Ghost Towns Still Haunt Spain in Property Rebound a Decade After

25 November 2018 – Bloomberg

Juan Velayos’s biggest headache these days is getting licenses fast enough to hand over new homes such as the upscale condos his company is building in the northern suburbs of Madrid.

Less than 60 miles away, Ricardo Alba’s neighborhood tells a different story about Spain’s property market. The fencing instructor is one of only two occupants at a block of apartments whose development was frozen in its tracks when banks pulled the plug on credit.

“The real estate sector’s recovery in Spain is developing at two clearly different speeds,” said Fernando Rodriguez de Acuna, director of Madrid-based real-estate consultancy R.R. de Acuna & Asociados. “While one part of the country is consolidating the recovery of the sector and even expanding, another part of the country is stagnating and is showing few signs of returning to pre-crisis levels in the medium- and long-term.”

A decade after the financial crisis hit, Spain’s real estate recovery is a tale of two markets. Key cities and tourism hot spots are enjoying a fresh boom, fueled by interest rates that are still near historic lows, an economic recovery and a banking system that’s finally cleaning up its act. Private equity firms such as Blackstone Group LP are picking up once-toxic assets worth tens of billions of dollars and parsing out what’s still of value, often using their playbook from the U.S. real estate recovery to convert properties into rentals.

But travel a little beyond the bustling centers, to the outskirts of smaller villages, and ghost towns still litter the landscape — once ambitious developments, often started on agricultural land that was converted into building lots just before the crisis hit. They still stand half-finished, unable to find a buyer.

The “Bioclimatic City La Encina” where Alba began renting an apartment two months ago is one such development. Situated on the edge of the village of Bernuy de Porreros, about 10 kilometers (6 miles) from Segovia, it promised to be Spain’s first environmentally-friendly town, providing solar energy and recycled water for 267 homes, comprised of two-, three-, and four-bedroom chalets and apartments. A faded billboard speaks of the dreams that were sold, including communal swimming pools and gardens for residents who would “live… naturally.”

Today, only about a dozen of the homes are occupied. One street has finished homes but half have their windows bricked up to discourage break-ins, locals said. Alba does have solar panels heating his water, but his electricity comes from the local network. On the far side of the development, trees sprout out of the middle of a street that was never paved. Brightly-colored pipes and cables protrude from the ground. Bags of plaster on a pallet have long hardened.

Spain’s housing crash was fueled by a speculative frenzy combined with loose restrictions and corruption that allowed plots of farmland in rural villages to be converted to feed a demand for homes that never truly existed, said Velayos, who is chief executive officer of Neinor Homes. At the height of the boom in 2006, authorities approved 865,561 new home licenses when even in an economic boom demand is no greater than 250,000 homes, he says.

Banks were handing out loans to developers who had little to lose if a project didn’t find a buyer because the money wasn’t theirs. The result was an almost total collapse of the market and close to $200 billion of soured assets.

About half of them were bought in 2012 by Sareb, a bad bank set up by the government to help lenders. Sareb spent about 50 billion euros to acquire assets that were once valued at twice that amount, mostly loans to developers and real estate. Among the latter are also 97 of the 267 properties at La Encina. None of them are currently for sale as Sareb works through legal issues and construction of many isn’t finished.

Other assets were picked up by deep-pocketed investors such as Blackstone, which has 25 billion euros invested in Spain, according to Claudio Boada, a senior adviser at the firm. The New York-based company — the world’s largest private markets investor — is doing what it did at home after the financial crisis: renting out homes instead of selling them in a bid that fewer people can afford to own. Spain had a relatively high home ownership rate before the crisis but it has since come down.

Blackstone’s Bet

“We’re holding most of what we own and looking to rent it out for the foreseeable future,” said James Seppala, head of real estate for Europe at Blackstone. “There’s a meaningful increase in demand for rental residential around the world, including in Spain, driven by home ownership rates coming down.”

Private equity investors also backed a new breed of real estate developers that are bringing a different rigor to the industry. Companies such as Neinor and Aedas Homes S.A.U. are more tech-savvy when assessing markets, and emphasize industrial production techniques to improve efficiency. They’re behind a surge in licenses for new homes to 12,172 new homes in July, the highest monthly total in a decade.

