Election Fallout: Uncertainty May Deter Investors & Delay Large Deals

28 May 2015 – Cinco Días

Experts predict that there will be an impact on the rental market and on the sale of debt portfolios. They warn that Madrid and Barcelona will be affected by anti-eviction initiatives.

The rise of political parties advocating the suspension of mortgage foreclosures, the relocation of evicted families (to vacant properties owned by banks and Sareb), and the end of sales of public properties to private owners, at the elections last Sunday, has put the international investment funds, which have been arriving in Spain in recent years with a renewed hunger for property, on alert.

Experts in the market say that although we are still waiting to see the specific impact of these initiatives by the governments, which depend on pacts that are just as uncertain, the situation will cause funds to reduce their already low purchase offers and to postpone large transactions until they know the results of the general elections, scheduled for the end of the year.

“Madrid and Barcelona are the showcase for the country”, explains Mikel Echavarren, CEO of the real estate consultancy firm Irea, predicting that the expected appointment of Ada Colau (Barcelona en Comú) and Manuela Carmena (Ahora Madrid) as the mayoresses of the two large capital cities, “will cause investors’ interest to disappear for four years” in all areas “that depend on decisions by local councils”.

In his opinion, there are three areas of particular concern. On the one hand, the suspension of evictions – or their delay, because, as Echavarren points out, municipalities do not have the legal power to eliminate them altogether – because that would result in a penalty for the budding rental market and above all “longer timeframes, more uncertainty and lower prices” in the offers made by funds for packs of credit with real estate collateral.

Secondly, proposals such as the one made by Colau to suspend the opening of new hotels in Barcelona, “which is one of the most important hotel markets in the world”. And thirdly, the review of the general urban plans in Madrid and Barcelona.

“Either you have a local council that is “pro-business” or investors pack their bags and take their money elsewhere”, warns the director of an investment fund who asked to remain anonymous, stating that “Anglo-Saxon capital does not understand it when urban development is not encouraged”.

“Any change represents uncertainty and money flees from uncertainty”, says Julio Gil, Chairman of the Real Estate Research Foundation (Fundación de Estudios Inmobiliarios or FEI), bearing in mind that as a minimum “funds will consider their investments in Spain to be more risky and therefore will demand high returns”.

Nevertheless, Gil states that for the time being this support for social rather than economic policies is only being seen at the local government level and, to a lesser extent, at the regional government level, but he thinks that the fear of what might happen in the general elections this year may well “delay several (large) transactions” as investors wait to see the outcome.

“The greatest risk is that we drop off of the radar of investors”, warned sources yesterday at ETC Real Estate, a new platform for the management of debt and mortgaged assets, promoted by TDX Indigo, Equifax and Cobralia.

Its partners expect that funds will lower their asset purchase offers, but argue that the change in the political paradigm will make it necessary to promote alternative means of eviction, such as discounts and “daciones en pago” (delivery of the deeds in lieu of payment), amongst others. A management model they promote, they assure, to the funds and banks to whom they render services.

Original story: Cinco Días (by Juande Portillo)

Translation: Carmel Drake

CBRE: Madrid Is 6th Most Attractive City For RE Investment

19 May 2015 – Expansión

Madrid is the sixth most attractive city in the world for real estate investors, behind London, Tokyo, San Francisco, Sydney and New York, according to the Global Investors Intentions Survey, compiled by the real estate consultancy CBRE, based on responses from 700 international investors.

Thus, the Spanish capital is more attractive that most other major cities, including Paris and Los Angeles, thanks to a 98% increase in the volume of real estate investment in 2014 with respect to the previous year; the second highest increase after San Francisco, which rose by 126%.

The study notes that optimism has returned to the international investment market thanks to improvements in the economic outlook and in confidence, although it underlines the intense competition that exists when it comes to acquiring assets and the doubts that still exist about the weakness of the economy.

Thus, 53% of international investors expect to increase their exposure to the real estate sector.

Moreover, it seems that demand exceeds supply and that there is significant interest in trans-regional transactions, with Western Europe being the most favoured region, followed by Asia Pacific.

By sector, offices are the assets of choice for 33% of investors, whilst retail sales have experienced the largest decrease.

It also notes the increased interest in logistics warehouses, up from 14% last year to 17% in 2015.

The acquisition of real estate debt is another option that investors are seeking, as well as student accommodation (halls of residence), assets relating to the health sector and retirement homes.

International investors seem to be willing to take on increasingly more risk, in search of higher returns. 51% of those surveyed said that this year they will focus on opportunistic and value added assets, whereas last year only 43% were interested in such assets.

This increase has been observed above all in the United States and in the regions of Europe, the Middle East and Africa. By contrast, there seems to be greater interest in prime assets in Asia-Pacific.

Original story: Expansión

Translation: Carmel Drake