* Santander agrees in principle to sell Altamira to Apollo
* The deal with Apollo could be worth 700 mln euros- sources
* Popular also received bids for Aliseda unit- sources
* Foreign investors main bidders for the property managers (Recasts with confirmation from Santander, adds Popular's Aliseda sale)
By Sarah White and Jesús Aguado
MADRID, Nov 21 (Reuters) - Santander is to sell its real estate management business Altamira to U.S. private equity group Apollo Global Management, likely to be the largest deal of its kind so far in Spain where the property market is starting to thaw.
Several banks have sold or contracted out property management businesses this year, capitalising on interest from foreign investors hungry for deals in the wake of Spain's five-year real estate slump.
Banks in Spain, like peers across the euro zone, are raising capital before a Europe-wide health check on the sector next year. But many are still reluctant to sell properties on their books at steep discounts.
In the Altamira deal, Apollo will take over the business that manages bad loans and properties owned by Santander, but not actually buy Santander's property assets. The deal is worth about 700 million euros ($942 million), two sources familiar with the transaction said.
Santander, Spain's biggest bank, said in statement it had struck an agreement in principle with Apollo European Principal Finance Fund II and that full details of the agreement would be finalised in the coming weeks, including the price.
Santander had 9.9 billion euros worth of property loans and foreclosed housing in Spain at the end of the third quarter.
Smaller rival Banco Popular is also selling its property management business Aliseda. Several foreign investors have submitted bids ranging from 450 million to 600 million euros, three sources familiar with that deal said on Thursday.
Popular declined to comment on the deal, which is also unlikely to involve the bank actually selling its properties.
The value of these transactions could change because the price partly depends on the fees banks agree to pay the funds for selling properties, banking and fund sources said.
"The higher the fees, the more the contract is worth," one banking source said.
Property prices in Spain have fallen around 40 percent since 2008. The country had to ask for a 41-billion-euro rescue from Europe last year to bail out the worst-hit banks, whose real estate loans turned sour, resulting in widespread repossessions.
The government has forced banks to take provisions against troubled property assets, but many are still reluctant to sell them on to funds who ask for even bigger discounts.
Investors are hopeful that by buying property management businesses to handle the portfolios, they will now be in a stronger position to convince banks to sell on bundles of properties, real estate loans and also soured debts to small companies.
"In the past investors also wanted servicing agreements when they were buying assets, and it wasn't very attractive for the banks," one senior Madrid-based investment banker said.
"Now they are trying to buy the servicers, they have understood they can add more to the equation that way."
Foreign investors are starting to gain greater prominence in Spain through these deals. Apollo also became one of the few private equity firms to buy a bank in Spain during its financial crisis when it purchased small Evo Banco in September.
U.S.-based Cerberus Capital Management, Lone Star, Centerbridge and Kennedy Wilson, which is working with Varde Partners, are among the bidders for Popular's Aliseda, the three sources familiar with that deal said.
Cerberus and Lone Star declined to comment, while the other firms could not immediately be reached for comment.
Cerberus already won the contract to manage properties and developer loans for state-rescued Bankia, for between 40 million and 90 million euros, over 10 years.
Caixabank also sold 51 percent of its property management unit to TPG Special Situations Partners, while rescued Catalunya Banc sold its platform to Kennedy Wilson and Varde Partners.