Spain can learn from US savings and loan crisis: EPRA

One solution for Spain's property market implosion may lie in using equity markets and tax-transparent real estate investment trusts (REITS) to recapitalise the sector, an ASIPA (Association of Spanish Rental Property Companies) conference in Madrid heard on 7 June.

This method was used in the US in response to the savings and loan crisis in the 1990s, Philip Charls, CEO of the European Public Real Estate Association (EPRA), told the conference. 'REITs helped to solve the 1990s Savings & Loans banking crisis in the US as property companies went public to access fresh capital and de-leverage the US real estate industry'.

Charls added: 'This was a very similar situation to Spain’s real estate crisis today, with one crucial difference - the Spanish government has not yet passed the legislation to create a REIT structure that would attract domestic and international investors and their urgently needed capital. The alternative is to allow in the debt piranhas, who will strip Spain's real estate and bank loan portfolios of any value they can extract.'

Spain introduced a new regime for property investment (SOCIMI) in 2009, but EPRA criticised the structure at the time and said the legislation did not justify having a REIT label attached to it, as it departed too far from the standard European model. The SOCIMI regime implemented an 18% flat rate for qualifying net income, payable by the property entity itself, rather than external investors through dividends.

REITs help the banking system as access to public equity allows the deleveraging of the financial sector, Rogier Quirijns, Portfolio Manager and Head of European Research for US-based specialist global real estate securities investment manager Cohen & Steers, said in a presentation at the meeting.

He added that the most efficient market restructurings are done through fresh equity and debt restructurings rather than selling the debt at a discount to the growing number of loan investors and funds circling the Spanish real estate market. Spanish banks have made EUR 80 billion in provisions for their toxic real estate assets and bad loans. REITs are also positive for government revenues because as real estate is de-leveraged more taxable income becomes available and investors pay tax on dividends.