UPDATE 2-Commerzbank gets five final bids for Spanish property loans-sources

Tue May 6, 2014 12:35pm EDT

(Adds fifth bidder)

By Arno Schuetze and Jesús Aguado

FRANKFURT/MADRID May 6 (Reuters) - Commerzbank AG has attracted five final bids for a multi billion-euro portfolio of Spanish property loans, being sold as it takes advantage of a recovery in the country's real estate market, sources close to the transaction said.

Germany's second-biggest lender is expected to enter exclusive negotiations with one of the bidding consortiums within four weeks and is likely to sign a deal by the end of the quarter, added the sources.

The loan package of between 4 billion euros ($5.5 billion) and 4.5 billion is one of the biggest to be auctioned after Spain's six-year real estate slump as lenders move to clean up balance sheets.

Unusually, however, it is drawing interest from several other banks which are teaming up with private equity firms to bid.

The package is made up of about 1 billion euros in non-performing debt, while the remainder is about 3.3 billion euros in performing loans backed by office blocks and shopping centres rather than debts related to residential homes which have more commonly been offered to investors.

Suitors include U.S. private equity firm Lone Star, which is bidding with JPMorgan, while Blackstone is working with Deutsche Bank. Apollo has put in a joint offer with Spain's Santander, Cerberus is in the running with Goldman Sachs, the sources said.

U.S. real estate firm Kennedy Wilson and investment group Varde Partners, which have already invested together in a property management business in Spain, also lodged a joint bid, two of the sources said.

Commerzbank and the banks and funds declined to comment, as did Lazard, which is handling the auction, known as "Project Octopus." Varde could not immediately be reached for comment.

The package is likely to sell at far less than its face value, with bidders placing offers at varying discounts.

Commerzbank, which was rescued by the state during the financial crisis, has been one of the biggest bank sellers of soured debts in recent months, partly in preparation for a European review of banking assets. ($1=0.7205 euros) (Additional reporting by Alexander Hübner in Frankfurt, with Robert Hetz and Sarah White in Madrid; Editing by David Holmes and Greg Mahlich)

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