Spanish Developer Fends off Bankruptcy

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If you're looking for a symbol for the Spanish property meltdown, Polaris World would be a likely candidate.

Formed at the top of the market, the company specialized in developing massive, high-density developments in Murcia, an arid region far removed from Spain's famed Costas. Primarily targeting buyers in the U.K., Polaris World built seven developments in Murcia, creating a sea of ridiculously overpriced villas when the market plummeted.


This week Polaris World worked a deal with its lenders to avoid bankruptcy proceedings, which has been looming over the company for months. In what looks like a sweetheart deal for the company, four banks agreed to spend €83 million ($110 million) to buy  finished homes, land and hotels, Spanish Property Insight reports.

The deal gives Polaris World liquidity and follows a €900 million deal the company negotiated last fall.

"Setting aside the clients and contractors suffering as a result of the company's financial problems, the big losers in this drama are the banks and cajas who lent the company money," writes Mark Stucklin of Spanish Property Insight. "All told they have agreed to swap more than a billion Euros of debt in return for assets of dubious value such as land in the Murcian back of beyond."

The deal also increases the inventory of land and units held by creaky Spanish banks, which already control tens of thousands of villas. Sooner or later the banks will have to begin selling those units, or at least acknowledge their true value, a black cloud hanging over the depressed Spanish market.

Meanwhile, one of the largest resellers of Polaris World units sent out a press release earlier this month trumpeting one bank's 90 percent mortgage offer on repossessed Polaris World villas, calling it "a sign of improving conditions in the Spanish property market."

Prices are typically 30 to 40 percent lower than 12 to 18 months ago, Villa Cashback notes in the release. "Bargain hunters have returned and investors are beginning to form a significant proportion of buyers with low interest rates, rock bottom prices and even a touch of speculation," the agency claims.

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