Spanish secondary assets may hit double-digit yields

Yields for some secondary commercial properties in Spain have hit double-digit figures due to the complete lack of financing for this type of product, Roger Cooke, head of Cushman & Wakefield in Spain, told PropertyEU.

'Secondary properties are trading at yields of 7 to 8% in transactions involving any form of debt, but we have also started to see some secondary assets needing to be priced at double-digit yields in order to trade where deals have to be done entirely with equity. This is not surprising and is being witnessed in other countries so we are not alone,' Cooke noted.

While prime assets in Spain are still usually able to obtain bank financing, even though the margin may be well in excess of 300 basis points over Euribor, lending has almost completely dried up for secondary assets, unless it comes as part the deal, Cooke said. 'We just have to get used to the secondary market being financed with new sources of debt or just being entirely equity-financed,' he added.

Although a recovery in office take-up or the investment market is not expected for this year, Cooke noted that some foreign institutional investors are starting to take a closer look at the market. 'Two things are happening,' he said: 'The banks are having to make additional provisions, especially on land and developments, and a large amount of loans is coming to maturity over the next couple of years.'

In some cases, he pointed out, landlords will not be able to refinance credit facilities - either due to lack of finance or due to the large amount of equity required. 'We could therefore see owners/lenders sell assets currently linked to performing loans which come to maturity but cannot be refinanced.'

Cooke believes banks - especially foreign ones - have finally changed their priorities with respect to their real estate portfolios. 'Two years ago banks' strategy was dictated by the loss that the bank would crystallise by selling an asset. Today, banks are willing to take a loss in various circumstances because cash has become more important than provisions,' he concluded. 'However,' he added, 'no bank currently wants to assume more assets directly onto their balance sheet and are trying to agree a way forward with borrowers.'