Thursday, December 11, 2008
Tycoon's Fall Is a Warning
By WILLIAM BOSTON
During every economic crisis, personal empires rise and fall, but the decline in the fortunes of Spain's Sanahuja family and its real-estate group, Metrovacesa SA, is a preview of what is in store for Europe's real-estate tycoons.
A week ago, family patriarch Roman Sanahuja Pons was the owner of some 80% of Metrovacesa, the fifth-largest property company in Europe in terms of assets. By the end of last week, Mr. Sanahuja had swapped shares amounting to 55% of Metrovacesa to pay off €2.1 billion ($2.72 billion) in debt to six Spanish banks.
The banks -- Banco Santander SA, Banco Bilbao Vizcaya Argentaria SA, Banco Espanol de Credito SA, Banco Popular SA, Banco Sabadell SA and Caja Madrid -- agreed to take control of Metrovacesa and to purchase an additional 1.8% of its shares each, bringing their combined stake to 65.8%.
Mr. Sanahuja still is fighting to retain his remaining 25% of Metrovacesa, which could dwindle to 4% if he fails to refinance another €1.4 billion in debt owed to HSBC Holdings PLC and La Caixa SA. The rest is owned by minority investors and in free-floating shares.
Metrovacesa wasn't available to comment.
The saga being played out in Spain is just the opening act of a bigger, painful drama that will grip Europe's property markets in coming months, said industry insiders and analysts. Creditors will take over property as owners can't generate the cash to service debt.
"Before it is over the banks will be the biggest landlords in Spain," said Carlos Ferrer, head of the Spanish residential-property business for property consultants Jones Lang LaSalle. Mr. Ferrer also heads a new line of business advising banks faced with bad property loans.
Spanish banks were stunned when Martinsa-Fadesa SA, one of the country's biggest developers, collapsed in July. Since then, Spanish banks have been accepting property in exchange for debt.
Some of the banks are hiring real-estate specialists to help develop property-management strategies. "The banks are looking at all options, but most realize it's better to hold on to the property now if they can," said Mark Creamer, head of CB Richard Ellis's loan and corporate-recovery service.
As global property markets soared, Spanish developers invested in residential property. According to the Bank of Spain, loans to property developers had soared to €313 billion by the end of June, almost 10 times the level of a decade ago when Spain's real-estate boom began.
But Spain's property bubble burst last year, as rising interest rates, a weak economy and rising unemployment led to a collapse in demand for residential housing, leaving more than a million completed new homes unsold.
When the market was hot, Mr. Sanahuja took big risks to expand his family empire. Over the past five years, Mr. Sanahuja raised his stake from less than 5% in 2003 to nearly 40% in 2006 in a battle for control of the company with Joaquin Rivero, who was Metrovacesa chairman at the time. Supported by minority shareholders, Mr. Rivero kept control until February 2007. Having reached a stalemate, Mr. Rivero conceded to Mr. Sanahuja and agreed to split the company. Mr. Sanahuja kept control of the Metrovacesa brand and the company's Spanish assets, while Mr. Rivero got the French assets.
In his bid to seize control of the company, Mr. Sanahuja's investment company, Cresa Patrimonial, borrowed as much as €4.3 billion in 2006, putting up about 38.1 million Metrovacesa shares as collateral.
As chairman of Metrovacesa, Mr. Sanahuja installed Jesus Garcia de Ponga, an executive from Mr. Sanahuja's Barcelona development company, Sacresa, as CEO. Under their leadership, Metrovacesa went shopping, culminating in the record purchase of the HSBC office tower on 8 Canary Wharf in London.
In a case of double leverage, both Mr. Sanahuja and Metrovacesa got squeezed by creditors. Mr. Sanahuja couldn't pay the service on his debt. And Metrovacesa, limping under €7 billion in debt, is selling assets under pressure and was forced to give the Canary Wharf tower back to HSBC last week. The deal allowed Metrovacesa to cancel a €950 million loan and reduce its debt by more than €1 billion to €5.9 billion.
—Christopher Bjork in Madrid contributed to this article.
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