation was ratified at the beginning of this year, to date, the banks have divested more than €62 billion in problem assets. That amount includes BBVA’s operation with Cerberus, the fund to which it sold €13 billion. Nevertheless, that operation is still pending approval from the Deposit Guarantee Fund (FGD) since some of it forms part of the Asset Protection Scheme (EPA), having proceeded from the former savings bank Unnim.

Financial sources maintain that there are currently operations underway amounting to another €21 billion, plus an addition €8 billion that may be closed over the coming months. The largest include the sale of around €11 billion in assets from Sabadell (of which €900 million has already been sold to Axactor), whose sale is scheduled for this month.

To these figures another €30 billion gross may be added from the sale of a Sareb portfolio this year if Pedro Sánchez’s Government approves that potential operation in the end. Santander has also put up for sale another €6 billion.

Original story: Cinco Días (by Ángeles Gonzalo Alconada)

Translation: Carmel Drake

BBVA will be Twice as Profitable Following its Property Sale to Cerberus

11 June 2018 – Expansión

BBVA is going to double its profitability once it has completed the sale to Cerberus of its €13 billion real estate exposure, scheduled for the third quarter of the year. According to a recent report from Alantra, the ROTE ratio (Return on Tangible Equity) will leap from 7% to 15% in 2020. In addition to the aforementioned operation, which will eliminate in a flash the hefty maintenance costs associated with those properties, there will also be a positive impact resulting from the first upwards movement in interest rates (…).

The main advantage of removing the non-performing assets from its balance sheet is that it will allow the bank’s returns to flourish, which would otherwise be blocked. The key to being able to do this is having sufficient provisions to ensure that the sale of a large package to a specialist fund does not lead to significant losses on the income statement.

The operation between BBVA and Cerberus was the second largest of its kind in Spain last year. The largest was the deal involving Santander and €30 billion in property from Popular, which was sold to Blackstone.

BBVA created a company with Cerberus, controlled 80% by the US fund and 20% by the bank, to which it transferred 78,000 properties. Cerberus appraised them with a discount of 61%.

Cataluña

47% of those assets are located in Cataluña, historically the region covered by CatalunyaCaixa and Unnim, and absorbed by BBVA during the crisis. The Catalan political crisis, which reached its peak in October 2017 with the holding of an illegal referendum, came close to thwarting the operation. These homes will be managed by Haya Real Estate, the real estate management platform owned by Cerberus.

BBVA granted Cerberus a €800 million loan to finance part of the acquisition.

Following the deconsolidation, the bank’s real estate risk will be reduced to €11.4 billion. It barely has any doubtful property developer debt.

Original story: Expansión (by R. Lander)

Translation: Carmel Drake

BBVA & Sabadell Hold Delicate Negotiations with the FGD to Sell Their Assets

5 February 2018 – Expansión

BBVA and Sabadell want to remove from their balance sheets the damaged real estate assets that they still own as a result of their acquisitions of Unnim and CAM, respectively. Those assets, which have a book value of around €16 billion in total, are temporarily protected by an Asset Protection Scheme (EPA), which, was granted at the time by the Deposit Guarantee Fund (FGD) so that the two banks would take on the business of the former savings banks, which had filed for bankruptcy. The negotiations that the two banks are now holding with the FGD share significant difficulties that cannot be solved easily, although they also have notable differences.

The European Central Bank has been putting pressure on the supervised entities to remove any damaged assets that they still own from their balance sheets, as soon as possible, because it understands that their maintenance reduces the banks’ ability to make profits and lets the doubts continue to hang over the real health of the entities. Now that the ECB considers that the worst of the crisis is over and that the banks are reasonably capitalised, it wants to clear up all the doubts. He has granted a period of five years for these problems to be resolved, although, in reality, it wants them to be sorted in a shorter timeframe: within three years.

When it acquired Popular, Santander launched a procedure to remove all of the real estate assets of its subsidiary from the balance sheet, by reaching an agreement with Blackstone to create a mixed company, in which the US fund holds the majority stake and where Santander has parked assets with a theoretical value of €30 billion. Liberbank has done the same, for a much small sum, retaining just 10% of the capital in its new company.

