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Snapshot
Iberian Property Finance
September 2016
SNAPSHOT IBERIAN PROPERTY FINANCE - SEPTEMBER 2016
SNAPSHOT IBERIAN PROPERTY FINANCE - SEPTEMBER 2016
2
Dear Readers,
INDEX
EXECUTIVE SUMMARY
4
MARKET SITUATION
Macro data Spain
LENDING APPETITE
Spain
Foreign Lenders in Spain Portugal
Lending Policies in the Iberian Peninsula
Macro data Portugal 6
6
7
7
Spanish Commercial Real Estate
Portuguese Commercial Real Estate Capital Structure Adjustment
Basel III Implications 10
10
11
11
12
12
OUR UNDERSTANDING ON PRICING 8
OUTLOOK14
X
X
As a follow up to last year´s 2nd Iberian Lender Survey in Commercial Real Estate,
we are delighted to introduce JLL’s latest research on the Spanish and Portuguese
Property Finance markets. This snapshot provides an insight into the current situation
of the Iberian Peninsula´s Commercial Real Estate debt market, including an overview
of the market, the existing lending appetite, the debt types and pricing, and the main
investors. Understanding the expectations of the market´s key players and having an
insight into their objectives and investment policies should help improve transparency
in the sector.
We would like to take this opportunity to sincerely thank all who contributed to the
research and shared their thoughts and perspectives. If you would like to receive any
clarification, please feel free to contact JLL’s Debt Advisory Iberia team.
Yours sincerely,
Jorge Valenzuela,
Head of Debt Advisory Iberia
Corporate Finance
3
For Plain Vanilla loans
on income producing
Core assets.
Significant increased
numbers of Lenders
with more than 60
identified in Spain,
who are active or
willing to be active
and more than 15 in
Portugal.
Slight increase in
margin spread of 1025 bps in Spain and
decrease of 25 bps in
Portugal.
BORROWING
CONDITIONS HAVE
CONTINUED TO
Also focused on
selective Value-Add
projects, in good
locations with high
pre-let levels and the
adequate guarantees.
IMPROVE
Development finance
market is opening up
for traditional and
alternative Lenders very
selectively.
Few lenders are ready to
expand into speculative
development, in Prime
locations.
Nontraditional Lenders
like Insurance companies
and Private-Equity Debt
funds are increasing their
lending throughout the
Iberian Peninsula.
Average deal flow in
Spain stands in the €15 to
€50 million size, ranging
with typical LTVs (Loan to
Values) between 50% and
65% and prime margins in
the region of 160-250 bps,
depending on asset quality
and risk analysis.
Average deal flow in
Portugal stands in the €10
to €20 million size, LTVs
ranging between 50% and
60%, with prime margin
ranging 225 to 350 bps.
On the whole, Real Estate Finance is much more liquid than it was just two or three years ago. Any concerns over
pricing are being assuaged by the fact that in a low interest rate environment, the income return of real estate remains
attractive compared to other asset classes.
SNAPSHOT IBERIAN PROPERTY FINANCE - SEPTEMBER 2016
SNAPSHOT IBERIAN PROPERTY FINANCE - SEPTEMBER 2016
4
EXECUTIVE SUMMARY
5
SNAPSHOT IBERIAN PROPERTY FINANCE - SEPTEMBER 2016
SNAPSHOT IBERIAN PROPERTY FINANCE - SEPTEMBER 2016
LENDING APPETITE
6
7
SPAIN
PORTUGAL
Domestic Banks have returned,
but are playing it safe.
•
BBVA, Bankinter and Banco
Sabadell are also writing loans.
•
•
The remaining domestic
banks are lending again, but
behaving conservatively.
•
he Property Finance sector
T
seems to have stabilized.
Santander and CaixaBank are
currently two of the most active
Lenders.
•
•
•
Few will single-handedly
finance large-ticket
investments.
Most remain focused on
investment rather than
development finance.
Ring fenced structures are
now more common for the Spanish
Banks.
Traditional Banks
Debt Funds
Insurance Companies
Selectively in the game for Core
Assets and large tickets.
•
Have also attempted to deploy
capital in Spain.
•
For example, ING Bank financed:
•
Tickets over €20M, just a few
can do lesser loan amounts.
Have a unique selling
proposition with duration and
bullet loans.
•
JLL Debt Advisory Iberia advised
the Lender, Allianz RE, in a
€133m 10-year bullet loan for
Marineda SC in La Coruña to
Merlin Properties.
•
280m Torre Espacio to the
€
Philippine Group Emperador.
€37m As Termas Shopping Center
in Lugo. The borrower, Lar
España, was advised by JLL
Debt Advisory Iberia.
•
Senior + Mezzanine loans
60-80%, most of them at 2 digits
return.
