BANKING

Huge interest in sale-and-leaseback entity

huge-interest-in-sale-and-leaseback-entity

Major funds are positioning themselves to join the race to become the private investor to win the tender for operating the Property Purchase & Leaseback Entity. After the draft proclamation of the tender, set to begin this fall, representatives of investment funds with experience in property management consider the terms for the entity’s operation to be “investor friendly.”

The new bankruptcy code, also known as the second-chance arrangement, provides for the creation of an entity to which vulnerable households will be able to transfer their main residence if they have any unserviced bank loans, so as to avoid losing their home.

Based on the draft tender proclamation, the funds required for the purchase of properties is estimated at 2 billion euros; both the size of the investment and the terms of the tender requiring that the candidate buyer have a minimum of 10 years’ experience in property management point to a strong competition by funds positioned in the local market after buying large bad-loan portfolios.

The key attractions of the scheme will be the steady flow of money the entity will enjoy through the state subsidies toward debtors’ rent, and the option of the state’s participation in the funding of the entity through the provision of collateral.

According to the draft, besides its own investment, the entity will also be able to finance its property purchases and its general activity through borrowing from acceptable sources of funding to be determined later on – i.e. after the results of consultations with candidate investors emerge.

In that context, the state “will be able to choose to supply collateral to the entity as it chooses to; the sort, size, extent and yield of the collateral will be determined at a later stage, based on investor feedback.”

It is noted that the second-chance law allows indebted households to remain in their residence by conceding the ownership of their property to the sale-and-leaseback entity that will obtain the assets either via bankruptcy and auction or via an agreement with the debtor for the concession of the property. Households will have the right to repurchase their home after 12 years, provided they have been consistent in their rental payments.