Meanwhile, BBVA has reached an agreement with Cerberus to transfer €13 billion to a company in which the bank will hold a 20% stake. Of those assets, a significant part, around €4 billion, correspond to assets proceeding from Unnim, which have a guarantee from the FGD for 80% of the losses that may be incurred at the time of their sale.

Meanwhile, Sabadell wants to divest assets worth €12 billion, which sit in a portfolio that is still subject to an EPA that will end in 2021, with the same guarantees as BBVA’s. The difference in the size of the two portfolios is clear.

That is where the problem arises. To close the operation, the FGD needs to accept that it will assume the losses incurred at the time of the sales. And even though its resources have been contributed exclusively by the financial institutions themselves, the public body does not have sufficient funds to assume those losses and whereby avoid grounds for dissolution.

Differences

In reality, the portfolio proceeding from Unnim does not cause excessive problems for several reasons. Firstly, it is smaller and, therefore, the loss to be assumed is considerably reduced. Moreover, according to sources in the know, the FGD has already recognised a coverage for those assets that is pretty close to the market value at which they could be sold (…).

The case of Sabadell, however, is different because the size of its protected portfolio is much larger. It started off at €22 billion and now amounts to just over half, around €12 billion. Sabadell considers that the real value of its assets is approximately half their theoretical value (…) but the FGD (…) maintains that the provisioning need is much lower, around 35% of the book value of those assets.

The difference in criteria between the two parties is important. In figures, it means that there is almost €1.8 billion that separates them and that, of that amount, if it is confirmed in the end, the FGD would have to assume almost €1.5 billion. That would be impossible in the current conditions, because it would mean that the body that guarantees the deposits of banking clients up to €100,000, would have to declare itself bankrupt or, as it has done on other occasions, impose an extraordinary surcharge on its shareholders, domestic entities, to balance its accounts and cover the hole (…).

A solution

But, on the other hand, the FGD is also interested in closing the chapter on asset protection schemes as soon as possible because, until that happens, it will be very difficult to progress with the construction of a European deposit guarantee fund, which is the third leg of the banking union. Indeed, it is not being built precisely because of reluctance being shown by the countries in the north to assume the problems of the past (…).

For this reason, sources close to the conversations confirm that they are now focusing on a possible solution that goes beyond the current moment. The FGD may be interested in reaching an agreement that would entail the possibility of accounting for the losses not in a single year, but rather over a longer period of time, possibly three years. The next few weeks are important because the authorities want to close the conversations before the end of the month.

Original story: Expansión (by Salvador Arancibia)

Translation: Carmel Drake

Sabadell Considers Selling €1.8 bn Portfolio Whilst it Negotiates with FGD

1 February 2018 – Voz Pópuli

Banco Sabadell is preparing an artillery of divestments over the coming months. The entity chaired by Josep Oliu (pictured above) has been sounding out the market for several weeks now regarding the launch of what would be its largest sale of problem assets to date, worth €1.8 billion, according to financial sources consulted by Vozpópuli.

This operation, which still needs to be approved by the bank’s Board of Directors, would be the precursor to a mega-operation amounting to €12 billion that the entity is considering launching over the next few months, according to Expansión. Sabadell has three mandates granted to launch these divestments in 2018 with Deloitte, KPMG and Alantra.

Nevertheless, these sales have been held up by the Management Committee of the Deposit Guarantee Fund (FGD). The €12 billion that Sabadell wants to sell are precisely those covered by the Asset Protection Scheme (EPA) granted by the semi-public fund during the sale of CAM.

The Management Committee, whose members include bankers from some of Sabadell’s competitor firms, is questioning the sale of the €12 billion because of the hole it would cause in its own accounts. The FGD held equity funds of €1.6 billion at the end of 2016. The same thing is happening with BBVA. In that case, the FGD is considering whether to approve the accelerated sale of assets proceeding from Unnim’s EPA.