•
ifficulty finding the right
D
deals with which to generate the
required returns (350 – 900 bps
margin).
•
•
FOREIGN LENDERS IN SPAIN
•
•
As a result of the predominantly
cautious market appetite, Core
lending has become a favorite
among a number of Lenders.
The former active banks like
NovoBanco (former BES), BCP,
BPI and Caixa General de
Depositos (CGD) have all pulled
back on their acquisition
activity, more concerned with
cleaning their balance sheets
than investing in real estate.
Quieter ones (including
Portuguese and Spanish Banks as
well as some other International
Lenders) have stayed in the
game and become more
active.
•
ome Portuguese banks are
S
competitive in loan structure
and terms, although find it
difficult to provide bullet
loans in Portugal.
•
Development loans are still
challenging to obtain.
•
Refurbishment and loan
repositioning has led to a robust
pipeline in Lisbon and even the
typically less active Porto.
For example, ING Bank financed:
•
LA in a €140m syndicated loan
M
of a shopping center.
•
€40m bilateral loan to finance a
portfolio of 12 prime High Street
units in Lisbon and Porto.
LENDING POLICIES IN THE IBERIAN PENINSULA
•
Against the backdrop of a dynamic
property structured finance
market, Lenders are regularly and
swiftly updating and even adapting
their lending policies.
•
Increase in Core, Core+ and
Value-Add LTV / LTC (Loan to
Cost).
•
As far as «Core» is concerned,
maximum LTV remain at 65%
in Spain and 60% in Portugal.
•
This latter trend is a direct
consequence of the dramatic
drop in property yields.
•
Lender margin spread
conditioned by yield
compression.
•
Debt Yield covenant
introduced, which cannot be met
when surpassing a given leverage
ratio.
•
OUR UNDERSTANDING
ON PRICING
SENIOR DEBT
For the best deals at 160 bps
p.a. in Spain; and slight margin
reduction to 225 bps in Portugal,
compared to 90 bps in Germany
and 125 in France.
•
Swaps rate have also notably
shrunk, to the point of being
negative up to a 5-year term.
Unfortunately, Lenders have
inserted floor provisions in loan
agreements and few borrowers
actually enjoy negative rates.
•
Total funding costs are now at
extremely low levels across
Europe. As a reference, BerlinHyp
has raised its first negative-rate
Pfandbriefe, issuing €500m for 3
years at -0.16% p.a.
MEZZANINE DEBT
•
(Range of conditions offered by Lenders)
MARGIN
(BPS)
TERM
LTV/ LTC
TICKET
(€ MILLION)
Re-Financing / Acquisitions Stable Asset
160 - 250
5 - 10 years
50% - 65%
€5M - €200M
Re-Financing / Acquisition Repositioning
225 - 400
3 - 5 years
40% - 60%
€5M - €100M
Renovation Financing
225 - 500
6 - 24 months
40% - 55%
€3M - €50M
Conversion Financing
250 - 550
6 - 24 months
40% - 55%
€3M - €50M
Development Financing
300 - 600
12 - 36 months
40% - 50%
€3M - €200M
MARGIN
(BPS)
TERM
LTV/ LTC
TICKET
(€ MILLION)
Re-Financing / Acquisitions Stable Asset
350 - 900
3 - 7 years
65% - 80%
€5M - €200M
Re-Financing / Acquisition Repositioning
350 - 900
2 - 4 years
50% - 80%
€3M - €100M
Renovation Financing
400 - 1,400
6 - 24 months
50% - 70%
€3M - €50M
Conversion Financing
400 - 1,400
6 - 24 months
50% - 70%
€1M - €50M
Development Financing
400 - 1,400
6 - 36 months
50% - 70%
€3M - €200M
•
In Portugal, margin spreads have compressed by 25 bps for Plain Vanilla deals.
PORTUGAL - FINANCING TERMS
SENIOR DEBT
8
SPAIN - FINANCING TERMS
MEZZANINE DEBT
•
2016 has seen core asset
margins increase slightly
In Spain, margin spreads stand at 10 to 25 bps above 2015 levels.