But demand is uneven: Madrid is enjoying its most robust year of home construction since 2008 with an average of 2,151 licenses awarded per month in the first seven months of the year. In Segovia, just 27 minutes from Madrid on the state-run bullet train, an average of 25 homes licenses have been approved per month in 2018, compared with an average of 180 homes a decade earlier.

The volume of residential mortgages sold in Spain peaked in late 2005 before hitting a low in 2013. Since then they have gradually picked up, with 28,755 sold in August, a seven percent annual increase.

Velayos, chief executive officer at Neinor, said business is starting to pick up beyond Madrid and Barcelona to smaller cities and the coast. His company plans to hand over 4,000 homes by 2021, more than 12 times as many as in 2017. The biggest challenge has been getting licenses approved on time. Velayos had to cut his delivery target for 2019 by a third as often understaffed local councils cause bottlenecks in the production process.

More significantly, Spain’s real estate is now funded by investor’s equity and not credit, said Velayos. Neinor was bought by private equity firm Lonestar Capital Management LLC from Kutxabank SA in 2014 and went public in March 2017. Aedas is backed by Castlelake, another private equity investor, and was floated the same year. Metrovacesa SA, owned by Spain’s biggest banks, held an initial public offering earlier this year.

Shares of all three developers have declined this year at more than twice the rate of the local stock index, a reminder that the market’s recovery remains fragile, with higher interest rates and an economic slowdown on the horizon.

For the Bioclimatic City La Encina, that means it may take longer still until Alba gets new neighbors. Prices for half-finished chalets were slashed by half, according to residents. Some now sell for as little as 16,700 euros, half the cost of a mid-range car.

Alba doubts such cuts will lure buyers. Then again, that may not be a bad thing, he says in summing up the development’s advantages: “It’s very peaceful.”

Original story: Bloomberg (by Charlie Devereux)

Edited by: Carmel Drake

Spain No Longer Features in EU’s Top 10 Home Ownership Ranking

23 March 2018 – El País

77.8% of citizens resident in Spain own their own homes. In this way, the country was placed in 13th position in the ranking of European Union (EU) countries in terms of this parameter in 2016, one place below its position the previous year – after being overtaken by the Czech Republic – according to data from the European statistics institute Eurostat, and well outside of the Top 10. Compared to the European average (69.2%), the Spanish figures are still high, although each year, the percentage of homeowners is decreasing slightly to the benefit of the rental market. Ownership fever dominates in Eastern Europe, in particular, where the percentage exceeds 90% in many countries.

In 2007, the first year for which Eurostat compiled data for Spain, the country was ranked in 9th place in terms of the number of citizens owning their own home, with a percentage of 80.6%. Thus, between then and 2016, the rate has been decreasing slightly at the same time as the rates in other countries have been increasing, relegating Spain to lower positions in the ranking.

“In Spain, home ownership is decreasing slightly each year due to the economic conditions and the difficulty in accessing a mortgage”, explains José García Montalvo, Professor at the Universidad Pompeu Fabra, who points out that nowadays you need to have a permanent (employment) contract to be granted a mortgage, whereas, in 2007, you could have been a temporary worker. García Montalvo also argues that society has changed and young people – who are finding it harder to access real estate loans due to their employment conditions – regard the purchase of a home as a “problem” (…).

The professor says that the price of rental homes is rising due to greater demand, and he does not think that the decrease in home ownership is a phenomenon that is going to reverse despite the rent increases. In 2017, the price of rental homes in Spain recorded its third annual rise. The average price grew by 8.9% in 2017, the highest ever increase in the historical series of the real estate portal Fotocasa’s index, which has been compiling data since January 2006.