Two positions

This story is about two very different positions. On the one hand, Sabadell and BBVA want to bulk sell all of the problem assets that they inherited from the purchases of CAM and Unnim, respectively, in one go. In terms of the danger posed by the end of the EPA, they know that, like happened to Liberbank, when the guarantees end, the unsold assets will affect their capital ratios, by raising the denominator (APRs).

Meanwhile, the FGD is studying the impact that these operations may have and whether the contracts signed at the time allow such accelerated divestments.

Sabadell was one of the most active entities in the sale of problem portfolios last year, with the sale of Project Normandy to Oaktree and Project Voyager to the largest pension fund in Canada.

Original story: Voz Pópuli (by Jorge Zuloaga)

Translation: Carmel Drake

BBVA Prepares Sale of €1.5bn Property Developer Loan Portfolio

30 November 2017 – Expansión

The property sector / The second largest Spanish bank detects a large appetite from opportunistic funds for the real estate risk it has left over: €4.8 billion, after deconsolidating €13 billion of foreclosed assets.

BBVA is making steady progress to clean up its balance sheet. The entity is preparing the sale of a portfolio of property developer loans with a gross value of between €1.5 billion and €1.6 billion (31% of the total) after deconsolidating the risk associated with its foreclosed assets.

The group’s gross real estate exposure has been reduced to €4.8 billion in the form of property developer loans following the agreement with Cerberus to transfer €13 billion in foreclosed assets to a newly created company. BBVA’s plan is to sell one-third of its property developer loan portfolio to an opportunistic fund.

“It is going to be a very competitive portfolio”, said Javier Rodríguez Soler, Head of Strategy and M&A at BBVA, speaking to Expansión. In parallel to the operation with Cerberus, the bank has identified a large appetite from the big funds, such as Lone Star, Blackstone and Apollo, for loans linked to the property sector. The portfolio comprises finishing buildings, properties under construction and land.

Transfers to its subsidiary

The intention of BBVA is to reduce its risk estate risk to almost zero. The Head of Strategy said that the bank is looking to transfer another €1.5 billion of performing property developer loans to its Spanish subsidiary.

Many banks separated out their real estate businesses to curb the impact of the fallout from the burst of the bubble on their annual accounts. BBVA’s property unit lost €281 million during the 9 months to September this year, down by 10.9% compared to a year ago. Sources at the entity expect the real estate business to stop generating losses in 2018.

Yesterday, BBVA took a giant step to clean up its real estate-related risk. The bank has created a company together with Cerberus to transfer 78,000 properties with a gross value of €13 billion. 47% of the foreclosed assets are located in Cataluña, the historical heartland of Catalunya Caixa (CX) and Unnim, which were both absorbed by BBVA during the crisis. Some of those properties are social housing units, whilst some of those proceeding from Unnim are covered by an Asset Protection Scheme (EPA).

The US fund will own 80% of the new vehicle after paying BBVA €4 billion; the banking entity will own the remaining 20%. Haya Real Estate, Cerberus’s platform in Spain, will manage the portfolio of properties that the bank holds onto. The agreement also involves the transfer of 400 employees from Anida, the real estate arm of BBVA, to the joint company with Cerberus.

Original story: Expansión (by R. Sampedro and R. Lander)

Translation: Carmel Drake

Student Halls In Spain: A Wise Alternative Investment?

17 February 2015 – Idealista

When we talk about real estate investment in Spain, we tend to mean the purchase of offices, hotels and shopping centres. Nevertheless, there is another type of property that may also generate high returns: student halls of residences. However, unlike in other European countries, this accommodation does not totally convince investors looking for assets in Spain. The lack of companies that know how to optimise them, and the shortage of the ideal product are some of the reasons why no transactions are being closed in this segment, despite considerable interest.

Spain had around 1.41 million students enrolled in universities during the academic year 2013-2014, according to the Ministry for Education, Culture and Sport. That is, a little over 3% of the Spanish population were university students. This percentage places Spain ahead of other countries such as Germany and France. The majority of these students (77%) studied courses in their home province, but 20% moved to another province to study and around 3% were from overseas.

