Spain should look to US’s HUD in dealing with foreclosures
The strategy employed by the US Department of Housing and Urban Development to deal with real-estate challenges provides a model for Spain, say analysts.
Spain is likely to attract increasing numbers of distressed buyers for commercial and residential mortgage pools as the impact at the banks of the asset quality review stress-tests starts to bite.
“Appetite has been steady from foreign investors since the financial crisis, but it has not been until recently that sellers have been willing to accept lower prices to clear their balance sheets,” says Pablo Cantos, founder of M&A advisory firm MaC Group in Madrid.
“The price correction has reached the bottom – in the last four years no new houses have been constructed in Spain. There just is not enough product, so prices are starting to come back up.”
He adds that the combination of banks being more willing to accept competitive prices together with an improvement in the quality of assets for sale will lead to greater volumes.
“The appetite for loans and mortgages is predominantly from foreign pure value funds to distressed funds, and also interest is being seen from the small and medium-sized family offices in Europe and the Middle East and the US,” says Cantos. “There is some appetite from Spanish family offices, but many of them are suffering from the lack of liquidity.”
In 2013, more than 30 loan deals closed in Spain, including performing and non-performing assets.
Foreign buyers have also been targeting real assets. In July, Blackstone agreed to buy 18 apartment buildings from the city of Madrid, and in August Goldman Sachs and Azora Capital, a Madrid-based private equity firm, outbid Blackstone for 32 social-housing developments, also in Madrid.
Spain’s current situation is reminiscent of that in the US two years ago. Kingsley Greenland, chief executive of loan broker and analytics firm DebtX, reckons the Spanish government should consider the strategy applied by the US Department of Housing and Urban Development (HUD), which sought to move single-family homes off the government balance sheet using private capital, but with limited social impact.
Instead of looking to sell the properties in foreclosure, HUD instead sells the underlying loans before they foreclose.
Blackstone, TPG and Oak Hill have all been funders of private organizations that have purchased such loans from HUD – $20 billion such sales took place in 2013.
Greenland says a programme such as HUD’s would be suitable for Spain’s single-family home market.
“HUD’s programme is exactly what Spain needs,” he says. “This is at a time of unprecedented investor interest in distressed loans. In the 13 years since DebtX has operated its loan marketplace, we’ve never seen more demand for distressed loans in Europe.”
The firm is in the process of selling a €213 million portfolio of non-performing residential and CRE loans for a German institution.