Foreign buyers snap up stock as domestic lenders cut exposure, writes David Hatcher
Investment banks such as Goldman Sachs, Citi, Credit Suisse and Deutsche Bank have been active, as have commercial banks such as ING, Aareal and BNP Paribas, along with non-bank lenders such as CPPIB, Blackstone Mortgage Trust and AXA.
This resurgence has been spurred by the deleveraging drive of Spain’s domestic banks, which has brought stock and non-performing loan portfolios to the market for hungry investors to buy and for their lenders to provide finance for.
That process has allowed some of Spain’s banks to begin lending again, mainly to existing domestic clients as well as to the clutch of Socimis, Spain’s new REIT vehicle, that floated last year: Merlin, Hispania, Lar and Axia.
Spain’s banks have been disposing of their positions and recouping capital through a variety of methods including asset and loan sales, offloading their servicing businesses and via the public markets. Here Real Estate Capital examines the progress made thus far by the country’s major lenders.
While not one of the four institutions that transferred their loans to “bad bank” Sareb in 2012, Bilbao-based BBVA still had to set aside €1.8bn to cover real estate losses, by order of the government.
It had already clawed back €1.2bn in 2009 and 2010, at the height of the financial crisis, by selling 1,100 branches and five offices to a consortium of Europa, RREEF and Area, which were sold to Merlin Properties last year.
As of September BBVA’s net domestic real estate exposure totalled €13.3bn, according to its latest financial figures, down 8.9% from €14.6bn since the start of 2014. The bank has only €109m of provisions held against its current real estate book.
In the first nine month of last year BBVA sold 16,049 properties at a profit to book value of €598m — a stark contrast to the same period in 2013, when it sold 14,565 units at €844m below book value.
A BBVA spokesman says: “We keep reducing our net real estate exposure [for residential] mainly through sales at our retail branch offices and online. This was also achieved through sales of asset packages and we are open to other possibilities, such as selling non-performing loan portfolios. In Q4 we posted capital gains, as we sold at slightly over net book value.”
Last year the bank sold €140m of loans to property companies San Jose and Realia, which are being restructured. Throughout the year it also pursued a sale of its 60% stake in Occidental Hotels, worth around €500m, although this is yet to be concluded.
The bank is also selling its debt servicing business, which employs 200 people, through KPMG.
BBVA has an important position in the residential mortgage market: in summer 2013 it agreed to provide up to €1bn of finance to buyers of units from Sareb’s portfolio.
The bank has been one of the least active sellers of real estate non-performing loan portfolios in Spain. However, in November it offloaded €1.7bn of loans to Deutsche Bank that were linked to consumption and credit cards. The bank only recouped around €50m, or 2% of the loans’ value, due to their highly distressed nature.
Last July BBVA bought Catalunya Banc, which was nationalised in December 2012. This followed the €3.6bn sale of Project Hercules the previous month by Catalunya Banc, made up of €6.4bn of residential loans, to Blackstone.
CaixaBank is one of Spain’s dominant retail banks, with more than 6,600 branches in the country. It made its growth ambitions clear last August by acquiring Barclays’ retail banking, wealth management and corporate banking business in Spain for £632m.
The bank managed to sell or lease €1.7bn of real estate across 16,367 properties in the first nine months of 2014 and has sold or let €3.96bn since the start of the downturn.
Despite this progress, CaixaBank still has a titanic €6.9bn of foreclosed real estate assets on its books, on which the loans are being repaid at 53.1% of the interest being charged. In the summer the bank was reported to have decided to accelerate moves to reduce its real estate portfolio.
The bank’s property assets are held by subsidiary Building Center. In 2013 the bank sold a 51% stake in its Servihabitat business, which manages Building Center’s properties, to TPG for €370m to speed up its sales and deleveraging process.
CaixaBank is selling a loan portfolio called Project Tower, with a face value of €400m, through KPMG, 91% of which is held against residential assets. It is also jointly selling a €400m loan portfolio held against Mexican real estate, alongside Bankia.