Delving more deeply into their lifestyle: approximately 64% of university students live at home with their parents or other family members. At the other extreme, those who live away from home only have two options: rent (either in a shared house or on their own) or live in halls of residence. Specifically, only 2.8% choose to stay there.

In the opinion of the experts consulted, these figures are justified by the “very low” availability of public university halls. “Although there are significant cultural differences, certain aspects indicate that the market for university halls of residence in Spain will have to converge with that of the rest of Europe”, says a report published by JLL.

The consultancy firm is convinced by its analysis that the implementation of the Bologna education reforms will promote cross-border studying between European universities, “which tend to have much high percentages of students living in halls”. In Spain, it is normal for students to opt for this type of accommodation during the first and second years only.

“The flow of students travelling to study in other countries will increase over the coming years and not only in relation to Erasmus placements”, says Patricio Palomar, Director of Office Advisory and Alternative Investment at CBRE. In his opinion, issues such as the language (Spanish), the lifestyle and the affordable prices in comparison with neighbouring countries, are just a few of the attractions that draw many foreign students to choose Spain as their destination.

The main drawbacks

Unnim, the entity created from the merger of Cajas de Manlleu, Sabadell and Terrassa, is active in this market. The bank, which was acquired by BBVA in 2011, inherited this line of business from Caixa Terrassa. The former caja constructed its first hall of residence on the Avenida Parallel, 101, in the Poble Sec neighbourhood of Barcelona back in 2007.

According to the latest data available for Unnim, this business line generated a return of 7%. Sources in the sector explain that the net return on these types of assets can reach 10%, well above the rates offered by offices, hotels and shopping centres. In countries such as the UK and USA, this business generates returns of between 11% and 15%.

Juan Manuel Ortega, Director of Investment Offices at JLL, recognises that British firms are over-valuing these types of assets in Spain. These investors are looking for halls of residences that are larger than 5,000 m2 and that have between 60 and 150 rooms. Palomar also acknowledges this trend “the same funds that operate in the UK for example are looking (for opportunities) in Spain. The problem is that the same product is not available in other countries”.

Palomar maintains that student halls in Spain are obsolete and that many of them are stuck in the 1960s. That does not happen in cities such as Amsterdam where student accommodation is modern, hotel-like and less than 10 years old.

Another one of the pitfalls that affects this business is the ownership of these spaces. Most belong to the public universities, many of which have serious financial problems and cannot afford to finance the investment needed to optimise the assets. At the same time, they cannot sell the land and allow private companies to enter the sector.

This has a very direct effect on competition; it is low, which does not lead to an improvement in the facilities either. Similarly, experts recognise that the administration of these complexes is not simple, they require professional management.

Nevertheless, Palomar states that new student halls of residence are appearing in the outskirts of cities and near private business schools. “I think Spain should focus on other kinds of tourism, beyond the holiday market; educational and health tourism (have significant potential)”.

A trickle of transactions

The lethargy in this market is such that transactions are very scarce. The last known deal involved the purchase of the Galdós halls of residence in Madrid in 2012. The British firm, Knightsbridge Student Housing paid €20 million for the property, it was the first acquisition made by the company outside of the UK. Knightsbridge Student Housing was created in 2010 with the backing of Oaktree Capital Management.

Another of the most talked about transactions involved Lazora (Concha Osácar) when it acquired the Resa Group in 2011. Resa was created in 1994 and currently manages more than 8,000 beds in 32 halls of residence. The construction company Acciona also has give halls of residence (in Albacete, Cádiz, Castellón, Lleida and Murcia), which it has tried to sell in the past.

Further proof that this branch of real estate activity in Spain is still light years away from what is happening in other countries, is that Socimis dedicated to student accommodation already exist overseas. In 2013, GCP Student Living constituted the first REIT (Real Estate Investment Trust) in the UK.

Original story: Idealista (by Estefania Fonseca)