(Range of conditions offered by Lenders)
MARGIN
(BPS)
TERM
LTV/ LTC
TICKET
(€ MILLION)
Re-Financing / Acquisitions Stable Asset
225 - 350
5 - 10 years
50% - 60%
€ 5M - € 100M
Re-Financing / Acquisition Repositioning
325 - 600
3 - 5 years
40% - 55%
€ 5M - € 60M
Renovation Financing
325 - 600
6 - 24 months
40% - 55%
€ 3M - € 30M
Conversion Financing
350 - 700
6 - 24 months
40% - 55%
€ 3M - € 30M
Development Financing
350 - 800
12 - 36 months
40% - 50%
€ 3M - € 100M
MARGIN
(BPS)
TERM
LTV/ LTC
TICKET
(€ MILLION)
Re-Financing / Acquisitions Stable Asset
450 - 1,000
3 - 7 years
60% - 80%
€ 5M - € 100M
Re-Financing / Acquisition Repositioning
450 - 1,000
3 - 5 years
50% - 80%
€ 5M - € 50M
Renovation Financing
500 - 1,500
6 - 24 months
50% - 70%
€ 3M - € 50M
Conversion Financing
500 - 1,500
6 - 24 months
50% - 70%
€ 1M - € 50M
Development Financing
500 - 1,500
6 - 36 months
50% - 70%
€ 3M - € 100M
SNAPSHOT IBERIAN PROPERTY FINANCE - SEPTEMBER 2016
SNAPSHOT IBERIAN PROPERTY FINANCE - SEPTEMBER 2016
The table below reflects our understanding of the current Iberian market financing conditions, with the following conclusions for Plain Vanilla financing in H1 2016:
9
SPANISH COMMERCIAL REAL ESTATE
MACRO DATA SPAIN
2015
2016 (F)
GDP var. Annual (%)
3.2
3.0
Private Consumption var. Annual (%)
3.1
3.3
Unnemployment Rate (%)
22.1
19.9
CPI var. Annual (%)
-0.5
-0.4
International Visitors (millions)
68.1
N/A
10
=
•
In recent years, the Spanish
economy has experienced a
significant turnaround.
•
The IMF named Spain as 2015’s
fastest-growing advanced economy
in the Eurozone.
•
The Spanish economy has
shrugged off political ambivalence.
•
On the heels of low inflation,
household consumption remains
robust.
TRANSACTIONS
BUYERS
YIELDS
•
In 2015, Spain accumulated a
whopping 9.4 bn € in direct real
estate investment transactions
(Hotels, Logistics, Office and
Retail), the highest figure
since 2007.
•
•
•
As of H1 2016, investment volume
in Spain surpassed 3.1 bn €.
•
•
For 2016, forecasts predict
a healthy 7 bn € for total
direct real estate investment
transactions, slightly below last
year´s number due to a lack of
available product.
Opportunistic investors have been
gradually disappearing, with
Core and Value-Add now at
center stage.
•
A recovery has been initiated
in the development construction
scene.
Similar to last year, the most
active buyers continue to be the
SOCIMIs (Spanish REITs),
investment funds and private
investors, most of which are
backed by foreign capital.
Yields continue to compress
and investors are increasingly
turning their attention to more
non-Core properties at promising
locations.
11
MACRO DATA PORTUGAL
2015
2016 (F)
GDP var. Annual (%)
1.5
1.0
Private Consumption var. Annual (%)
2.6
2.0
Unnemployment Rate (%)
12.4
CPI var. Annual (%)
0.5
International Visitors (millions)
16.2
Portugal´s improving economy
has sparked the interest of
commercial real estate investors,
predominantly foreigners and
pooled funds.
•
Spanish Real Estate Loan Market
•
•
•
•
2015 saw over €10bn in portfolio
transactions, which was below
expectations and lower than 2014
transaction volumes.
In spite of this we expect Spain
to remain a key market for
opportunistic investors in H2 2016
and beyond.
•
Like in Spain, high net worth
investors have also shown a
growing appetite.
The majority of transactions relate
to Residential NPLs, REOs and
SME RE Loans.
We expect this trend to continue
with an increased number of
mid-sized deals expected to come
to market in 2017 as sellers
come under heightened pressure
to deleverage in light of recent
regulation changes.
PORTUGUESE COMMERCIAL REAL ESTATE
TRANSACTIONS
BUYERS
YIELDS
•
Last year, Portugal recorded a
1.8 bn € in direct real estate
investment transactions (Hotels,
Logistics, Office, and Retail).
•
The most active buyers in
the Portuguese market are
investment funds and family
offices.
•
Yields during the second quarter
remained stable compared with
the previous quarter, a period
when an overall compression was
recorded in nearly every sector.
•
Like Spain, this too was a record
high, beating the 2007 peak.
•
Historic areas of Lisbon and Porto
have grabbed both domestic and
foreign attention, sparking
development.
•
However, they are expected
to continue tightening
throughout the year.
11.3
0.5
N/A
•
Low inflation has undoubtedly
helped push families´ purchasing
power and household consumption
remains robust.
Portuguese Real Estate Loan Market
•
Portugal witnessed transaction
volumes of circa €1bn in 2015.
•
With non-Core exposure in excess
of €11bn we expect Portugal to
remain a key market in Southern
Europe, driven mainly by
investors with existing exposure to
the Spanish market.
•
The first half of 2016 posted an
investment volume of 885
million €.
•
A number of investors are
pursuing in Portugal the
yields they can’t find in Spain.
