Santander, Apollo to bid for Eurohypo Spanish legacy loans

Banco Santander and Apollo Global Management are preparing an offer for Commerzbank’s €5 bn real estate loan portfolio on the market, joining a string of other bidders for the assets.

According to Spanish paper El Confidencial, Commerzbank is looking for two buyers respectively for the performing and non-performing section of the portfolio, known as Project Octopus.

The offer represents the second joint venture between Apollo and Santander. In November last year the US investor acquired Altamira, the real estate arm of Santander, for some €700 mln.

PropertyEU reported last month that Commerzbank had hired investment bank Lazard to sell the entire real estate loan portfolio owned in Spain by Hypothekenbank Frankfurt (formerly Eurohypo), its specialist property lending business.

The sale - which is likely to be one of the largest Continental European loan disposals this year - involves around €3.3 bn of performing loans and another €1.7 bn of non-performing assets.

Lazard and Commerzbank declined to comment on the sale.

Hypothekenbank’s commercial real estate loan book was worth €33 bn at end September last year, down from €47 bn at end-December 2012. Germany accounts for nearly half of the debt package.

Last year, Commerzbank clinched Europe's largest loan sale with the disposal of its UK loan book with a face value of some €5 bn to Wells Fargo and Lone Star for an average single-digit discount.

In Spain the company has aborted the sale of a €370 mln portfolio known as Project Sol after receiving bids it deemed too low. The package was securitised against six shopping malls and two land bank portfolios.

According to market watchers, Commerzbank is likely to package the Spanish loans in sub-portfolios which could be of interest to a higher number of investors. 'The €1 bn mark is a hurdle for many investors, particularly in Spain. I think very few companies have the appetite and the financial capability to close billion-euro deals,' commented Roger Cooke, former head of Cushman & Wakefield in Spain.

According to those who track the market, it may be an interesting challenge to combine the sale of performing and non performing loans. The former generally appeals more to financial buyers whereas the latter is more hands on at real estate asset level. 'Only a certain number of buyers are really resourced to handle both,' a source said.

Likely bidders for the Spanish loans include a range of international private equity firms seeking to re-enter the market at a time when prices have hit rock bottom. A partnership of Blackstone and Deutsche Bank, Värde Parners and Kennedy Willson, as well as Lone Star, Fortress, HiG, Cerberus, Orion and Oaktree have been mentioned as potential bidders for the portfolio. AXA and Bank of America Merrill Lynch are also said to be eyeing the assets.

The Octopus portfolio includes a number of loans securitised against major shopping centres such as Zielo developed by Hines in Pozuelo de Alarcón near Madrid and Alpha Real Trust’s H20 scheme.