Spanish real estate hopes to avoid the fall of giant Signa.

The construction of Elbtower in Hamburg was designed by the real estateagency Signa.

The giant Austrian company Signa will not overwhelm large Spanish real estate companies, as they do not expect its financial stability and stock prices to affect their business. This is the conclusion reached by various experts we spoke with. However, if the decline in asset values continues, it could raise concerns about some smaller companies.

Last week, Signa announced that it had filed for bankruptcy (similar to a declaration of insolvency for a company in pre-insolvency proceedings in Spain) in the Vienna court.

According to calculations by JP Morgan and Bloomberg, this non-listed real estate company has assets worth 27 billion euros and about 13 billion euros from its subsidiaries. This is the most serious crisis situation in the industry since 2008.

Among her assets are the Chrysler Building in New York, the Bauer Hotel in Venice, in Germany she controls the KaDeWe department store and the Galeria store chain, and in London - the Selfridges department store.

In addition, it is building the 64-story Elbtower skyscraper in Hamburg, the tallest office building in the country.

The rapid rise in interest rates from nearly 0% to 4.5%, along with the corresponding decline in property values, has led to the insolvency of the group founded and controlled by Rene Benko.

In the past, this magnate boasted that only the British royal family and the Catholic Church could rival his collection of real estate.

A real estate transaction expert explains that, in addition to Signa, Germany is particularly facing challenges in the real estate and residential construction sector due to the high level of corporate debt. This will lead banks to require additional capital contributions from shareholders as a condition for refinancing, and if investors are unable to provide their own funds, they will encounter difficulties.

However, such a development is not expected in Spain. "We believe there is no reason to think about the risk of infection," says Miguel Martinez, director of corporate finance at Colliers. "The main reason is that the level of debt among Spanish real estate companies is very moderate due to the conservative risk policies implemented by banks in recent years," he adds.

We do not see a threat of infection in Spanish real estate.

A real estate transaction expert explains that, in addition to Signa, Germany is particularly facing challenges in the real estate and residential construction sector due to the high level of corporate debt. This will lead banks to require additional capital contributions from shareholders as a condition for refinancing, and if investors are unable to provide their own funds, they will encounter difficulties.

• “We believe there is no reason to think about the risk of infection,” says Miguel Martinez, director of corporate finance at Colliers.
• “The main reason is that the level of debt among Spanish real estate companies is very moderate due to the conservative risk policies implemented by banks in recent years,” he adds.

The same applies to socimis (companies trading on the stock market and investing in real estate), as explained by Renta4: "Overall, socimis trading on the continuous market and on Ibex-35 have a fairly moderate level of debt," with a debt-to-asset ratio of less than 40%, "and without significant debt repayments until 2026, when unexpectedly high interest rates are not anticipated."

“We do not see a threat of infection in Spanish real estate,” agrees Inigo Laspiur, senior director of corporate finance at CBRE, also regarding construction companies. “Spanish construction companies have a very conservative capital structure with a low debt level of around 20% relative to asset value, and the financing market has been very strict in recent years regarding funding construction projects.

Martinez from Colliers emphasizes that although the overall debt level among Spanish real estate companies is moderate, value adjustments are leading to breaches of contractual terms in some financing agreements.

“Nevertheless, the fact that the financing has had moderate levels of debt to asset value from the very beginning means that there is enough room for negotiation with the bank. In most cases, these negotiations with the bank involve implementing a plan to sell assets in order to rebalance the debt level,” he suggests.

Both Renta4 and Colliers explain that further declines in real estate prices are expected until 2024, which will affect these levels of debt. "However, we believe this may result in a more restrictive policy from banks regarding financing operations in the real estate sector," notes Laspiur from CBRE.

Renta4 notes that there is also no pressure on real estate companies in the stock market, as their balance sheet structure "remains strong at the moment." For example, in the two social companies traded on Ibex-35, there are no signs of contagion. Merlin has improved by 4.93% this year (16.11% over the last six months), while Colonial has decreased by 0.16% in 2023 and increased by 8.08% over the last six months.

Thus, some large companies have already stepped up to ease the pressure.

For example, last year Merlin used a significant portion of the proceeds from the sale of its BBVA bank office portfolio, amounting to 2 billion euros, to reduce its debt level, which stood at 34% of asset value at the end of the first half of the year. Similarly, Inmobiliaria Colonial took advantage of its recent asset sales to eliminate doubts and bring its debt level down to 39%.

Affected shareholders and banks

The Benko family controls 66% of the Signa holding. Among the shareholders of the group and its subsidiaries are insurance companies, family offices, and sovereign funds. Notably, Austrian construction magnate Hans-Peter Haselsteiner, German Klaus-Michael Kühne, and the French Peugeot family stand out.

The difficulties with Signa are also affecting the loans of various European financial institutions. According to data collected by Bloomberg, Raiffeisen Bank has an exposure of 750 million euros, Julius Baer - 640 million euros, UniCredit - 600 million euros, as well as others like BayernLB, Helaba, DZ Bank, and NordLB, among others. It is unknown whether Spanish banks are among the creditors.

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