Eastern European countries lead the home-ownership statistics

In 2016, Romania was the country where the highest percentage of citizens owned their own home, with 96%. It was followed by Lithuania, with 90.3%; Croatia and Macedonia, with 90%; Slovakia (89.5%); Hungary with 86.3%; Poland, with 83.4%; Bulgaria (82.3%); Estonia and Malta, with 81.4%; Latvia with 80.9% and the Czech Republic with 78.2%. “The countries where citizens are most committed to buying their own home are primarily those in Eastern Europe. This is partly a result of the fact that many of those regions were communist countries and that when the market was opened up, it was shared out and everyone got involved”, says García Montalvo.

By contrast, the data from Eurostat shows that the citizens of countries with more consolidated economies back the rental market to a greater extent over the acquisition of home. Thus, Germany leads this category with 51.7% of its citizens owning their own home, followed by Austria, with 55%; and Denmark with 62%. Nevertheless, none of these countries fall below 50%, although the percentages are decreasing every year, opting for a rental model. The EU average stands at 69.2%, more than 8 percentage points below the figure in Spain.

“Rental is favoured in countries where labour mobility is higher such as in Germany and Austria. In Spain, it would be great if that was the case to boost labour mobility because ownership ties people down a lot (…).

Original story: El País (by Nahiara S. Alonso)

Translation: Carmel Drake

Greystar, AXA IM–Real Assets & GIP Buy Spanish Student Housing Provider Resa

7 December 2017 – PE Hub

Greystar Real Estate Partners has acquired Spain-based Resa, a student accommodation provider. The acquisition was made via a joint venture partnership that includes AXA Investment Managers – Real Assets and CBRE Global Investment Partners. No financial terms were disclosed.

Greystar Real Estate Partners (“Greystar”), a global leader in the investment, development, and management of rental housing properties, closed today, through a joint venture (“JV”) partnership, on the acquisition of Resa, the largest student accommodation provider in Spain. The JV includes AXA Investment Managers – Real Assets (“AXA IM – Real Assets”) and CBRE Global Investment Partners (GIP), both acting on behalf of clients, who have acquired the substantial majority holding in the portfolio in equal sized shares, while Greystar has bought the remaining balance and will act as property, development and asset manager for the portfolio. The deal is the largest investment transaction in student housing on the Iberian Peninsula.

The previously announced JV partnership marks Greystar’s first investment in Spain and will serve as a platform to build a diversified rental housing business and portfolio with backing from global institutional capital.

“The Resa portfolio is undoubtedly Spain’s premier student accommodation provider and will provide Greystar with a significant presence in the prime markets of Madrid and Barcelona on which to build out a diversified Spanish rental housing platform,” said Wes Fuller, Executive Managing Director of Greystar’s Investment Management business. “We are excited by the tremendous opportunity in the country, and look forward to bringing Greystar’s proven business model and institutional capital to the Spanish market for the long term.”

Resa is Spain’s market leader in student accommodation managing 9,309 student beds in 19 Spanish cities, including tier one cities Madrid and Barcelona, in addition to Andalucía, Cataluña, Galicia, Navarra, Pais Vasco, Salamanca and Valencia. Resa, managed by Azora since 2011, has experienced significant growth during this period, increasing from 26 to 37 residences, of which four are currently under development. The JV portfolio will continue to trade under the Resa brand with Greystar assuming responsibility for overall management. Resa will operate as a fully Greystar-owned and managed business.

In addition to the Resa acquisition, Greystar together with its strategic long-term partners plans to invest further in the Spanish rental housing market, including additional student, young professional and senior housing for rent. Greystar is currently evaluating a pipeline of opportunities across Spain and Portugal including Madrid, Barcelona, Lisbon and other key Iberian cities.

“We are thrilled to add this high-quality well-established portfolio to Greystar’s growing European platform. As a global provider of rental housing, we are constantly looking for opportunities to expand into attractive new markets, and this acquisition does exactly that,” said Steven Zeeman, Greystar’s Managing Director of Continental Europe. “Spain is one of Europe’s fastest-growing economies with a serious shortage of purpose-built rental accommodation suitable for students and young professionals. Home ownership in the country has fallen in recent years, particularly with the country’s young and highly mobile urban population wanting a flexible alternative.

