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Alternative Assets: Investors In Spain Get More Adventurous

16 March 2017 – Expansión

Over the last two and a half years, investors’ appetite for real estate assets and the lack of investment alternatives have resulted in a compression in yields in Spain. Parking lots, storerooms, gas stations, student halls and nursing homes/hospitals have sparked interest from investors specialising in alternative assets.

Although in some European countries, such as the UK, these business segments are already well established, the markets are not very mature in Spain. Nevertheless, they have potential for growth, according to the experts. “In Europe, total real estate investment volume amounted to around €254,000 million in 2016, of which 14% related to alternative assets. In Spain, that percentage was much lower”, explained Alberto Valls, Partner in Financial Advisory at Deloitte.

Nick Wride, Director of Alternative Investments at JLL, said that these sectors are consolidating in other countries, which means that the yields that investors can achieve in those countries are not as attractive anymore due to the (high level of) competition. “European markets such as Spain are becoming interesting again”, he said.

The Director of the Corporate Finance department at Aguirre Newman, Alfonso Aramendía Peralta, said that although it is a “relatively new” segment in Spain, it is sparking a lot of interest “given that it offers more attractive returns than those generated by more established products such as offices, residential assets and shopping centres, where there is more competition”. (…).

Valls highlights the advantages of these assets, which include, the high management component, as this leads to higher returns, albeit with higher risk, and the fact that these assets are less exposed to economic cycles than traditional properties. (…).

Sources at Knight Frank explain that these kinds of assets are known for their long-term lease contracts, which tend to last more than 10 years; moreover, they offer returns of around 6% or more in some cases. (…).

Fragmented market

The alternative real estate investment market includes assets ranging from parking lots to storerooms – a very fragmented segment – to health centres, nursing homes and student halls of residence, with a very significant management component. In this sense, Aramendía points out that they are assets that suffer more wear and tear, due to their intensive use and therefore, they require tenants that are able to commit CapEx to maintain them in good condition.

Whilst the volume of transactions involving alternative assets has been relatively low in recently years, if we consider the corporate operations undertaken by industrial groups that have a strong real estate component such as Quirón, Parkia, Vitalia and SARquavitae, then we see that 2016 was, in fact, a record year.

Consolidation

Experts think that the likely consolidation of these industrial groups will allow investors demanding higher volumes to enter Spain and may even lead to a boom in specialist Socimis, like has happened in other countries.

Moreover, according to the consultancy firms, one of the ways of financing the growth of these groups now involves the sale of properties to a fund specialisation in the real estate sector. (…).

Original story: Expansión (by Rebeca Arroyo)

Translation: Carmel Drake