In August the bank sold €700m of large company loans to private equity firm DE Shaw, some of which are thought to have been taken out by real estate firms.
Building Center has suffered major losses since it was established in 2011 and last August CaixaBank had to inject €1.9bn into the business to make up for losses on sales and payment defaults. This followed a €2bn equity injection the previous year.
As with many banks, CaixaBank has also raised funds by selling branches; in December 2012 it sold 439 to Mexican telecoms tycoon Carlos Slim for €428m.
Solvia finds solutions for Sabadell’s problem real estate
Sabadell’s problem real estate portfolio and deleveraging drive is being undertaken by a subsidiary called Solvia, which provides real estate management services and sits within the bank’s asset transformation department.
Solvia also manages assets outside Sabadell’s control. At the start of this year Solvia took on a seven-year contract from Sareb to manage and sell 42,900 assets valued at €7bn, which Bankia, Banco Gallego and Banco CEISS had lent against.
In 2013 Solvia sold more than 18,000 of Bankia’s housing assets for more than €3bn, above their book value.
In December 2013 the bank sold two non-performing real estate loan portfolios with a €632m total face value to Aktiv Kapital and Orado Investments, managed by Elliot Advisors, in a process known as Project Garbi.
Sales figures in 2014 are expected to be slightly lower because, according to real estate development director Joan Bertran, “Sabadell works hard to reduce real estate exposure but at the same time has a focus on value protection.
“Prices bottomed out and in some locations have started to rise, so it is important to implement price policies with a deep knowledge of very local market behaviour to optimise the value of the real estate portfolio.”
At the end of last year the bank sold its debt servicing business to Lindorff Spain for €162m and is in the process of selling a portfolio of €500m of loans through EY, called Project Triton. Triton is made up of 80% non-performing and 20% performing loans.
Sabadell is also trying to sell its 13% stake in embattled property company Metrovacesa for €54m.
In the next few months the bank is expected to list a Socimi (Spanish REIT) with €700m of assets owned by its fund management business, Sabadell BS Immobiliario.
The bank decided to pay back redemptions to the fund manager’s investors using its own balance sheet, instead of selling property, and took full control of the company with a view to floating it.
The portfolio comprises mostly tertiary offices, hospitals, residential and industrial assets. The Socimi will be managed by Solvia, which itself may be listed later by the bank.
Sabadell has begun to consider financing new commercial real estate deals. Bertran says the bank is “starting to finance real estate development projects, but always with a very restricted, conservative and tough approach, taking into account the experience acquired over the past few years”.
During the first nine months of last year Sabadell sold €1.9bn of real estate, 45% of it with staple finance, while 42% of the assets were valued at more than €100,000.
In 2012 Bankia required the largest bailout in Spanish history, receiving €19bn, and transferred €22.3bn of loans to Sareb, secured against 38,340 assets. It is no longer permitted to undertake new real estate lending and the majority of its exposure is off its books.
However, as of the end of September, the bank still owned real estate assets, or had loans outstanding, with a total net value of €2.8bn, across 24,424 assets.
In September 2013 Bankia sold its servicing arm Bankia Habitat to Haya Real Estate, owned by Cerberus Capital Management, for €90m. Haya then took on the management of debt transferred to Sareb. Bankia has also created an internal department to deal with sales of assets still on its balance sheet.
At the same time it sold Project Sky, a €335m loan portfolio, to Chenavari at a 76% discount. The loans were secured against 419 assets, many of them development-orientated.
In November the bank sold an €800m loan portfolio to Sankaty Advisors and Starwood Capital, known as Project Amazon. The loans were split into one pool held against hotels and another made up of corporate loans, with a mix of collateral, including real estate.
The following month it sold a €355m package of assets, known as Project Lake, to Goldman Sachs, consisting of 1,336 apartments across 27 blocks, plus nine commercial buildings that were previously owned by its fund management business, Bankia Inmobiliario.
