Spanish banks burdened with as much as 40 billion euros ($55 billion) of repossessed real estate are under increasing pressure to sell as prices fall and investors return to the market.
Property sales will increase as Spain’s economy recovers from a five-year economic slump and banks seek to reduce the costs of holding the properties, said Fernando Acuna, founder of Aura Real Estate Experts, a company that advises investors on real estate purchases from Spanish banks. The firm’s estimate of banks’ bad assets is more than double the amount disclosed by lenders so far and includes about 400,000 homes, plots of land and commercial real estate.
“The gap between asking prices and bids is narrowing,” Acuna said. “Given the sheer amount of product available, we foresee a huge amount of bank-owned real estate and non-performing loan portfolios being sold in coming months.”
Spanish banks acquired the assets after companies and homeowners defaulted during the country’s worst economic slowdown in 50 years. Spain was forced to seek a European bailout for the industry and reduced the number of savings banks to seven from 45. Falling property prices and a recovering economy are sparking renewed investment in Spain, giving lenders a chance to ease the burden of owning so much real estate.
Spanish banks have disclosed their ownership of 180,000 units and 17.2 billion euros of foreclosed properties via earnings reports, websites or third parties, Aura said in a research report. That includes more than 50,000 parking spaces, 10,500 retail outlets and more than 6,000 storage units.
“This market has been growing continuously over the past five years due to an increase in delinquencies and subsequent foreclosures,” said Acuna, a former executive at Deutsche Bank AG, and a founder of Taurus Iberica, a company that sells or rents properties on behalf of banks and developers.
Nine lenders that didn’t receive aid as part of a European bailout of the Spanish banking system last year hold about 52 percent of the real estate taken over in foreclosures, Aura estimates. They include Banco Santander SA (SAN), Banco Bilbao Vizcaya Argentaria SA and CaixaBank. So-called REO, or real-estate owned properties, are those held by entities like banks, governments and insurers after failed foreclosure auctions.
A Santander spokesman declined to comment. Representatives of BBVA and CaixaBank didn’t respond to e-mailed requests for comment.
Spanish banks are increasing efforts to sell the residential assets they’ve taken on, prompting bigger price cuts, according to a January report by Sanja Paic, an analyst at Fitch Ratings in London. Repossessed homes in Spain sold for an average discount of 72 percent in 2013, compared with 48.3 percent for all properties sold since 2009, Paic said.
Sareb, the Spanish bad bank created in 2012 to absorb 50 billion euros of real estate assets from lenders, holds 13.4 percent of the repossessed Spanish real estate. Sareb sold 6,400 properties through November, generating more than 2 billion euros of revenue in its first year. It sold a controlling stake in a portfolio of 1,000 homes valued at 146 million euros to Grupo Lar, a privately held Spanish developer, and Fortress Investment Group LLC. (FIG:US)
Sareb Chairman Belen Romana and Chief Executive Officer Jaime Echegoyen today said the entity had a 261 million-euro loss in 2013 after making extra provisions of 259 million euros for part of its loan book. Sareb, which amortized 2 billion euros of debt last year, aims to cancel 3 billion euros of loans in 2014, they said.
Sales of commercial-property loans and REO assets totaled 30.3 billion euros in Europe last year, according to a Feb. 5 report by Cushman & Wakefield Inc. Spain represented 4.5 billion euros of transactions, third after the U.K. and Germany.
“The change in sentiment about investing in Spanish real estate and the amount of cash international investors have to spend here will mean that banks will find buyers for some of these assets,” said Mikel Echavarren, chief executive officer of Irea, a Madrid-based debt-restructuring firm that has advised on 22 billion euros of refinancing and 3.2 billion euros of real estate transactions.
An “overwhelming” amount of property is still being taken over by lenders, according to Jose Rodenas, sales director at Grupo Assista, a Valencia based company that works with banks to recover and maintain properties. The company saw a 30 percent increase in its property recovery business last year, he said.
“We are talking about developments that have 50, 60 or even 800 housing units,” he said in an interview in Madrid. “Think about how much you spend on maintaining your home annually, then multiply it by tens of thousands. Just changing a lock costs 100 euros.”
Bank-owned land plots must have a perimeter fence installed as well as signs identifying the owner and periodic weed killing, Rodenas said. “No one really talks about land, but there is an enormous quantity of it,” he said.
Other costs, including a semi-annual property tax and monthly municipal and community levies, are “peanuts” compared with the expense of keeping squatters out, according to Carlos Vergara, a Barcelona-based professor of financial management at the IESE Business School.
“The process of evicting squatters is long and expensive, that’s what banks really dread,” Vergara said by telephone. “Squatters are sometimes families that can’t afford to rent or own.”
According to a 117-page “Squatters’ Guide” published on the Internet by a group called You Too Can Squat, there are 3 million empty homes in Spain, or about 100 for each of the 30,000 homeless people. The number of homeless is rocketing in Spain, the group said. The country has the euro region’s second highest level of unemployment at 26 percent.
The guide advises would-be squatters on how to stake out, enter and remain inside properties, leaving the owner and authorities with the difficult process of evicting them. It also offers free counseling from an office in downtown Madrid on how to siphon water and electricity from municipal supplies and how to deal with law-enforcement officers.
“Every day we find more and more squatters and we’ve even had to employ the use of special bars to put on doors because as soon as we get them out, they come back and we have to repeat the whole process,” said Rodenas at Grupo Assista.
The collapse of Spain’s debt-fueled real estate and construction boom, which represented 18 percent of gross domestic product at its 2007 peak, contributed heavily to the 82.4 billion euros of provisions made by banks in 2012 and the 16.3 billion euros made in the first nine months of 2013, according to analysts at the Real Instituto Elcano.
“The provisions at banks hurt them far more than the funding and maintenance costs,” Irea’s Echavarren said. “The sooner they can sell these assets, the quicker they can reverse such provisions and obtain liquidity.”
Investment in Spain by funds, private-equity firms and other financial-services companies totaled 13.9 billion euros in 2013, according to Irea, more than double the amount invested in 2012. About 37 percent went to real estate assets and the proportion is expected to increase this year, Echavarren said.
Firms including the Blackstone Group LP (BX:US) and Goldman Sachs Group Inc. (GS:US) have been buying real estate in Spain after home prices fell more than 45 percent from their 2007 peak and prime office rents fell more than 40 percent since 2008. Paulson & Co. said this month they will invest in property company Hispania Activos Inmobiliarios and Pacific Investment Management Co. is the anchor investor in the initial public offering of Lar Espana Real Estate Socimi SA.
Investment in European property debt is set to rise to 40 billion euros this year as funds such as Apollo Global Management LLC and Cerberus Capital Management LP buy loans cheaply and financing for purchases becomes more readily available, Cushman & Wakefield said.
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