The toxic real estate asset fund known as Sareb wants to help small- and mid-sized real estate companies by helping them to avoid debt defaults and purchase more properties from the fund. The institution, led by Belén Romana, has realized that doing business with small real estate companies will not yield tremendous profits, but does offer lower risk. With that end in mind, Sareb is ready to renegotiate discounts of between 30% and 56% over the next three weks. This offer will be called Plan Oportunidad 2013.
Where will the discount come from? Banks that received state bailout funding transferred 250 billion euros of real estate assets to the Sareb at prices that were 30% to 56% less than their book value. The Sareb can work within these margins because the developers still maintain this debt.
Sareb is prepared to earn less in profits, but not to lose anything, and this is the limit of the loan discounts that will be offered to small- and mid-size real estate developers. In other words, the discount cannot exceed the book value of a particular property on the date of its sale. Romana's goal is to reduce the amount of risk on the Sareb's balance sheet as soon as possible and avoid having to raise more capital. A debt discount is not the only option being offered. Other possibilities such as lower interest rates and more relaxed payment terms are being considered.
Several months after the Sareb was created, its efficacy is already being called into question. Despite real criticisms, it looks like the "bad bank" could work. The plan to work with small businesses could provide a needed boost to the real estate sector just when the industry is at its nadir. Still, the sector will need to deal with its enormous amount of debt.