In a sign of the times, Commerzbank AG has been touting around a €4.4 billion property loan portfolio which takes in an array of Spanish shopping centres, hotels and offices. This is just one of many property loan portfolios now up for grabs as international banks now look to offload their Spanish property exposure. Many of the banking subsidiaries which make up the vast majority of the property loan portfolio market in Spain have now been wound down and indeed the government was involved in taking on a number of particularly troublesome loans.
The €4.4 billion portfolio which is being covertly offered around international investment markets is likely to the largest of its kind in Europe this year. Even though the enormous portfolio will be offered at a discount to face value there will still be an enormous exposure to the Spanish economy via the real estate assets involved.
Is the Spanish property market recovering?
While the Spanish economy emerged from a 2 year recession last year there is no doubt there are still major problems ahead. Indeed the Spanish unemployment level is still near record highs and there are concerns that the sale of an array of large property backed loan portfolios could put yet another dampener on the Spanish real estate market. Experts in international real estate have been forecasting a major sell-off towards the bottom of the Spanish real estate market and it looks as though we are now looking at this particular part of the cycle. Even though a number of high-profile international investors have expressed strong interest in the Commerzbank AG, and other, property backed loan portfolios it will be interesting to see what kind of discount they demand.
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It is also worth taking into account that the Spanish economy is the fourth largest in the Eurozone and as a consequence it will be at the centre of an eventual recovery across Europe. Indeed it is not in the interests of the government, international investors and the Eurozone as a whole to see Spain suffering therefore it will likely receive as much additional funding as required. That is not to say that the ongoing economic recovery will gather pace, at least in the short-term, and it is not certain that the Spanish real estate market has turned the corner for good. Some experts believe that it would only take a relatively small economic tremor within the Eurozone to place yet more pressure on Spanish government lending rates in the money markets.
Is it time to start picking up Spanish real estate assets?
It is difficult to say whether we are near the bottom of the Spanish real estate market but it does seem as though there is genuine interest, albeit at discounted levels, in large property backed loan portfolios. This should in due course create a floor for the Spanish real estate market but with ongoing concerns about the Spanish economy, Spanish government debt situation and the chance of further economic shocks across Europe, it is unlikely to race ahead in the short to medium term.