DISTRESSED BRIEFING: The gain in Spain

Resurgent Spain dominated the conversation at PropertyEU's Distressed and Opportunistic Investment Briefing recently.

A huge weight of capital is positioning Spain as the market of choice for opportunistic investors in Europe, delegates heard. ‘Spain is a guarantee of making money,’ said Ralph Winter, founder of Switzerland’s Corestate Capital. ‘Because all these guys are there trying to do deals, the market is becoming liquid, there is demand, and after the Lone Star deal we have a guarantee of five or six years of very active trading.’

In May, US firm Lone Star and JP Morgan bought around €4 bn of Spanish property loans from Commerzbank. It is part of a swell of American interest, as Diane Becker, head of international investment at real estate advisor Catella, notes: ‘Westport, CarVal and others who we haven’t seen on the continent for a long time have raised a lot of money and are very interested.’

Spain saw a 183% surge in deal value in Q1 2014 compared to Q1 2013, according to recent figures from Real Capital Analytics, reaching €1.4 bn and making it one of Europe’s top five investment destinations.

‘In some ways, you could say there’s too much money going into Spain,’ said David Ryland, partner at law firm Paul Hastings. ‘The economy still has significant unemployment and other problems but for quite a lot of these plays, you don’t need the economy to turn around, you just need to wait for the next change in sentiment and then you can sell assets on quite quickly.’

DIRECT SALES
There is growing interest in distressed assets across Europe, partly prompted by selling directly to investors. ‘The type of transaction we are seeing through this distressed and opportunistic wave is quite diverse,’ said Mathieu Roland-Billecart, a partner in EY's UK real estate finance team.

‘People normally talk about distressed assets as portfolios being put on the market by banks: NPL transactions,’ he said. ‘But now there are more straight real estate transactions, which are effectively banks saying, "look, your loan has been on standstill for a year or so, we’re just going to put the property on the market because it's a good time to sell.'

Roland-Billecart cites rising prices and easier debt availability as contributory factors. ‘Generally speaking, in all corners of the market prices have gone up,’ he said. ‘But the striking difference to 12 months ago is there is a lot more debt out there. More lending institutions are going up the risk profile.’ And more distressed stock should become available as The European Central Bank’s asset quality review sees a surge in bank loans being classified as non-performing.

Roland-Billecart said: ‘we have been involved in the review for banks and for the regulators, and we think this has the potential of leading to many more loans being classified as non-performing.

‘A number of banks could come to the market raising capital. We could see good banks and bad banks split,’ he said. ‘It has the potential of keeping the transaction market busy.’

The review sees the ECB probe €3.7 tn of assets at 128 eurozone banks, with particular attention paid to riskier loans.