Despite this healthy appetite for new rental housing, construction has failed to keep pace with demand. The rental housing sector remains highly fragmented, with no established market for the type of purpose-built rental accommodation known as multifamily in the United States. Our investment strategy will allow us to develop a significant multifamily pipeline in Spain and grow our platform to realize the potential we see in the country.” (…).

About Greystar

Greystar is a leading, fully integrated multifamily real estate company offering expertise in investment management, development and property management of rental housing properties globally. Headquartered in Charleston, South Carolina with offices throughout the United States, Europe, Latin America and Asia-Pacific, Greystar is the largest operator of apartments in the United States, managing over 420,000 units in over 130 markets globally, with an aggregate estimated value of approximately $80 billion. Greystar also has a robust institutional investment management platform dedicated to managing capital on behalf of a global network of institutional investors with over $23 billion in gross assets under management, including more than $8 billion of developments that have been completed or are underway. Greystar was founded by Bob Faith in 1993 with the intent to become a world-class class service in the rental housing real estate business.

Original story: PE Hub (by Iris Dorbian)

Translation: Carmel Drake

Solvia: Spain Is Still A Country Of Homeowners

3 May 2017 – Solvia Magazine

Despite the growing demand for rental housing, Spain’s National Institute of Statistics reports that the majority of Spanish households live in properties that they own.

The latest data relating to the type of households in Spain, published by Spain’s National Institute of Statistics (INE), are revealing: despite the growing increase in demand for rental housing, above all in the large cities such as Madrid and Barcelona, the majority of Spain’s households, specifically 77.5%, live in properties that they own (based on data for 2016). And of that proportion, 48.7% did so in homes without any mortgage payments pending.

The study also highlights that the house ownership trend varies by nationality. Whilst 59.4% of households with at least one foreign member live in rental properties, only 11.8% of families comprising all Spaniards opted for that arrangement in 2016.

On the other hand, the average size of the 18,406,100 households censored in Spain in 2016 amounted to 2.50 people and the most frequently occurring household type was that occupied by a couple with children, which accounted for 33.8% of the total.

Nevertheless, the study warns that increasingly more people are living by themselves in Spain. In 2016, that figure amounted to 4,638,300 people, which represents 25.2% of the total number households. The reasons for this trend are the gradual ageing of the population, which leads to many older people living alone in their homes. The trend is also boosted by homes inhabited by so-called “singles”.

Original story: Solvia Magazine

Translation: Carmel Drake

Spain’s Socimis Place Their Focus On Housing

28 March 2017 – Expansión

Three years after their launch, Spain’s listed real estate investment companies (Socimis) have set their sights firmly on the residential sector, with the launch of firms dedicated exclusively to that market, and the implementation of high profile projects to rival the large players in the sector.

“This phenomenon is mainly driven by supply and demand factors. From the point of view of demand, Spain has been a country where people have traditionally preferred to buy rather than rent. Nevertheless, over the last few years, we have seen a marked increase in the percentage of the population who prefers to rent and around 22% of Spaniards now opt to lease a home, up by 10% from a decade ago”, explains Alberto Valls, Partner in Financial Advisory at Deloitte.

This “clear rising trend” in demand for rental homes in Spain is coming up against limited specialist supply, with barely any companies dedicated to leasing properties in a professional way or with a particularly noteworthy portfolio of homes. “They are responding to a need to professionalise the rental housing market in order to provide high-quality products and services to tenants, in the face of growing demand for this kind of housing compared with home ownership”, said Samuel Población, National Director of Residential and Land at CBRE.

Investment in good locations

One such company is Vitruvio. That Socimi debuted on the stock market in July last year, specialising in residential buildings and offices located along the Ayalá-Colón-Sagasta thoroughfare of Madrid. “Vitruvio does what investors in real estate have always done: we buy in good locations, we secure tenants that generate rental income and we take on little debt so as to avoid running into difficulties in times of crisis, although we earn less in the boom times” (…), explains Joaquín López-Chicheri, CEO at Vitruvio.

