4/09/2014 – Expansion
Over the past months, investment experts and estate agents from the market have been hanging on to the idea that there might be a danger of lack of quality property to buy as a consequence of the recent flooding of the Spanish Reits – Socimis.
This year alone, three of them and a very similar vehicle went public on the Continuous Stock Exchange Market. Grupo Lar, Merlin Properties, Axia Real Estate and Hispania have jointly raised €2.6 billion at their IPOs and each of them promised to intend the funds for benefitting from the greatest bargains on the battered real estate market.
But not only these four investment tools have became listed recently. Also, four more Socimis floated on the MAB (Alterative Stock Market). ‘Spain has become a country where everyone wants to invest but the supply they believe in simply does not exist, neither in terms of quantity nor prices‘ a banker warned some time ago. ‘There are investors who do not even know what they are buying, creating a breeding ground for a collapse at the end of the year‘, he added.
Now, the Lar Group had to admit in front of its investors that these warnings were not trumped-up. At last week‘s presentation, the first Socimi to go public and entrusted by such giants as Pimco (a 12.5% stake) confessed that the competition on the property market has shot up and there are four factors negatively impacting the situation.
The Market Oveheats
First of them is the entrance of the three other Reits on the playground, as well as other large international investors who often snap up the same assets that Lar is interested in.
This should be added to better access to financing which has improved both in terms of cost and conditions. In turn, this pushes the demand up, even if the supply cannot meet it, Lar complains. ‘The number of assets for sale at the beginning of the year was insufficient, above all in the office segment‘. All these drastically cuts in selection range and fuels the overheating of the prices of emerging opportunities.´
In spite of that, Socimis decided to send a calming-down message to their investors: ‘the tendencies have not influenced the original plan in any manner‘.
Lar explained why it currently trades below the face value of its assets. Yesterday, its shares stood at €9.25 each, giving it a stock value of €370.3 million. And the figure is alarming given the vehicle raised €400 million at its IPO and has already spent €213 million since that time, therefore it underperforms.
The only thing that consolates Lar is that it is not a stranded case as the other Socimis also face this problem. To illustrate, even though Lar trades 8% below its flotation day, so does Merlin Properties (-1%) and Axia Real Estate (-6.5%).
Only Hispania has appreciated since going public (+1.6%).
Original article: Expansión (by Inés Abril)
Translation: AURA REE