Sareb starts to address pain in Spain with €1bn disposals


Bad bank to step up sales with Corona, Teide and Abacus deals, write Lauren Parr and Jane Roberts

Sareb, Spain’s 10-month-old property ‘bad bank’, has brought two more large portfolios to market with a total face value of up to €1bn, and has a third sale ready to go, after successfully completing its first bulk sale to an investor over the summer.

The bank is taking up to €90bn of property loans from weakened Spanish lenders and is marketing its first big commercial property portfolio, Project Corona, with a €350m-500m value, through Spanish agent Aguirre Newman. Initial bids are due on 4 October.

Corona comprises seven office buildings in Madrid’s north eastern quarter, totalling 51,305m2. They are 80% let and generate an annual income of €9.5m, but the leases accounting for more than a third of that figure will expire in the next two years.

Sareb has another commercial REO (bank-owned real estate) portfolio in the wings: project Ababcus will comprise 40 properties in Madrid, which Deloitte will be selling.

The other portfolio, Project Teide, is a residential REO portfolio of 3,000-plus homes, including six developments and four plots of land, with a €300m-€500m face value. KPMG received initial bids last week.

These latest sales are signs that what will be a protracted period of bad loan and asset sales by Sareb and other Spanish banks is well and truly under way. Meanwhile, opportunistic investors and loan advisers are putting teams on the ground to take advantage of the expected flow of business.

“There will be a big due diligence market there for some time to come,” says Hugo Raworth, European managing director of loan adviser Situs, referring to the task Sareb faces in preparing its enormous book of assets for sale. “Our intention is to get a structure there; we are going to be in Spain.”

Spain is also a priority market for CBRE Loan Servicing’s new head, Clarence Dixon, who joined from Hatfield Philips in April. “There is opportunity there and the initial opportunity will be residential,” he says.

Sareb’s initial deals indicate that it will be flexible about the solutions it adopts for disposals. For its first bulk sale, Project Bull, it kept a minority stake in 939 homes once on Bankia’s book and structured the deal as a fondo de activos bancarios (FAB), a low-tax entity the Spanish government introduced last year to encourage international investors to buy assets from the bad bank. Sareb also expects such sales will help smooth its losses.

Bull attracted international interest from private equity firms including Centrebridge, Apollo, Lone Star, Cerberus and Colony, but was eventually bought by US private equity investor HIG Capital, through its credit affiliate Bayside Capital. Some bidders, thought to include Lone Star, which had approached Sareb via a reverse enquiry before the portfolio was marketed, are said to have wanted a straight loan purchase.

Bull success is cause for optimism

Sareb real estate assets director Juan Barba says the sale “allows us to be optimistic with regard to the portfolios we plan to take to the wholesale market in the second half of the year, which will also entail the creation of investment vehicles”. But in another deal this summer, Sareb did sell a loan outright. US fund Davidson Kempner bought €245m of Colonial debt secured by property in France and Germany.

Nelson: “Banks’ costs per employee are heavier than outsourcing and they will continue to evaluate noncore business”
Nelson: “Banks’ costs per employee are heavier than outsourcing and they will continue to evaluate noncore business”

The loan was part of a bigger, originally €1.2bn exposure to Colonial that Sareb plans to sell; this in turn is part of Operation Bermuda, which addresses Sareb’s exposure to big listed property companies. In May the bad bank sold its interest in a syndicated loan to Metrovacesa. Law firms Cuatrecasas and Ashurst handled the Colonial sale.

In anticipation of underwriting bulk distressed portfolios and working out the loans and assets acquired, investors have begun to buy local servicing and asset management businesses (see panel).

Bruce Nelson, US-based Situs’s chief operating officer, says Spanish and other European banks will go down the carve-out road: “Banks’ costs per employee are heavier than outsourcing and they will continue to evaluate their non-core businesses. When we started, our biggest challenge was to convince Wall Street banks that they could outsource, and it eventually happened. It will happen here too.”

Private equity players carve up Spain’s loan servicers

Earlier this year, with Värde, Kennedy Wilson bought a loan servicing business from Catalunya Caixa, following the US investor’s great success in Ireland – where it took on an experienced local team from Bank of Ireland early in the recovery – and the UK.

Meanwhile, Centrebridge Partners picked up loan servicer Aktua from Banco Santander last year.

TPG Capital is set to buy a 51% stake in Servihabitat Gestión Inmobiliaria, Caixa bank’s real estate asset management arm, for €185m. Bridgepoint, Fortress and Starwood had also been in the running. TPG will take over some of the unit’s portfolio, but not its 12,000 residential assets.

More Spanish banks are likely to carve out their servicing businesses. Bankia, which transferred 80% of its loans to Sareb, this month sold its property management arm to Cerberus for between €40m and €90m, depending on execution of its business plan.

Now the bank is thought to have started a process to carve out its captive servicing group, which still services the 20% of loans that didn’t go to Sareb.