‘Single’ banks stepping on their toxic assets cleanup

The regulatory pressure now leading a new concentration process in Spain and other European countries has been noted for months in the intense work by banks to part with toxic assets inherited from the RE crisis.

The governor of the Bank of Spain, Mr. Pablo Hernández de Cos, as a matter of fact, insisted in a recent conference in Barcelona that in accelerating the drop of that portfolio was one of the largest challenges the sector was exposed to; declarations made right after Banco Sabadell closed the sale operation of its servicer Solvia -although it’s still looking for a buyer for the lands stored in Solvia Desarrollos Inmobiliarios- and also of Bankia confirming its negotiations to part with “a portfolio of awarded real estate assets and the portfolio of distressed debt”.
This is the largest portfolio the entity led by Mr. José Ignacio Goirigolzarri has put on the market, as the assets’ value is placed around 3 billion. According to sector sources, the operation is in advanced talks, so it could close before the year is up (note: which has happened), putting the icing on the cake to a year in which banks has dropped increasing amounts of Real Estate.

Specifically. In the last 18 months, the banks have dropped real estate asset for a 74 billion value, around the clock to get the regulators satisfied and stop being a liability so that the EU progresses in the banking integration.

The countries in Northern Europe are reluctant to create a European Deposits guarantee fund, a key structure to do steps forward in the banking union, due to the high-risk positions of the Mediterranean banks. Apart from problems with Italian entities, the countries being wayward when having to feed that fund, wielded as an excuse the high real estate risk of the Spanish banks.

Spain maintains attractiveness

All the clean up faced by the national systemic bank in the last twelve months take away that argument and also returns the sector to a context more similar than before the crisis; which was guilty of balances racking up to 100 billion in toxic real estate assets, at their worst time.

The good figure reached this year may be reached again in 2019 as points out Mr. José Masip, Financial Services and Real Estate partner at Axis Corporate “the possible international turbulence in markets such as the Italian one, where certain funds and certain M&A firms are taking position, will lead the national banks to step on the closing of operations”.
Although the expert points out that there are other countries in Europe, beyond Italy, attractive enough such as Cyprus, Greece or Portugal, Spain is still in the focus, as it keeps “the necessary indicators to keep attracting investors”.
In this multi-million cleanup from banks, the necessary collaborators were funds and investment managers. The last large operation just featured Cerberus, that acquired two real estate debt portfolios from Sabadell, called Challenger and Coliseum, with a gross value of 9.1 billion Euros.

The large ‘landlords’

The US fund will set up one or two new firms with the Spanish entity, to inject the assets and will hold 80% of them. It is the same structure that was carried out when it purchased a 13.000 billion-worth portfolio from BBVA at the end of 2017.

Also, the firm settled last September the purchase from Santander of a residential properties portfolio for an amount of 1.535 billion, 55% of its gross book value.

With these two operations, Cerberus takes place as the most active fund in the last twelve months in the debt market, as it adds assets acquired for a gross value of 18.9 billion.

These two transactions are among the four largest to have happened in Spain, since the investment fund began in 2013, with the purchase of Bankia Habitat (now Haya Real Estate). Since then, it hasn’t stopped, seizing a large part of the real estate market. Thus Cerberus, apart from the servicer, it also took control in 2015 of Gescobro, Miura’s default debt recovery agency. It also owns Haya Securitizations (formerly AyT) that it purchased from Cecabank and Ahorro Corporación. At the end of last year, Cerberus landed the purchase of the RE Developer Inmoglaciar, controlling 75% of the capital of the firm controlled until then by the Moreno family.

Despite being featured in large purchases, Cerberus can’t topple Blackstone as the largest RE owner in Spain, with an asset volume of 20 billion. XzA title the US fund holds also globally, with a total of 184 billion under management at the end of 2017.

Blackstone featured last year the largest operation in Spain, as it seized 51% of Popular’s toxic assets, until then in Santander’s hands. This has led to creating a joint venture with the entity led by Mrs. Ana Botín, christened as Quasar Investment,.

Also, Blackstone owns the servicer Anticipa Real Estate that has one of the largest rented real estate portfolios in Spain, and has purchased this year Testa, the largest rented apartments ‘socimi’ . The investment fund also owns the largest hotel network in Spain, after placing successfully a takeover bid for Hispania, and one of the largest owners in logistics.

Source: El Economista. (Alba Brualla / Cristina Triana) Translation by Miguel Vinuesa Magnet /Cathal Logue.

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