The Santander property disinvestment story

Emilio Botin

When it comes to local real estate, Spain’s biggest bank (Santander, run by Emilio Botin, pictured above) and foreign property investors are still way apart on price

A big story in recent weeks has been Santander’s attempt to off-load a portfolio of properties – mainly residential – with a book value of 3 billion Euros. It now seems that negotiations with the only interested parties – Goldman Sachs and Morgan Stanley – have come unstuck on price.

The story first broke in mid-October with news that Santander was planning to dump a huge 3-billion Euro portfolio ‘whatever’ the cost. 29,000 properties had to be sold before year end, and Santander were expecting to take a significant hit on the sale, reported the Spanish press.

The news caused a stir in business circles, and sent a shiver down the spine of other Spanish banks who know that where Santander goes, the rest have to follow. Dumping so much property on the market at a discount would be bound to drive down prices for everyone.

According to one expert cited at the time in the Spanish press “Santander is going after liquidity even if that means losses in the short term. And that can only mean that it forecasts 2012 and 2013 will turn out to be anni horribiles.”

News then emerged that the offers on the table from foreign investors (the only ones with money today) were a long way from Santander’s 3-billion Euro price tag. Foreign investors were asking for a discount of 60pc, though some press reports said as much as 70pc.

Last week brought the news that Santander had decided to put its sale on ice for now. It wasn’t ready to accept a 60pc discount to book value, so the deal fell through. Bearing in mind that the book value is already written down, the overall discount from peak values would be have likely been more than 60pc.

Today we learn that Santander has decided to write off another 1.5 billion Euros on its property portfolio, which it can afford to do thanks to gains it has made in North and South America. That will make it easier for Santander to do a deal when they try again. But for now it is fair to say that Spanish banks and foreign investors can’t agree on the value of Spanish property. Sound familiar?

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13 thoughts on “The Santander property disinvestment story”

  1. Profile photo of Mark

    The latest news is that Santander are studying an offer from Morgan Stanley with a 60pc discount. If they do a deal it will help set the market price. All other banks will have to follow suit.

  2. Andrew Hawkes

    It is important to understand that the 60% discount is what Morgan Stanley value the property at themselves. From that valuation Morgan Stanley will discount the marketing, financing (whilst they sell) and profit from the bottom line price that Santander receives. That’s with Morgan Stanely being “aggressive” in pursuing the portfolio!

  3. Tony Hulbert

    As someone who eventually wants to buy again in Spain I am constantly put off by not only being quoted ridiculous sale prices but also agents quoting bank valuations instead of previous for sale prices. If Morgan Stanley do get involved I wonder how much of that 60% discount will filter down to the average buyer [me]. Maybe the Spanish banks should adopt the British retailers method of discounting”this apartment has previously been on sale at our Marbella office for double the price in the last 2 weeks”

  4. Miles Couchman

    What I find frustrating about this type of argument is the generality of the conclusions made. Are we talking about Spanish resorts, Spanish rural properties, North, South, Balearics or Canaries? Every area or just the over developed ones?

    What are the trends and likely outcomes by area? Spain and her islands is ‘a big place’ after all.

    It matters less to us as a couple, since we made our decision to buy and live part-time in the Canaries some years ago, and we are not looking to make a profit. We just want to pay off the mortgage (and are well on the way to that).

    What does interest me a lot is the effects of the property market on the medium term tourist market. If capital prices do fall at the rate implied by the posts above and by the main article (and they may well have a lot further to fall), future tourism should be significantly enhanced as holiday prices will also drop – also, the touristy areas affected by such price drops should become more profitable for those that invest their capital in buy-to-holiday-let opportunities now or in the coming year or so.

    At a more human level, perhaps we should all stop thinking about turning profits on our homes in the sun, and think instead about where we want to live!

  5. Robert

    a tube of toothpaste is only worth £1.00 if someone somewhere is prepared to pay £1.00 for it
    same with property
    The Spanish banks portfolio is not worth the amount they claim and with Spain shooting itself in the foot with corruption land grabs and declaring property illegal people from UK France germany and Scan will not buy unless they can stand the loss if the deals go wrong

    on problem is the building standards in Spain are not as good as in the above countries so if not lived in or maintained deteriorate faster
    so they certainly will loose money against what the banks claim they are worth

  6. Linus

    Nothing new here but it’s good that it’s brought up to peoples attention.

    Spanish banks have ridiculous valuations on their portfolios. It’s most easily shown if you compare prices from private sellers in the same blocks as the banks are trying to offload. The banks are sometimes asking for twice as much money as the private sellers are asking for. They don’t want write down the values because they think it helps them but it’s actually the other way around. To fix this situation their valuations have to come down a lot.

    Great work with bringing us the news Mark.

  7. Mexberry

    One day, the sooner the better, the reality of what houses are worth on the open market will happen, whether Santander likes it or not.
    Until then, private investors like myself will sit on our wallets. With selling so difficult, it is prudent for any purchaser to get the lowest price possible otherwise they in turn will be facing huge losses when they wish to sell. I would expect a reduction of 20 to 30 % from present values with far greater deductions for poorly maintained houses.

  8. Poul

    Very interesting information and discussion. I have followed this bulletin for quite a while now and it is great information – thanks for this Mark !
    You mention the portfolio of properties the Spanish banks have themselves. Do anyone know where it is actually possible to have a look of this portfolio the banks have….to look for a “bargain”…:-)

  9. Barry McCormack

    This is an interesting story thats for sure. The properties within the Santander portfolio are lcated all over Spain, with many in the capital cities too. You can view the properties at http://www.altamirasantander.com and see what you find. I regularly scan their site but don’t see much in the way of opportunity. And yes I do work in real estate in the north Costa Blanca region, and we are seeing plenty of activity right now working on CAM Banks promotion – now or never!

  10. Profile photo of Mark

    News today is that Santander have reduced the size of the portfolio they are trying to off-load from 3€ billion to €1 billion book value. That’s not an asking price reduction: it’s a reduction in the amount of property they are trying to sell. Why? I imagine because there is just not enough interest in what they are trying to sell.

  11. Profile photo of Mark

    Latest news is Santander is close to doing a deal with Morgan Stanley for 32.5 cents on the dollar for a portfolio worth less than €700 million and not including any land.

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About Mark Stücklin

Mark Stücklin is a Barcelona-based property market analyst and consultant, and author of the 'Spanish Property Doctor' column in the Sunday Times (2005 - 2008). He can be reached by email on ms@spanishpropertyinsight.com.