You are viewing post The challenge of exploiting the Bank real estate portfolio
By Theodoros M. Mitrakos
Greek commercial banks currently retain in their balance sheets a significant real estate inventory, which has been gradually collected in the past, mainly through auctions. It is estimated that banks retain in their assets approximately 25 thousand real estate properties, of a total value of 6-7 billion euro, from which a percentage of 55%-60% are domestic, 30%-35% are commercial properties and the remaining percentage of roughly 10% are plots and farmlands.
The major part of this portfolio (around 65%), is situated within the two urban centers and mostly in Athens, whereas the remaining percentage is scattered around the rest of the country and only a small portion concerns properties abroad, which were acquired by the former or existing companies subsidiary to Greek Banks, located in Southeast Europe (ex. Bulgaria, Rumania, Cyprus).
The inventory of these properties is gradually increasing in the last years, since the properties acquired by the banks pursuant to auctions are more than the ones they promote in the market, at least until now.
Τhe banks, indeed, currently acquire almost 80% of the properties which undergo successful auctions, while a time-consuming procedure of “maturity”, lasting approximately from 8 to 12 months, is necessary before these properties are offered in the market for sale. In addition, according to the type, use, potentials, and other characteristics of each property, the banks are considerably cautious in their promotion activities, in order to avoid, to the extent possible, the recording of damages from the sale of properties they retain in their balance sheets. On the other side, the supervisory authorities are pressuring towards the decrease of this inventory through a specific programmed promotion of these properties in the market.
The commercial banks retain at their disposal various “channels” in order to promote these properties in the market deepening on their strategy and the characteristics of their portfolio. The separate disposal of properties through real estate agencies is the simplest version. Generally, this version applies to high-profile properties, as well as domestic properties in the region.
Several banks have already developed electronic platforms for the promotion of their properties, which may offer the option of competition procedure for the sale of the property. On both of the above occasions, the banks have prepared specific financial packages with favorable terms for the potential buyers. The sale of resembling properties as a combined total (“package”) is also a possible option, aiming especially at institutional or specialized investors.
Finally, the banks are able to acquire these properties through Special Purpose Vehicles (SPVs) and, consequently, transfer the shares of these companies to potential investors. These SPVs may correspond to one property or a group of resembling properties (thematic SPVs). The advantage of the SPV establishment is the additional possibility to dispose of properties for which the “maturity” procedure has not been completed yet.
The above situation was the current one before the outbreak of the pandemic, which has overturned fully all the prior facts. Indeed, the COVID-19 Coronavirus pandemic, along with the necessary measures of the state in order to contain its spread, has unavoidably affected dramatically the real estate market, as well as the above bank procedures for the “maturity” and promotion of these properties in the market.
The demand from abroad, which was leading the market recovery during the last trimesters, is now non-existent, with significant deals being “frozen” or even canceled. The domestic interest for transactions regarding properties has been grounded, both in supply and mainly in demand, since the uncertainties for the duration of the current crisis and the effects in the real economy are very high and it is currently impossible to define the new balance spot of the market.
*Deputy Director of Bank of Greece