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Allan Saunderson is managing editor of Property Finance Europe and a contributor to GlobeSt.com.

MADRID-Struggling Spanish quoted property group Inmobiliaria Colonial, for the last year in the hands of its creditor banks, is considering setting up a new firm into which it could spin off some problem assets, particularly land for which the market has virtually dried up.

Media reports say the company would be set up together with private and saving banks, likely to include La Caixa and Banco Popular, which now, in effect, control Colonial. Should the initiative be successful, each firm contributing assets would receive shares in proportion to the value of assets they place, although Colonial would be put into the position of first among equals. The idea of a contribution fund is gaining ground in Europe as an option for dealing with illiquid assets, particularly for banks which have little or no asset management capacities to handle properties foreclosed from equity owners or sponsors.

The principle objective of Colonial in setting up the new firm would be to enable it to remove problem assets from the balance sheet subject to setting off 10% of their value. Colonial owns 1.7 million square meters of land, all or most of which could be put into the new company.

Based on the advice of Lazards investment bank, Colonial has reduced its debt level by 10% in the first quarter to €6.57 billion. The company has just completed the sale of the principle trophy asset of its Riofisa subsidiary, Principe Pio shopping center in Madrid to Corio for €126.5 million.

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