Banks’ de-investment in Real Estate hindering Sareb’s plans
The sale by the banks of large Real Estate portfolios to drop their exposition to that type of asset to zero has meant a change in the trend in the market, which main casualty is the entity led by Mr. Jaime Echegoyen, that has seen his deinvestment plans reduced.
Agreements reached lately by the banks to take their exposition to real estate to practically zero have meant a change of trend in the real estate market, which main casualty is Sareb, that has seen its de-invested plans.
In the last year, the main banks in Spain (Banco Santander, BBVA, Caixabank or Banco Sabadell have closed the large sale of mega-portfolios -worth several trillion- assets linked to the Real Estate sector, which buyers are normally international investment funds, such as Blackstone, Cerberus or Lone Star.
This situation, at first glance, is positive for Sareb, as it activates the market and brings in investors. The issue is that these investment funds demand discounts, ranging between 57% and 67% to keep the portfolios, and the entity led by Mr. Jaime Echegoyen cannot afford them.
It can’t as such a large transaction with such a discount would consume the limited capital in Sareb. “The market’s changed. We cannot assume the discounts the banks do”, reckons a director in the firm. It would be an operation that drops your balance sheet so much that you fade away”, the director adds.
This happens because Sareb ‘inherited’ the assets from distressed savings banks at a high price. And despite the provisions that have been performed from 2012 onwards, they are overvalued, compared to those in the financial sector. The big difference is the banks could get capital in the market to raise the coverage ratios, while Sareb can’t do that.
Furthermore, after some talks with funds, the entity chose to shelve a sale of 20 billion in real estate debt last July, grouped in Project Alpha, after closely analyzing the operation with Goldman Sachs, it reached the conclusion that it could not assume the discounts that the market is currently asking for.
Thus, the firm’s bet now is on holding an in-between path that means selling smaller asset packages which profile fits more what investors want. In that way, both the discounts and the losses will be much lower.
A slower path
In any case, the in-between way makes Sareb take more in its mandate to de-invest the 36.128 billion in assets that it still has in its balance sheet, 66% are loans and 34% properties. Nevertheless, the firm expects to meet this objective by 2027.
Next year, Sareb will have to decide what to do with the Management agreement with Haya Real Estate, which expires in 2019 and which assets were studied to be sold by Goldman Sachs, although the entity does not discard renegotiation the other three (Altamira, Servihabita and Solvia) before their expiry date in 2020 and thus segment the sale of assets by province, teaming up with specialized realtors in each territory.
Source Vozpopuli. Translation by Miguel Vinuesa Magnet.
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