Juan Barba Silvela, head of Real Estate Owned assets at La Sociedad de Gestión de Activos Procedentes de la Reestructuración Bancaria (Sareb), has said his group is looking to structure further deals in joint venture with private equity firms.
Speaking exclusively to PERE in a recorded interview at the Global Investor Forum 2013 in Amsterdam, Barba highlighted Sareb’s €100 million deal completed in August called Project Bull with Miami’s H.I.G. Capital for nearly 1,000 homes in the first such example.
In that case, Sareb made use of a special vehicle called a Bank Asset Fund (FAB) that it described as a ‘flexible divestment tool’ inspired by securitization funds and collective investment institutions tailored to professional investors.
The Project Bull portfolio was comprised of residential developments, with 939 homes being in Andalusia, the Canary Islands, Cantabria, Catalonia, the Balearic Islands, Madrid, Murcia, and Valencia. Sareb retained a 49 percent share in the FAB, while H.I.G. Capital owns 51 percent, and the assets are being managed by an independent servicer selected by H.I.G., which is Monthisa, a Spanish company.
Speaking of the need for investors to understand Sareb’s “needs”, Barba said he was looking for groups to invest in partnership with Sareb where the investor brought along a specialized manager and a business plan for the assets.
“It is important that investors realize it is not a sale. It is a JV. It is not just a question of pricing but of having a business plan,” he said. “That is going to be even more meaningful for the portfolios we put out into the market in 2014. Investors need to understand we are trying to create joint ventures. We are not trying to simply get rid of assets.”
In the 20-minute interview, Barba also said it was important that investors understood the cycle might be changing and that they didn’t “get attached to the old market in terms of being a very illiquid one where the price was the only reason to buy a portfolio”. “If the sentiment of the market changes then the pricing changes even if the fundamentals are not quite there – a bit like the London market in 2009 and 2010,” he said.
The “product” for which there has been hottest demand in the Real Estate Owned portfolio is coastal residential, particularly in Marbella on the Costa Del Sol where demand is coming from the UK and Russia.
Some 60 percent of his group’s assets are completed dwellings. It also has rental assets for sale, which has attracted Blackstone and Goldman Sachs in separate deals. “We are creating rental vehicles – portfolios of rentals in order to meet demand from investors,” said Barba.
He explained how the Real Estate Assets group had been hard at work “segmenting” the portfolio some 107,000 assets it inherited. Sareb was created last November to help cleanse the Spanish financial sector after excessive exposure to real estate. Some €50 billion of assets were transferred to it in two tranches, with the biggest contributor being Bankia, and the mission is to dispose of the assets at the highest possible value while ensuring Sareb makes the best possible returns for its shareholders. It aims to make shareholders an IRR of 13 and 14 percent.
Sareb's entire portfolio of nearly 200,000 assets is divided into two groups: Real Estate Assets, for which Barba has responsibility, and Financial Assets being property development loans. The Real Estate assets division has 76,357 vacant homes, 6,293 rented homes and 14,859 plots of land.
Summing up the approach of the Real Estate Owned group’s approach, he said: “We want to hear investors and their demands. The more specific the better and we would try to put that in the market.”
A wide variety of firms have approached Sareb, from high yield funds, and private equity firms to some value added strategies. “You can see the difference. In terms of private equity, we see offers where the driver is IRR, then fast track liquidation. They are not so concerned with the multiple but with the IRR. For us that is problematic. There are some funds more concerned with the multiple, which is more aligned with our interest. We are trying to get in front of them and create a joint venture.”
The main challenge to Sareb’s mission is the pace of recovery of the Spanish economy, he added.
His is currently working out the budget for 2014 and he said the program would be along the same lines as 2013. However, one difference might be that it will look to create more specific product to cater to niche demand.