ReSale Property Spain

Spanish property owners are restructuring debt with their creditors throughout Europe as the recession hammers the cash flows and values of commercial property.

But in Spain, the downward spiral of the real estate market is so severe and Spanish property crisis is so evident that some property owners are being forced to return to the workout table with lenders just a few months after they reach restructuring agreements.

Reyal Urbis SA, a residential and commercial developer that is Spain’s second-largest real-estate company by market value, is in talks with creditors to refinance debt because of worsening market conditions just eight months after banks agreed to restructure more than €3 billion ($4.1 billion) of its debt.
Also, local property developer Afirma Grupo Inmobiliario is seeking refinancing for more than €1.44 billion in debt, as its core business dried up because of the global liquidity crunch. In an earlier deal in summer 2008, Afirma was able to postpone the first payment of the principal of a syndicated loan of €667 million and allowed to break some initial covenants.

These double-dipping efforts are putting new pressure on banks, which weren’t wild about having to restructure the first time and now are even more reluctant to sign deals that could increase their exposure to a sector with deteriorating assets. But other options for lenders are challenging, analysts say. If property owners aren’t able to restructure and are forced to file for creditor protection, then banks may be required to set aside more capital to cover potential losses. Although turbulence from the global financial crisis hit Spain later than other European Union countries, the intensity of its economic correction is now more dramatic.

Some experts point to signs of an incipient economic recovery that could support real-estate demand. Lower interest rates in the 16 countries that share the euro also are boosting critical liquidity. But others say that even if developers succeed at fresh refinancings, their problems may not be over.
At the same time, the magnitude of woe in the real-estate bust is staggering. Spain is among the worst performers of the euro zone in terms of unemployment, fiscal imbalances and a huge stock of empty residences across the country.

Spain’s government expects the country’s economy to contract 3.6% this year, the worst rate in more than 39 years. Spain’s unemployment rate jumped to 18.1% April, the highest in the euro zone, which reported an average jobless rate of 9.2% in the same month. More than half of the jobs lost in the EU in the first three months of the year came from Spain.

Spanish real estate prices tripled in the past decade, a time when liquidity was abundant and interest rates plummeted following Spain’s adoption of the euro. At its peak, Spain built 800,000 residences annually, more than Germany, Italy and France together, according to data from Spain’s central bank. But house sales are now plummeting, dropping 48% in April.

In just one year, Spanish property market has gone through a dramatic shake-up. Two major companies, Metrovacesa SA and Inmobiliaria Colonial SA, are now in hands of creditors. Another one, Martinsa-Fadesa SA, is under creditor protection. Others are seeking new refinancing to survive.
Reyal Urbis, which primarily builds residences, is suffering from the leveraged buyout of rival Urbis in 2007. It has €4.9 billion in debt after selling €1.5 billion in assets to financial-services companies.

Banesto, a unit of banking giant Banco Santander SA and previous owner of Urbis, bought €1.1 billion in real-estate assets last year from their borrowers as many of them were on the brink of default. Reyal Urbis has been a big borrower from Banesto and is widely believed to be among the companies that sold Banesto troubled assets. Reyal officials told EFE Dow Jones that the company is in negotiations with creditors and seeking to adapt business plans to the current market environment but declined to say whether it sold assets to Banesto. A Banesto spokesman declined to comment.

Meanwhile, Afirma Grupo Inmobiliario officials said Afirma has reached agreements with more than 75% of its creditors but declined to disclose further details.
Problems facing Spanish property owners in these second rounds of restructuring talks include the quality of their collateral. In the first round of talks, owners were able to pledge additional collateral in exchange for concessions from lenders on financing terms. But in the second round, owners often lack fresh collateral, says Mikel Echavarren, head of local consultancy Irea. If there is additional collateral, it is often of inferior quality, such as land and houses under construction, rather than residences ready for sale, he said.

“The value of some land could be now close to zero, depending on licensing and zoning,” said Juan Ignacio Sanz, professor at Madrid’s Esade business school.

Source: wsj.com

Tags: Spanish property bubble, spanish property crisis, Spanish proprety developers, Spanish real estate market

This entry was posted on Friday, July 3rd, 2009 at 1:47 pm and is filed under Real Estate News. You can follow any responses to this entry through the RSS 2.0 feed. You can leave a response, or trackback from your own site.