“The fact that the landlord is a listed company is irrelevant for the tenant, a priori. The differentiating factor is the specialist management that larger vehicles can offer and the benefits that tenants receive in aspects such as the professionalisation of the customer services, which, will likely, result in quicker and more effective responses to possible incidents. Those players that manage to improve the quality of their service will have a substantial competitive advantage when it comes to capturing the growing volume of demand”, says Valls.

Last Wednesday, the thirty-second Socimi, Albirana, debuted on the MAB. Managed by Anticipa, the company owns thousands of assets located all over Spain, especially in Cataluña and Madrid, of which almost 5,000 are homes.

In addition to the listed companies, there is another firm that, although it has not debuted on the stock market yet, is destined to be a leader in the residential rental market in Spain, namely, Testa Residencial. The company, which emerged from the assets that resulted from Merlin Properties’ purchase of Metrovacesa and Testa, has turned itself into a vehicle for channelling thousands of homes that were previously owned by its shareholder banks: Santander, BBVA and Popular. Its portfolio contains more than 8,000 units, worth €1,750 million (…).

Luxury properties

Meanwhile, in the luxury neighbourhood of Salamanca in Madrid, overlooking Calles Juan Bravo, Maldonado, Lagasca and Claudio Coello, the Socimi Lar España and its main shareholder, the fund manager Pimco, are developing Lagasca 99 (…).

Original story: Expansión (by Rocío Ruiz)

Translation: Carmel Drake

Eurostat: 78.2% Of Spaniards Own Their Homes

21 March 2017 – El Mundo

78.2% of Spaniards own a home, a figure that puts Spain amongst the countries with the highest percentage of home ownership in the whole European Union, according to data from Eurostat corresponding to February 2017, compiled by the Institute of Economic Studies (IES).

The percentage of Spaniards that own a home is almost nine points higher than the EU average, which stands at 69.5%.

Nevertheless, some countries in the EU have an even higher ownership rate than Spain – all of them are recent accession countries.

Romania leads the ranking with 96.4% of people owning homes. It is followed by Croatia (90.5%), Lithuania (89.4%), Slovakia (89.3%), Hungary (86.3%), Poland (83.7%), Bulgaria (82.3%), Estonia (81.5%), Malta (80.8%) and Latvia (80.2%).

Countries that fall below the average include the Netherlands (67.8%), France (64.1%) and the UK (63.5). Those countries with the lowest home ownership rates include Germany (51.9%), Austria (55.7%) and Denmark (62.7%).

Original story: El Mundo

Translation: Carmel Drake

Large Companies Also Focus On The Rental Housing Market

26 September 2016 – El Mundo

The rental market is becoming one of the symbols of the new real estate cycle. It has gone from being an almost residual market to becoming one of the stars of the residential sector. Gone are the prejudices that used to weigh down on this regime – it seems like the best is yet to come: all indications are that the sector has a promising future ahead thanks to its potential for professionalization.

Currently, the rental market accounts for around 25% of the residential stock. The latest official data comes from 2014, when, according to Eurostat, 21.2% of Spaniards lived in rental accommodation. According to the experts, that percentage that has been increasing ever since and it is much higher in the major cities. Spain has not had this many tenants since the 1960s.

Despite the significant increase in rental accommodation, Spain is a long way below countries such as Germany (where 47.5% of homes are rented), Austria (42.8%), Denmark (36.7%), the UK (35.2%) and France (34.9%). On average, 29.9% of homes in Europe are rented. This European reality indicates that the rental market in Spain still has potential for growth.

Experts agree that one of the maxims of the new real estate cycle will be a more balanced relationship between ownership and rental. They agree that to reach this goal, the sector, which is currently mainly in the hands of individual landlords, will have to be professionalized. This professionalization has been underway for years and is now starting to consolidate itself on a large scale.

Testa Residencial

A recent example is the maturity of the professional leasing market is Testa Residencial, the new subsidiary of Merlin Properties, created following the merger of the residential portfolios previously owned by the Socimi and Metrovacesa. This joint venture, which is still in its gestation period and which is expected to adopt the Socimi structure, was born with 4,706 homes, all operated under leases. Merlin’s major commitment to residential leasing is even more important if we take into account the fact that it has become the largest real estate group in Spain and the eighth largest in Europe.

