| Spanish property developer Llanera goes bust | | | | bankrupt is the last thing you want. |
| Charlton Athletic fans should recognize the name | | | | "Llanera is a special case because of its borrowing," |
| Llanera because it is emblazoned across the front of | | | | argues Javier Illera, a director of Grupo i, a Spanish |
| their team's shirt. The name might not mean much to | | | | real estate research and consultancy firm that |
| them, as the shirt doesn't give much away, but it | | | | produces reports on the holiday home sector. "Most |
| doesn't matter now anyway because Llanera has just | | | | other developers may see their profits squeezed, but |
| gone bust. Charlton hasn't had much luck on the pitch, | | | | there will be no crisis." |
| having been relegated from the premier league, nor | | | | But given the present state of the market there are |
| off the pitch with sponsors, the last two of which | | | | certainly grounds for concern. According to Grupo i's |
| have gone under. | | | | latest report annual demand for new holiday homes in |
| Llanera (pronounced ya-nera) is, or perhaps I should | | | | Spain is around 90,000, but 140,000 are built each |
| say was, a Spanish property developer with grand | | | | year, so the stock of unsold properties must be |
| plans for the British market. Unfortunately for | | | | growing. Furthermore 80% of developers recently |
| Charlton, not to mention the fans who decided to | | | | surveyed by Grupo i report that sales are worse or |
| buy a Spanish holiday home from the club's sponsors, | | | | much worse, and 77% have a negative or very |
| Llanera has run out of money, and has been forced | | | | negative outlook. Average sales times are on the |
| to seek protection from its creditors. When an | | | | rise, and official figures from the government show |
| unheard of Spanish developer spends 6.6 million quid | | | | that average price increases over 12 months to the |
| sponsoring an English club, you can assume that cash | | | | end of June fell to 3.9% in Malaga province (Costa |
| flow problems won't be far behind. Football | | | | del Sol), 2.1% in Alicante (Costa Blanca), 6% in the |
| sponsorship is a mug's game best left to household | | | | Canaries, 7.1% in Girona (Costa Brava), 7.8% in the |
| names that the British can pronounce, like Northern | | | | Balearics, 8.7% in Tarragona (Costa Dorada), and |
| Rock! | | | | 9.5% in Murcia - on the whole a far cry from the |
| Of course sponsoring Charlton wasn't Llanera's only | | | | double digit rates of just a few years ago. And |
| mistake. The company, whose strategy was to | | | | government figures probably flatter the situation, as |
| develop affordable holiday homes in Murcia and the | | | | the agents I have spoken to in several popular areas |
| Valencian Region for British buyers, also borrowed | | | | like the Costa del Sol and Murcia say that prices have |
| heavily to buy rural land in the hope of getting it | | | | been stagnant or falling for some time. "It is not a |
| reclassified for residential development. In a recent | | | | crisis, it is a market reaching maturity," says Illera, but |
| statement Llanera has admitted the error of | | | | you don't need an MBA to work out that some |
| borrowing short term to fund uncertain long term | | | | developers must be under increasing strain as sales |
| projects. By the end of 2006 Llanera had 750 million | | | | fall and borrowing costs rise. |
| Euros in debts, 150 million of them with the US | | | | So what do you do if your developer goes bust |
| investment bank Lehman Brothers, and only 6 million | | | | before completion? It depends if the developer has |
| Euros in sales. | | | | guaranteed all your payments with a bank or |
| Llanera's flagship project was a golf development in | | | | insurance company, as required by Spanish law, |
| Murcia called Nature Caravaca, near the inland town | | | | though some developers flout the law as arranging a |
| of Caravaca de la Cruz, where it planned to build | | | | guarantee costs money. "If you have a guarantee, |
| 3,000 homes in a joint venture with other investors. | | | | then you should claim your payments from the |
| Problems emerged when planning permission took | | | | guarantor through your lawyers," explains Brian |
| longer than expected, and the Spanish property | | | | Marson, head of Legal Answers, a firm of solicitors |
| boom started to turn sour. But what really did it for | | | | based in Marbella. "It is important not to leave this |
| Llanera was this summer's credit crunch after the US | | | | too late, as there is normally a deadline for making |
| subprime mortgage crisis. Rather like Newcastle | | | | claims. If some or all of your payments are not |
| United's sponsors Northern Rock, Llanera's access to | | | | guaranteed then you have to stand in line with the |
| short term loans dried up, and the company ran out | | | | other creditors." Needless to say you should never |
| of cash. | | | | buy from a developer who does not provide stage |
| Whatever its other faults, at least Llanera doesn't | | | | payment guarantees from an authorised financial |
| appear to have been selling properties without | | | | institution. |
| planning permission at Nature Caravaca. Llanera only | | | | The problem is that many developers take months |
| took reservation deposits of 3,000 Euros from British | | | | to arrange guarantees. "There is a real problem with |
| buyers interested in purchasing when licences were | | | | developers dragging their heels over guarantees," |
| obtained, and the company Nature Caravaca Golf, | | | | explains Marson. "It's not like in the UK, where all |
| which will now proceed without Llanera, say that | | | | payments are automatically covered by the National |
| reservations will be refunded in full if requested. | | | | House Building Council system." |
| Llanera's problems do, however, highlight the risk of | | | | Does this mean that buying off-plan is now off-limits? |
| developers running into financial problems in a difficult | | | | Far from it. The advantages of buying off-plan still |
| market. | | | | suit many people, and I expect a difficult market to |
| What makes this case alarming is that Llanera was | | | | improve standards. It will force serious developers to |
| one of the rising stars of the Spanish property | | | | become more competitive, and focus on adding value |
| business. With an aggressive expansion plan financed | | | | for their clients. And in the short run I expect a flight |
| by debt, the company took full advantage of the | | | | to quality, as the best developments grab an |
| Spanish property boom in the first half of this | | | | increasing share of the market, which could create |
| decade, and emerged from obscurity as a small | | | | unexpected opportunities for investors. |
| player in the Valencian Region to become one of the | | | | Nevertheless the risks are on the rise, so before you |
| biggest names in the holiday home sector. | | | | buy from a developer find out exactly how long they |
| The big question is, are Llanera's problems an isolated | | | | take to provide a guarantee, and be wary of those |
| case, or a sign of things to come? It's an important | | | | who take longer than a couple of weeks. Ideally your |
| question for anyone thinking of buying in Spain, | | | | payments should be guaranteed the moment you |
| especially on a new development, as handing over a | | | | make them, but I have yet to meet a developer |
| chunk of your life's savings to a developer who goes | | | | who can do this. |