Santander will sell Spanish property assets for 4 billion euros (2.7 billion pounds) to help fund its participation in a bid for Dutch bank ABN AMRO , an official at the Spanish bank said on Wednesday. The official, confirming a report in El Pais newspaper, said Santander, one of Europe's biggest banks, would make capital gains of 1.4 billion euros from the sales and wanted to go ahead with them even if the ABN deal fell through.
This is a slice of the financing for Santander's participation in the ABN AMRO bid, but even if Santander weren't involved we'd be doing this anyway, the official said.
Santander's planned sale-and-leaseback of its offices comes amid worries that Spain's pricey commercial property sector may be close to peaking and as the country's long-booming housing market starts to cool, hurting property shares.
But a property market agent said Santander's timing was good, because there were still significant amounts of Spanish and international capital on the lookout for well located assets with prime tenants on strong and long leases.
There is no doubt that the pricing is perceived as expensive in central Madrid offices, but the way the capital is still there and the sentiment is still there, means this is as good a time as any, said Roger Cooke, head of Spain for property services firm Cushman & Wakefield.
Yields on office property -- a key valuation measure that tracks rent in proportion to capital values -- have fallen to as low as 3.5 percent in central Madrid and are comparable with the best prices achieved in central London, Cooke said.
The average office vacancy rate across Madrid is 7 percent but is less than 3 percent in some central areas, with little new supply expected until 2008/2009, he said.
El Pais said the information had been given to investors and analysts in a series of meetings related to the ABN bid, a three-pronged offer with Britain's Royal Bank of Scotland and Dutch-Belgian group Fortis to rival an earlier bid from Barclays .
The sale-and-leaseback deals will allow Santander to remain in current offices in Spain and will leave the bank with the option of buying back the buildings.
Cooke declined to comment on the likely pricing Santander may achieve, because it depends on the quality and length of the lease covenants on each asset, but he said Spanish investors were typically behind the most aggressive bids.
It was also unclear whether the Spanish bank would seek a block sale of all its assets, including one of Europe's biggest corporate headquarters -- the 160-hectare Santander Group City complex to the west of Madrid.
Europe's biggest bank, HSBC , in April agreed a $2.2 billion (1.1 billion pound) 20-year sale-and-leaseback of its global headquarters with Spain's Metrovacesa .