Aguirre Newman: Inv’t in Offices Exceeded €1.7bn in YTD Sept

1 December 2017 – Eje Prime

The office sector in Spain is stable. During the first nine months of the year, the sector accounted for investment amounting to €1.7 billion, in line with the investment level recorded during the same period in 2016, according to the Office Market Report compiled by the real estate consultancy firm Aguirre Newman.

“The main indicators of the office market (the availability rate, the uptake rate, rental prices and the evolution of stock) have continued their positive behaviour previously observed in recent years”, explain sources at the consultancy firm.

“The high level of economic activity in Spain, combined with the strong economic performance of the main countries in our environment, are having a clear impact on our two main office markets”, they say.

Focusing on Madrid, the gross leasing of office space during the third quarter of the year amounted to 93,173 m2, which represents an increase of 2% with respect to the same period in 2016, although, according to Aguirre Newman’s report, 16 fewer operations were closed in 2017 (down to 96).

One of the most active areas in the capital was the Other Business Districts segment (RDN), which accounted for 31% of the total area leased. Nevertheless, the report highlights that the leasing of space in the Central Business District (CBD), with 27% of the total and the OUT area, with 23% of the total, showed significant increases, more than doubling the figure recorded during the same period in 2016 in absolute terms.

Regarding rents, the maximum recorded during that period was €36/m2/month, whilst the average rent in the CBD area was €28.96/m2/month. In the Decentralised area, the average rent amounted to €12.71/m2/month.

In Barcelona, during the third quarter of 2017, 57,000 m2 of office space was leased, which represented a decrease of 32% with respect to the same period in 2016. Nevertheless, the cumulative figure for the year increased by 8% with respect to the first three quarters of 2016, to reach 265,000 m2.

During the period, 103 operations were closed, with an average surface area of 562 m2, in line with the situation observed in previous periods. The most significant operation by size was the deal closed by WeWork, which leased more than 6,500 m2 of office space in the 22@ district.

“In terms of rents, the upwards trend is continuing both in terms of maximum levels, as well as averages”, explain sources at the consultancy firm. The maximum rent recorded during the period was €23/m2/month, whilst the average rent in the CBD was €18.25/m2/month. In the Decentralised area, the average rent reached €14.01/m2/month.

Original story: Eje Prime

Translation: Carmel

Saracho Calls Time On Ron’s Plans For Popular’s Bad Bank

15 February 2017 – El Economista

Project Sunrise, designed by Ángel Ron’s team at Popular to extract €6,000 million worth of real estate assets from the entity’s balance sheet, has run aground. With less than a week to go before Emilio Saracho (pictured above) takes over the presidency, the former global vice-president of JP Morgan has announced that he is not convinced by the plan and has put a stop to it, according to sources.

The vehicle had been approved by the Bank of Spain, but had not yet convinced the Spanish National Securities and Exchange Commission (CNMV) or the European Central Bank (ECB). Their aversion to the plan seems to have led Saracho to reject it. Although the star plan to clean up the balance sheet had received support from the bank’s Board of Directors, the difficulties involved in deconsolidating the portfolio of non-performing assets and the potential risks that could result for the future owners of the vehicle, are hampering its execution. (…).

Moreover, the real estate company has also been impeded by a more limited appetite than it had hoped for from the investment banks, whose involvement is key. The plan is for the company to be financed through senior bonds, subscribed to by those investors and subordinated debt, which will constitute the remuneration that the bank will receive from the company in the future. At the time, the entity confirmed that the interest expressed by JP Morgan, Morgan Stanley and Deutsche Bank was sufficient to crystallise the project. But, in order to deconsolidate the real estate company, the senior bond tranche must represent a majority and a low uptake from the investment banks is likely to increase the cost of that bond issue.

Ron acknowledged in his public farewell, alongside the CEO, Pedro Larena, that Project Sunrise has suffered certain changes from its original scope, but that Saracho was aware of these, along with other measures.

During the last quarter of 2016, the entity recognised an additional €3,000 million in non-performing assets and allocated €5,692 million to clean up efforts, rather than €4,700 million, the amount it had planned to set aside when it carried out its €2,500 million capital increase last summer. The effort reflects that recognition of a greater volume of toxic assets and also served to cover the costs of the adjustments to branches and staff, the impact of the floor clauses and the unexpected losses in TargoBank (…). Nevertheless, it was insufficient to reach the goal in terms of doubtful debt coverage and provisions for properties.

Shock therapy

Saracho was reportedly aware of all of this. Nevertheless, the banker will start work without a pre-determined road map (…) on the understanding that the bank needs to define a comprehensive shock plan.

Saracho will conduct a detailed analysis to assess the entity’s viability and to define its new strategy. Ron was committed to making the bank smaller, focusing on its profitable business niche of SMEs in Spain and spinning off its subsidiaries in the USA, Mexico and Portugal, where the interest aroused will ensure a positive return on investment – market sources speculate that the private bank, and even the insurance business, are included in this equation.

The sources consulted also say that these changes, if they are undertaken, would help restore solvency, but would not be sufficient to ensure the bank’s future. After a detailed analysis of the situation, Saracho will have to choose the best option for his shareholders from a handful of scenarios.

If he thinks the entity is viable, it is unlikely that he will undertake another capital increase (…), but may include transferring assets to Socimis or integrating them into real estate companies in which the bank holds a stake.

In the worst case scenario, the new manager faces the option of breaking up the group and selling it off in parts or by asset. And whilst a sale to a competitor or a merger is not unthinkable, a priori, it appears to be the least attractive option for shareholders, given the lack of interest in the sector.

Original story: El Economista (by Eva Contreras and Lourdes Miyar)

Translation: Carmel Drake