18 May 2015 – Expansión
Strategy / The US firm, which was one of the first investors to arrive in Spain, has become the largest owner of land in the country after purchasing the real estate arm of Kutxabank. It also owns loans relating to large hotels and shopping centres.
It is neither a vulture fund nor an opportunistic fund. Lone Star is a patriotic fund. That is the mantra repeated by Juan Pepa (pictured above) at every forum he attends. The 37-year old Argentinian, former polo player, is the head of Lone Star in Spain and Portugal, the private equity fund that last week took over the baton from Vallehermoso, Reyal Urbis and Martinsa Fadesa, to become the largest property developer in the country. “Opportunistic funds are patriots because there was a need to bring confidence to Spain and we did it”, explained Juan Pepa two weeks ago at a real estate conference in Madrid.
Last week, Lone Star formalised the purchase of Neinor, the real estate arm of Kutxabank, with assets worth €1,000 million. Of this amount, around €590 million correspond to homes that are finished or under construction. The rest relates to land, which will be added to other land acquired from banks and property developers (€300 million). The fund aims to promote more than 3,000 homes each year; this year it will invest €1,000 million on the purchase of land. But, who is this new property developer?
This private equity firm was created in 1995 by the Irish-American John Grayken. Since its creation, it has launched 14 funds with a total volume of $54,000 million. Its investments range from properties, to debt, to other financial assets.
In the case of the real estate business, Lone Star’s first investments focused on Canada, and so it became a global investor in 1997. It closed its first transaction in the Spanish market in May 2014. However, by that point, Juan Pepa and his team had already been studying the market for several years. The first in-roads were made between 2010 and 2011, with Pepa’s monthly visits to Spain. During his stays in Madrid, the director met with advisors and managers of large real estate companies and although the sector was at the peak of its crisis, he told them that he wanted to purchase assets in Spain. “He made offers for buildings under development and for companies, but none of those deals were closed, due to a lack of agreement in terms of price. The offers were aggressive”, explained one of the advisors who often works with the US fund.
In the end, Lone Star’s first transaction in the Spanish real estate sector was through debt. The company purchased a portfolio (called Octopus) in May 2014 containing non-performing loans from the bank Eurohypo for €3,500 million (two thirds of its nominal value). These loans were secured by numerous properties, including several shopping centres: the H2O in Rivas (Madrid); Zielo in Pozuelo (Madrid); Dolce Vita in A Coruña; MN4 in Valencia; and hotel debt, including the Ritz and Gran Melia Fénix, both in Madrid.
It was not its first bid for a real estate portfolio. In the summer of 2013, Lone Star was about to purchase the Bull portfolio, the first package sold by Sareb. In the end, the portfolio was awarded to the fund HIG, much to the upset of Lone Star’s managers.
For the management of its assets, Lone Star relies on a company called Hudson Advisors (also owned by the founder of Lone Star). Headquartered in Madrid, Hudson, “manages, administers and adds value” to the investments made by Lone Star. Between the teams at Hudson and Lone Star itself, the fund has more than one hundred employees looking for opportunities in the Iberian Peninsula, since the US fund is not only interested in Spain. In April, it bought the Lusort Vilamoura complex in the Algarve (Portugal) for €200 million.
After purchasing Neinor, Lone Star has joined its teams together in a single office building located on the Paseo de la Castellana in Madrid. The most senior executives from the US fund attended the opening, just a few weeks ago; as well as enjoying the party at the new headquarters of Lone Star in Spain, they also visited some of the assets that the fund has foreclosed from the Octopus portfolio.
The ambitious commitment by Lone Star has resulted in a revolution in the sector, which does not doubt that it will provoke a ‘pull effect’ on other international investors, which will start to see land in Spain in a different light.
Original story: Expansión (by Rocío Ruiz)
Translation: Carmel Drake