Private equity firms and hedge funds are beginning to swarm Spain, with a plethora of property deals occurring in quick succession. Among the main purchasers so far are The Blackstone Group, Lone Star Funds, Fortress Investment Group, Goldman Sachs, Kennedy Wilson, Varde Partners, H.I.G. Capital of Miami and Davidson Kempner Capital.
Market participants report a change in Spain from the past five years. “The locals now are finally starting to be a bit more negative than international investors,” said one senior investment professional. “That is making it finally possible to get things done there.”
Spain currently is one of the few countries in Europe where substantial discounts for real estate assets are available on a relative basis. “It is a change of mindset at the banks,” said another dealmaker.
Plenty of financial organizations are furthering sales. For example, Spain’s third largest banking group, Bankia, reportedly is in talks to sell its real estate subsidiary, Bankia Habitat, which is said to possess a managed portfolio of €2.9 billion and another €2.6 billion of development loans. More than 20 offers have been made from fund managers, with Cerberus Capital Management, TPG Capital and Centerbridge Partners reportedly among the shortlisted parties.
The one organization that seems most active on the sell side, however, is Sociedad de Gestión de Activos procedentes de la Reestructuración Bancaria (Sareb). This is Spain’s equivalent to Ireland’s National Asset Management Agency, where tens of billions of euros worth of real estate assets were transferred by banks and borrowers in order to eventually be run off.
Over the past few weeks, Sareb has struck its first two deals. In its first transaction called ‘Project Bull’, it set up a bank asset fund (FAB) – a first in Spain – whereby Sareb retained a 49 percent stake in a portfolio of assets sold to H.I.G. Capital on behalf of its credit fund unit, Bayside Capital. The deal with H.I.G. was negotiated on behalf of Sareb by Juan Barba, head of real estate assets.
Experts predict an array of vehicles and structures to be set up by Sareb to capture some
‘upside’ for the organization. That is because the ‘bad bank’ cannot afford to immediately sell assets wholesale given the price it paid for them upon transfer and its overall mission to recover value.
The idea behind the H.I.G. deal is that the 23 properties and one unfinished project spread among Andalusia, the Canary Islands, Cantabria, Catalonia, the Balearic Islands, Madrid, Murcia and Valencia will be improved using a little bit of fresh capital before being sold for a profit. The assets currently are mostly vacant new developments.
The second transaction struck by Sareb involved the sale of a portfolio of Grupo Colonial loans with a €245 million face value to Burlington Loan Management, a subsidiary of US hedge fund Davidson Kempner Capital.
Man of the moment
Until recently, Barba was making investments for Doughty Hanson, but now he is on the sell side as Sareb’s director of real estate assets
For several years, Juan Barba was a principal at Doughty Hanson Real Estate, the pan-European opportunistic platform. Based in Madrid, he joined the firm as head of investment in Spain in 2006, having previously worked in lending for seven years at Germany’s Aareal Bank.
The first deal that Barba struck at Doughty Hanson was buying a 50 percent stake in Grupo Immobiliario Aranco, a private residential developer, in 2007. It was the first investment in Spain for the firm’s European Real Estate Fund II and, at the time, the private company had a pipeline of eight projects forecasted to deliver more than 1,000 units over the next two years in second-tier towns such as Guadalajara, Toledo, Cuidad Real and Segovia. Then, the Spanish property crisis hit, making the investment challenging, and it is no longer listed as a holding on the firm’s home page.
Four years later, in 2011, Doughty Hanson bought two shopping centers in Spain for €120 million: the Plaza Éboli in Madrid and El Rosal in Ponferrada, León. Barba was instrumental in that deal, as well as sourcing a deal from Madrid City’s management company to develop the Valdebebas shopping center, a 1.2 million-square-foot mall next to Barajas airport where Real Madrid had moved all of its training facilities. It was to be the first time that Doughty Hanson had built a shopping center from scratch, but the firm reportedly dropped its option to develop Valdebebas in September 2012.
This past March, it emerged that Doughty Hanson had decided to never raise another opportunistic real estate fund again. By that time, however, Barba already had left to join Sareb, Spain’s ‘bad bank’. In fact, in January, it was announced that he would serve as its head of real estate assets.
Given his history, Barba has the respect of counterparties. As one market participant noted, he is “very professional.