Not Enough Quality Property For the Socimi Boom

29/04/2014 – El Economista

Spain´s REIT firms (widely known as Socimis by their local acronym) are presently the main and the fastest growing players on the market. However, the same factor that adds to their popularity may turn out lethal to them. 

In just a few months, such large listed trusts as Merlin, having €1 billion to invest in assets or Hispania and Lar that dispose of €500 million each, broke into the market. According to Patricio Palomar, Research Director for CB Richard Ellis, the existence of these investment vehicles influences positively the market´s health but the high amount of the capital they possess wakes worries within the sector as Spanish property may not be enough to meet the money disbursement.

The three firms “have got €2 billion, with assumption of a 50% deleveraging the amount can inflate to €4 billion, and that is a lot of money. If they are not able to purchase for the value of the capital they have raised, the system will strangulate and they will be forced to start selling”, explains Palomar.

Socimis are obliged to buy rented assets casting low risk and their shareholders expect considerable returns.

Oriol Barrachina, Cushman & Wakefield´s CEO claims that in order to solve deadlock, obsolete property problem and develop it and launch on the stock market, changing their use will be necessary.

“Barcelona has already tested this pipeline with office assets by converting 5.5 million square meters into residential use and therefore obtained better yield”, he says.

Moreover, he adds that due to the fact that Barcelona experiences shortage in hotel use property type, more assets shall be converted into hotel spaces.

One of the most illustrative examples might be the Torre Madrid owned by Metrovacesa which changed its use from office to luxury apartment and hotel type.

As the lack of investment over the past years brought obsoleteness to offices, both experts agree that cities should invest in their renovation.

At the moment, CBRE´s forecasts are optimistic as the firm predicts a €5 billion investment in Spanish real estate throughout 2014.

 

Original article: El Economista (by Alba Brualla)

Translation: AURA REE

43