The future of big real estate is in jeopardy even though the brunt of the crisis has past. In five years, more than 4,800 companies have gone bankrupt and the ones still standing have an uncertain future ahead of them.
In a report from Acuña and Associates, they say that nearly all real estate developers will be out of business within several years. However, it is curious that even though real estate companies are not selling homes (the big ones piled up 13.2 billion euros in debt in Q1 2014), some new players are on the scene, and they have money to spend and strong appetites for risk. They are foreign pension and international funds or simply opportunistic investors camping out in Spain waiting for prices to hit rock bottom so that they can buy cheap and sell for a profit. Nobody seems to be in a hurry.
The hunt for prime office spaces and shopping centers, however, is already heating up while senior real estate firms purge excess assets that have been crippling their business. Some are in bankruptcy proceedings right now and all are trying to restructure their debt.
It will not be easy for anyone to meet the Bank of Spain's stringent capital requirements, a factor that complicates the developers' efforts to refinance. Obviously, Spanish developers do not need to sell a million apartments every year. This is something that companies and the government should realize, because they have mistakenly funded rampant growth in the real estate market even though the demand is not there. Now is the time for a more productive business model that lays a firmer foundation for the real estate sector. If it can achieve this goal, then there is a chance it can bounce back and pay off the extraordinary debt.
