A paralysed development is one of the few situations in real estate where the price is genuinely dislocated from the value, and it is also one of the few where the buyer can inherit problems that cost more than the discount. Both statements are true at once, which is why these transactions reward diligence more than instinct.
The licence is the first question, not the building
Building licences in Spain lapse. Municipal rules vary, but a licence granted years ago on a project that stopped may have expired, and reviving it is not always a formality: the applicable planning rules, technical building code and energy requirements may all have changed in the interval, which can mean redesigning to a current standard rather than resuming an old permission.
Before anything else, establish what permission exists today, whether works can lawfully restart, and what a renewal or new application would require in time and cost. A discount that assumes the old licence still works is not a discount.
What has been built, and what is registered
Physical reality and registered reality diverge in stalled projects. Works completed but never declared, a new construction never registered, a horizontal division never formalised. Each of these is fixable and each takes time, professional certificates and notarial work.
The technical condition matters as much. A structure left exposed for years may need testing rather than assuming. Where the original technical team is gone, someone has to take professional responsibility for what was built before anyone will certify what is built next, and that is frequently the hardest thing to procure in the entire transaction. Mandatory ten year insurance for residential work depends on technical control having been in place at the relevant stages, which is a problem to solve before completion rather than after.
In a stalled project the cheapest thing on site is the concrete. The expensive part is establishing who will certify it.
The debts that follow the property
Some obligations attach to the asset rather than the person, and a buyer takes them regardless of what the purchase contract says between the parties. Unpaid local property tax within the periods the law allows. Unpaid community of owners contributions for the current year and the three preceding it. Tax affections arising from earlier transfers that were self-assessed. Registered charges of every kind, in their order of priority.
The registry extract tells part of the story and certificates tell the rest, which is why the sequence set out in our note on the documents that decide a Spanish deal matters more here than anywhere else. Add to it the urban planning position: outstanding development obligations, contributions owed to a development board, and any infrastructure not yet handed over to the municipality.
When the seller is insolvent
Buying from a company in insolvency proceedings changes the rules. The sale may require court authorisation, the process has its own timetable and publicity, and the insolvency practitioner rather than the directors controls the outcome. In exchange the buyer typically obtains a cleaner position, because the process is designed to deal with creditors.
Buying from a company that is not yet in proceedings but is heading there is the more dangerous case. Transactions concluded in the period before insolvency can be reviewed and unwound where they damaged the general body of creditors, and a purchase at a price that cannot be defended as market is exposed. The protection is a defensible valuation, a price paid transparently, and advice taken before rather than after.
Buying the debt instead of the asset
Sometimes the better route is to acquire the loan secured on the asset rather than the asset itself, and then negotiate from the creditor’s position or enforce. This is a well established strategy in Spain and it has a particular local feature worth knowing: where a credit that is the subject of litigation is assigned, the debtor may in defined circumstances extinguish it by reimbursing the assignee the price actually paid, plus costs and interest. That right shapes how these transactions are structured and priced.
The route also demands a different kind of diligence, focused on the enforceability of the security and the state of any proceedings rather than on the building. We deal with the vehicle side of that in our note on structuring credit protection and distressed debt vehicles.
Financing the purchase
Banks are slow with distressed assets and frequently absent. Funding for these transactions comes from lenders who underwrite the asset and the plan rather than the borrower’s history, which is the market described in our note on private debt secured on Spanish real estate. Expect a conservative loan to value, expect the lender to want the works budget and the licence position evidenced before drawdown, and expect the exit to receive more scrutiny than the entry.
The transactions that work are the ones where the buyer has priced the discount against a real list of costs to fix, not against an assumption that the problems will turn out to be smaller than they look. In stalled projects they rarely do.
Montclare structures and arranges financing secured on European assets, and prepares the corporate and tax structure that sits behind it. Our services are set out on our services page.
This article is informational and does not constitute tax, legal or financial advice. Lending and credit intermediation are regulated activities and the treatment of any transaction depends on its facts. Each engagement is subject to scope and applicable regulation.