02/01/2015 – El Confidencial
New year, new REITs. The corporate form that is revolutionizing the real estate sector will have in the first half of this year a new tenant who promises to expand the tax advantages of these companies to any small and medium-sized property owner, but who lacks the minimum capital of five million euros needed to start a company of this type.
Armabex Managers is the company whose aim is not to go to the market to raise money to invest in real estate, as has been seen up until now, but to directly capture individual properties and, with this formulated portfolio, go public. As President of Armabex, Antonio Fernández, said, “We are the first vehicle based on property raising, since the first contributions will be made only with assets, not money.”
The new REIT is launching with a Valencian investor who will provide 120 homes valued at about 10 million euros, ensuring the viability of the project; various other owners, who have already expressed interest in joining the project before beginning to trade on the MAB in the first half of the new year, will also partake. The requirements to participate in this process are to provide a preset minimum equity of 120 billion euros in available housing, either without charges or where the mortgage represents less than 50% of the property, and that have been for rent during a minimum of six months in the last year.
“The main advantage of this REIT is that it allows small and medium-sized property owners, who have either inherited their properties or are professionals who have been building an asset portfolio consisting of apartments, to liquidate and get a return without worrying about all the management problems that these properties entail,” said Fernandez.
In principle, the REIT will limit its action to Madrid, Barcelona, Bilbao and Seville, where it will have a network of real estate agents who will market the properties. In addition, each year there will be four ‘windows’ of liquidity, which will allow the entry of new members via transfers of assets and, after the first year, one window for cash investments.
REAL ESTATE SECURITIZATION
“To ensure transparency, we are in negotiations with two large real estate consultants, to select one which will be responsible for valuing properties according to clearly defined standards,” Fernandez said. These valuations are carried out each year to update the value of homes and put them in value also in terms of the ‘windows’ as they being opening each year.
Each property owner will have a share in the company based on the valuation of their assets over the total of the REIT. Alongside the annual dividend, they will benefit from the returns Armabex expects to obtain through the revaluation of assets, since the company is being created at a low point in the market — which gives the company confidence that the value of these properties will increase with time — and the management that the company will carry out by buying and selling assets.
From the third year onwards, Fernandez plans to start divestments of homes that have been provided to the company and, with the money earned, to buy other apartments, in addition to acquisitions that will take place after the second fiscal year with cash investments. “Our goal is to ensure an annual coupon of between 150 and 250 points above the ten-year bond yield plus the profit obtained with revaluation of the REIT”.
Being a listed company, the investors that provide their homes, if they need liquidity, may sell shares directly in the market, allowing them to easily monetize an asset as illiquid as housing. “Basically, this is a securitization of real estate,” said the president of Armabex, convinced that this type of product can be a solution, for example, to deal with issues based on property inheritance.
Armabex was the first firm to request the incorporation of a REIT on the MAB (Alternative Stock Exchange Market). It was in March 2013 when Armabez, as a registered advisor, coordinated Promorent’s entrance into the market, which solidified in November. Now it has decided to take a step further and create its own listed real estate investment company, acting as a consultant.
Original article: El Confidencial (by R. Ugalde)
Translation: Aura REE