In addition, Testa Residencial’s extensive supply will grow even more thanks to upcoming injections of properties (in exchange for shares) from Banco Santander, BBVA and Banco Popular, three shareholders inherited from Metrovacesa. (…). As such, the firm will end up managing a portfolio of 10,000 units, allowing it to complete with the main real estate companies in this market.

Testa Residential is launching itself into a sector in which two large companies have competed until now: Azora and Larcovi. The first, founded in 2003, has more than 12,000 rental homes under management in different funds and companies (for example, Azora and Hispania) and is the largest private entity in this market. (…).

Concha Osácar, the founding partner at Azora, takes it as read that the rental market will continue to grow for several reasons: the increase in geographical mobility for employment purposes, the limited access to credit to make (house) purchases, the elimination of tax incentives to acquire a home, the change in mentality (“especially amongst young people”) and growing demand from families looking for better homes.

Alongside Azora, Larcovi represents the tip of the iceberg of the professionalization of the sector. It manages more than 9,000 units (…).

“To satisfy the growing demand, the supply will have to be increased. We estimate that Spain will need between 1 million and 1.2 million additional rental homes to bring it into line with its European counterparts”, says Osácar. (…).

Original story: El Mundo (by Jorge Salido Cobo)

Translation: Carmel Drake

The Average Home In 2014: 97m2, Second Hand, With Sea Views

11 February 2015 – Cinco Días

Last year, home ownership was yet another symptom of the start of the recovery of the global economy. In fact, the largest investment made by households over the course of their lives can only be re-actived once the households themselves perceive that their income is going to be stable and steady over the medium term and (in the event that they need financing) when they have access to credit.

And those are, in the opinion of all of the experts, the two variables (employment and financing) that started operating again in 2014 after years of very tough crisis and apathy from scarce solvent demand. According to the figures published this morning by the National Institute of Statistics (Instituto Nacional de Estadísticas or INE), prepared using information from regional property records, last year, 319,389 homes were sold, i.e. 2.2% more than in 2013 and the first increase since 2010.

89.7% of the homes that were purchased were unsubsidised (free), compared with the remaining 10.3% that were subsidised (VPO). Sales of unsubsidised homes increased by 3.2%, whereas sales of subsidised homes continued their decline, dropping by 6.2% in 2014.

Another key finding to come out of the information is that sales of second hand homes increased their prominence gradually and at an unstoppable rate during the crisis. Thus, whilst the norm during the boom was to sell almost as many new homes as second hand homes, last year only 37.4% of the homes sold were new builds, compared with 62.6% that were “used”. And again, whilst sales of the former decreased by 16.9% in 2014, the volume of second hand homes sold last year increased by 18.4% over the previous year.

Size and type

In terms of the regions where the most house sales were recorded, INE quantifies it in two ways. Firstly, it extracts the data from the property registers of each autonomous region and then it measures the volume of transactions per 100,000 inhabitants.

Thus, the regions with the greatest activity were Valencia, with 1,182 house sales per 100,000 inhabitants, followed by the Balearic Islands, with 1,043 and the Canary Islands with 1,015. In absolute terms, the Balearic Islands, Navarra, the Canary Islands, the País Vasco and Madrid were the five autonomous regions that experienced the greatest increases in real estate sales.

With all of these statistics, plus those provided to Cinco Días by Tinsa, about the type and size of homes sold last year, we can conclude that the profile of the typical house would be: an unsubsidised, second hand apartment or multi-family home (which accounted for 67% of the market), with an average surface area of 97 square metres and, in many cases, with sea views; since the typical home would likely be located in one of the territories that recorded the highest transaction volumes.

The information provided by the appraiser also shows that this best selling home would have been sold for an average price of €136,212, which represents a cumulative depreciation of 38% with respect to the average prices paid for a typical home in 2007, the year in which property prices reached their peak. Tinsa estimates that the average mortgage taken out last year amounted to €100,782, which was 32.3% lower than the average amount borrowed during the boom years.

Original story: Cinco Días (by Raquel Díaz Guijarro)

Translation: Carmel Drake