Whether or not it is your target market, commercial real estate opportunities in Spain are a hot topic!
The activity of Spanish bad bank-like company Sareb has boosted the market during 2013, and it will continue to be a key player and product supplier during 2014. Sareb is a warehouse (not a bank, as it does not lend) within which Spanish banks bailed out by the Government have allocated their repossessed assets or ‘REOs’ and property loans. Sareb is an o-balance sheet vehicle for those banks with an overall mandate to sell throughout a foreseen
lifespan of 15 years. Sareb has sold portfolios of residential properties and developments, commercial real estate loans and oices. The pipeline of Sareb is in the billions. Our Dentons Madrid real estate team has acted for the buyer of two large portfolios from Sareb (namely, ‘Abacus’ and ‘Walls’, the biggest commercial real estate loan acquisitions in the Spanish market to date).
Spanish REITs (‘SOCIMIS’)
The newly passed regulations on Spanish REITs (‘SOCIMIS’) have proven very eective in attracting investors (both domestic and international). New SOCIMIS are very tax-eicient (0% taxation in Spain under certain conditions) and !lexible in terms of minimum share capital (%5 million now), free !loat (minimum listed stock of either 25 percent or %2 million in any EU/EEA regulated market or in Spanish MAB or ‘Mercado Alternativo Bursátil’) and leverage limitations
(no speci!ic ones, the same rules as for any other Spanish company). A good number of SOCIMIS have been incorporated during the last few months. The Dentons Madrid real estate tax practice have advised on the incorporation and structuring of Spanish SOCIMIS.
Tax-free Share Deals
Acquisitions of the share capital of property companies (‘share deals’) are now commonplace thanks to the amendment to the former anti-abuse rule that used to make these deals subject to Transfer Tax (non-fundable, non-recoverable) on the value of the property underneath. Share deals are now tax-exempt (no transfer tax or its alternative VAT is triggered now) as a general rule (unless the acquisition of shares is clearly intended to avoid the payment of either tax, which should not be the case in the context of institutional real estate investment). We have already tested this new tax rule in ‘share deal’ acquisitions in the retail and hospitality sectors.
No VAT Cash-outs
VAT is the tax of general application when it comes to the buying and selling of commercial real estate in Spain. VAT is generally fundable and recoverable from the tax authorities (as opposed to Transfer Tax generally applicable on residential, and neither fundable nor recoverable). The Government has recently approved a ‘reverse charge’ rule (‘inversión del sujeto pasivo’) for VAT whereby the purchaser would be entitled to simultaneously oset output VAT against input VAT in purchases of real estate asset, thus avoiding the payment or funding of VAT. Our clients have already bene!ited from this ‘reverse charge’ mechanism on a good number of VAT-able direct acquisitions of real estate in Spain.
‘Spanish bargains’ have emerged as banks and companies have deleveraged aggressively. Lenders in the Spanish real estate sector have been actively selling their debt positions with signi!icant discounts (for regulatory reasons in the case of Spanish lenders; for more commercial and strategic ones in the case of international lenders). Savvy investors have quickly found out that most ‘chunky assets’ are accessible to them only if they talk to the lenders of those assets (as opposed to the owners or equity holders). The Spanish legal framework makes possible an expedite transfer of the debt, but far more challenging a peaceful repossession of the asset once the investor has become a secured lender; this second step takes legal expertise on insolvency and enforcement matters. Our real estate team is recognized by buyers and sellers of debt as the leading legal practice when it comes to acquiring and working out non-performing ‘single names’ and other pieces of debt on a ‘loan-to-own’ basis (to get to the assets). We have become predominant as legal advisors around this product in the market.
On the other hand, there are new lenders in the market, after years of liquidity drain. Not all of them are banks; banking !inancing is still rare, although some banks are lending again (small tickets on core assets and prudent LTVs). Spain is welcoming a new industry of alternative lenders, ready to leverage the real estate sector; these are private equity houses and Solvency II - driven insurance companies (or ailiates thereof). They oer super-senior and mezzanine !inancing, but also other debt solutions for the acquisition and repositioning of real estate projects. The legal framework is very friendly for professional lenders in Spain (no banking license required, pricing and covenants can be freely set, generally). We continue to advise banks in property financings and again, our real estate finance practice has pioneered this new trend from the legal side, making it possible for these new lenders to do business in Spain (in the real estate sector and beyond).