•
Developers have returned to
the game, as the government´s
attractive and ambitious Golden
Visa program continues to benefit
from the tourism boom.
SNAPSHOT IBERIAN PROPERTY FINANCE - SEPTEMBER 2016
SNAPSHOT IBERIAN PROPERTY FINANCE - SEPTEMBER 2016
MARKET SITUATION
SNAPSHOT IBERIAN PROPERTY FINANCE - SEPTEMBER 2016
SNAPSHOT IBERIAN PROPERTY FINANCE - SEPTEMBER 2016
12
13
CAPITAL STRUCTURE ADJUSTMENT
•
Given that capital markets,
national banks, and even
overseas banks are all providing
lending, many investors are
rearranging their capital
structures, replacing equity for
investment (for example, some
funds that invested in purchasing
a servicer).
debt and fixing their terms in the
medium to long term.
•
Refinancing has allowed
some private equity funds to
recover part or all of their equity
BASEL III IMPLICATIONS
•
•
In response to the global
financial crisis, the finance
ministers from the G20
countries agreed on a more
stringent regulation of the
banking system.
The latter implies tougher
capital requirements, both on
a risk-weighted basis and on a
non-weighted basis (the leverage
ratio), and bigger liquidity
standards, more commonly
known as the Basel III Accord.
•
The main goal of the Basel III
accord is to improve the banking
sector’s shock resilience by
increasing minimum capital
requirements and improving
the risk coverage of the
capital framework.
•
The measures of Basel III have
to be implemented during the
transitional period, from Jan
2013 to Jan 2019, when all
measures will be compulsory for
Banks.
SNAPSHOT IBERIAN PROPERTY FINANCE - SEPTEMBER 2016
SNAPSHOT IBERIAN PROPERTY FINANCE - SEPTEMBER 2016
14
OUTLOOK FOR
THE IBERIAN PENINSULA
IBERIAN PROPERTY FINANCE MARKET
•
•
Throughout Europe, the real
estate industry is trying
to read the cycle and the
BREXIT consequences.
Low interest rates and high
liquidity in European real estate
are sustaining bullishness about
the industry’s business prospects
among most Investors and
Lenders.
•
While real estate debt is now
plentiful in most European markets,
Lenders are not yet taking
excessive risks, and no one is
straying too far out of their comfort
zone in search of higher returns.
•
An expansionary monetary policy,
low borrowing rates for businesses
and households, depressed
commodity prices and chronically
low oil prices, should help
propel growth.
•
Loan volumes are expected to
increase moderately in the near
term.
•
Appetite to lend is expected to
remain strong, particularly for
Office, Retail, Hotel, Logistic, and
Retail for Core and Core+, as well
as selective Value-Add projects
with a good pre-let level and
adequate guarantees.
•
Leverage will be typically
between 50-60% LTV for Senior
Lenders.
•
Nontraditional Lenders such as
Insurance Companies and Private
Equity firms will increase their
lending throughout the Iberian
Peninsula.
•
However, increased risk-taking
will be carefully underwritten and
reviewed.
•
Relatively few Lenders will
be ready to expand into
speculative development.
•
The new Basel III capital
regulations will increase
the cost for banks of issuing
medium-term loans to mid-sized
corporates. Strengthened capital
requirements may shrink the
bank’s ROE, as debt is replaced
with more expensive equity.
•
As a result, margin spreads are
expected to increase slightly
in both countries, due to more
restrictive regulations for Banks,
especially the increased provisions
on RE Finance.
15
JLL is providing clearness and transparency to the Spanish Property Market with:
2ND LENDERS SURVEY IN SEPTEMBER 2015
•
•
•
•
Spanish Property Finance has recovered. Portugal is on its way
With strong impact in the media
With national and international banks, debt funds and insurance debt platforms participating
With 35 lenders participating
2ND INVESTOR SURVEY IN MARCH 2016
•
•
•
•
Continuos strong interest in investing in Spain
Value added is king
Working together JLL and IESE
With rd. 100 Investors participating
SNAPSHOT IBERIAN PROPERTY FINANCE - SEPTEMBER 2016
JLL SURVEYS
16
DEBT ADVISORY IBERIA CONTACTS
HEAD OF DEBT ADVISORY IBERIA
DIRECTOR OF LOAN MANAGEMENT
FINANCIAL ANALYST
JORGE VALENZUELA
GEMA GARRIDO
MARGARITA CUADRA
[email protected]
[email protected]
[email protected]
HEAD OF RESEARCH SPAIN
RESEARCH CONSULTANT SPAIN
RESEARCH CONSULTANT PORTUGAL
ELSA GALINDO
ITZIAR AGUIRRE
ANDRÉ VAZ
RESEARCH CONTACTS
[email protected]
[email protected]
[email protected]
JLL IBERIA OFFICES
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BARCELONA
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LISBOA
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