In the same month it also sold a 19% share in Metrovacesa to Santander for €100m.
“The improvement of the Spanish market helps the retail selling [of housing] and big portfolios, as it is increasing the interest of foreign investors,” says Nuria Morales Villalba, chief of real estate at Bankia.
“The housing market is still showing signs
of recovery, thanks to the dynamism of the secondhand market. In spite of weakness in the new housing market, Spain’s stock is reducing because of a reduction in new construction — only 21,000 new houses were built in the past year, compared with 96,000 houses sold.”
Kutxabank, formed in 2012 through the merger of Basque banks BBK, Vital and Kutx, set up its own real estate bad bank, Neinor Barria, to manage around €2bn of assets.
In December it offloaded a chunk of this to Lone Star, in a process called Project Lion, selling the company itself and about half of the real estate assets within it for €930m.
The deal follows Lone Star’s near €4bn purchase, alongside JP Morgan, of Project Octopus, the former Eurohypo’s loan portfolio, which it also bought last year, as the private equity firm looks to scale up its operations in the country.
Santander plans more property spin offs
Santander’s €7.5bn capital raising at the start of the year has highlighted the need for the bank to further shore up its reserves. This followed the issuance of €3bn of covered bonds in November.
The drive is a new direction for the bank under the management of chairwoman Ana Botin, who has held the position since last August following the death of her father and predecessor Emilio.
The bank’s latest figures value its non-core Spanish real estate portfolio at €9.2bn, following a 19% reduction in its portfolio over the previous year. This is split into €4.3bn of loans, €3.5bn in assets, plus equity stakes in Metrovacesa and Sareb totalling €1.4bn. Of the €4.3bn of loans outstanding, 74% are non-performing.
Santander is planning to turn its Banif Properties fund, which owns €1.5bn of assets, into a Socimi. The move follows the fund’s closure to redemptions in 2009 and its forced sale of prime assets such as the Plenilunio shopping centre in Madrid to Orion, for €235m. The private equity firm is now selling the mall for €400m.
The bank is also expected to float 1,150 of its branches in a Socimi to be called Uro Property Holdings. The branches were bought in 2007 for €2bn by a consortium of investors fronted by former Drago Capital partners Oleguer Pujol and Luis Iglesaias, using €1.43bn of debt. Alongside CaixaBank and BNP Paribas, Santander called in their loan and the initial purchase is now subject to criminal proceedings involving allegations
of money laundering.
Last year the bank also called in loans on domestic companies and investors such as Bautisa Soler Crespo, San Jose, Hesperia, Eroski, Realia, Deolio and ITR, and sold or looked to sell its positions.
However, it has been building its stake in property company Metrovacesa, buying equity from other banks, and now holds a 55.8% share.
At the start of last year the bank sold its Altamira servicing business to Apollo for €664m, with which it bid to buy Project Octopus, the €5bn of Spanish real estate loans issued by Eurohypo, which were ultimately sold to Lone Star and JP Morgan.
In November 2013 Banco Popular sold a 51% stake in its internal bad bank Aliseda, which manages its real estate, to Värde Partners and Kennedy Wilson for €815m. This has put the duo at the forefront of the bank’s deleveraging efforts.
At the start of the year, alongside Värde and Marathon Asset Management, the trio undertook a debt-for-equity swap with property company San Jose, gaining an 80% stake. Before the deal San Jose had €1.6bn of debt, €476m of it held by Banco Popular.
The bank also took a 4.1% stake in property management company Renta Corporacion, through a debt-for-equity swap in November, with Sareb, ING and Caixa General making similar moves. This was followed by an agreement between the company and Kennedy Wilson to form a joint venture to invest in and manage housing.
Banco Popular’s deleveraging progress has allowed it to return in part to the lending market and it was part of a consortium of banks that provided a €940m refinancing for Merlin’s Tree portfolio, made up of 880 BBVA bank branches, in December.