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Spain’s biggest holiday home developer avoids bankruptcy with last minute deal over debt with banks

It has reached an agreement to swap debt for assets after four months of protracted negotiations. Four of its main lenders, all Spanish banks, will buy finished properties, golf courses, land and hotels in return for €83 million, according to reports in the Spanish press.
This will give the struggling developer a cash injection that it hopes will enable the business to continue until the real estate markets picks up.
This is the second time in less than a year that Polaris World has avoided bankruptcy proceedings. Last autumn it negotiated a €900 million debt-for-land exchange with its banking creditors. As a result its creditors now have to work out what to do with 6 million square metres of land in Alhama, Murcia.
Polaris World was founded in 2001 by local builders Pedro García Meroño and Facundo Armero. Armero sold out to Credit Suisse in 2006 for €500 million and Meroño is now the largest shareholder.
The company has seven golf developments in Murcia: Mar Menor Golf Resort, La Torre Golf Resort, El Valle Golf Resort, Hacienda Riquelme, Condado de Alhama, La Loma Golf Resort and Las Terrazas. At the top of the boom its turnover was more than €800 million and it had more than 2,000 employees.
Recent marketing from Polaris World have included 90% mortgages for overseas buyers for some of its developments. The company is hopeful that the real estate market recovery is underway in Spain.
Indeed, the latest figures from the National Institute of Statistics indicate that the property market grew by 16% in February compared to the same month last year. According to analysts the market has touched bottom and is starting to recovery after two years of decline but the improvement is patchy and volumes are still 47% below what they were in 2007.
And the latest property price index from Tinsa shows that prices fell by 5.3% over the 12 months to the end of March, a slight improvement on the previous month. The figures from Tinsa, one of Spain’s leading appraisal companies, are however based on their own valuations not actual transaction prices.
But there are no signs of foreign property buyers returning to the Spanish market. The latest figures from the Bank of Spain shows that the amount of money invested by foreigners in Spanish propeerty has fallen to the lowest level in a decade.
Foreigners invested €3.7 billion in Spanish property last year, the lowest level since 1999, when it was €2.9 billion. Foreign investment in Spanish real estate was down 32% last year compared to 2008, and by 48% compared to 2003, when foreign investment in Spanish property peaked.
But the weak economy, high unemployment and enormous inventory of new houses will slowdown any recovery in the Spanish market, according to a report from PricewaterhouseCoopers and the Urban Land Institute into European property market trends.
And according to another recent report from Deutsche Bank, a recovery is unlikely before 2012 and it might even be 2015 before there is an upturn.