In the midst of Spain's worst housing crisis in decades, house hunters will soon find an unusual location to pick up a new home at a hefty discount.
Grupo Santander SA, one of Europe's largest banks, is getting ready to launch a Web site on which it will sell as many as 950 new homes to the public at a 20% discount to market prices. That comes after the Spanish bank sold 350 homes to its own employees on the same terms.
Santander's fire sale isn't entirely voluntary. The Spanish bank picked up some 1,300 homes last year when developers to whom it had lent money defaulted on their loans and the bank agreed to swap debt for the property. At the end of 2008, Santander, including Banesto, its Spanish retail bank, had property valued at some €3.8 billion ($5 billion) on its balance sheet, most of that originating from debt-for-equity swaps.
"The goal was to get ahead of the situation and to avoid some of those loans becoming nonperforming loans, avoid lengthy bankruptcy proceedings involving many creditors and to help clients avoid bankruptcy," says a Santander spokeswoman.
The scenario at the Spanish bank is playing out across Europe. With property-loan defaults on the rise, many European banks are knee-deep in loan-restructuring plans.
But as the economy worsens, the pressure on property owners who borrowed against their real estate is mounting. Before the recession is over, the banks will likely end up with more property on their books and could become big sellers of real estate.
Standard and Poor's, the credit-rating company, says delinquency rates on European commercial-mortgage-backed securities have been rising sharply since the summer. In its latest monthly report tracking CMBS, it says delinquency rates on sterling-denominated loans rose to 3.84% in March from 2.8% in February.
For loans denominated in euros, delinquency rates rose to 3.18% from 0.85%. Standard & Poor's monitors 1,100 loans that serve as collateral for European CMBS. Of those, 20 were delinquent at the end of March, up from 15 in February.
"We think the rate of delinquency will continue this year and repeat the pattern that we've seen month-on-month," says Judith O'Driscoll, an analyst with Standard & Poor's in London.
To be sure, many banks remain reluctant to sell despite the increasing pressure from rising defaults on commercial-property loans. Some private-equity investors who have raised cash to buy distressed property complain that they can't do deals.
"Everyone is talking about the big casino, but one very likely scenario is that the big casino will never come because the banks are sitting on the assets and hoping they won't have to sell before the recovery comes," says Eric Sasson, a managing director of Carlyle Group. "It's not a question of price; they just don't want to sell if they don't have to."
But the longer the recession lasts, the greater the pressure will be on the banks to sell. "They may not be able to hold onto the property because of their need for capital," says Mike Birch, a loan-workout specialist and founder of REAM Capital Partners, a real-estate asset-management company. "In the end, I don't think the banks will have the luxury of hanging on to the property for long."
So far, there has been a dearth of sellers in Europe. The volume of real-estate investment in Europe fell 44% to €11.5 billion in the first quarter of 2009, from €20.6 billion a year earlier, according to property consultant CB Richard Ellis.
"The banks on the whole want to avoid selling too cheap and allowing someone else to profit on the recovery," says Philip Cropper, director of CB Richard Ellis' real-estate finance services in London.
Source: Wall Street Journal