15 April 2018 – Voz Pópuli
At the beginning of 2012, at the height of the economic crisis, one of the directors of the Bank of Spain – José María Roldán, now the President of the AEB – faced a tough meeting with investors. One of them told him that land in Spain was worth nothing. “If that’s the case, then I’ll take it all”, replied Roldán.
And if he had done so, today, the executive would be a millionaire and the same funds that raised doubts over the banks’ balance sheets would today be knocking at his door to buy that land and finance developments on it.
The good times in the Spanish economy and the real estate recovery are causing the opportunistic funds to look for ways to take advantage of the situation. They are buying assets, real estate companies – Habitat and Inmoglacier are the most recent examples – and trying to fill the gap left by the banks in the financing arena. That is where they have set their sights on land, the last bastion, where traditional entities are still wary of lending.
“Bank financing is available for projects and occasionally for parts of plots, but it is inflexible and restricted to certain locations and pre-sales levels. Ours (financing) is flexible in terms of volume, periods and conditions”, says Luis Moreno, Senior Partner at Ibero Capital Management, a firm that has just teamed up with Oak Hill Advisors to lend the property developer at least €400 million. In just a few weeks, they already have projects on the table exceeding that amount.
Types of investors
“Bank financing is still almost non-existent and is only granted in very low percentages in situations of high pre-sales”, says Pablo Méndez, National Director of Capital Markets at Savills Aguirre Newman.
The example of Oak Hill is just one of many. Julian Labarra, National Director of Corporate Finance at CBRE, explains the different types of investors that are interested in land. A first group comprises funds that provide bridge loans. Whilst the banks require “that a development already has the necessary permits and a certain level of pre-sales”, some of the funds financing certain projects with “yields of 14-15%”. And they exit after 18-24 month, by which point the development meets the requirements of the traditional banks (…). Active funds in this segment include Incus, Oquendo and Avenue.
Other funds have chosen to team up directly with Spanish property developers: they put up the capital to buy and develop land and the managers contribute their knowledge. There are several examples: Lone Star with Neinor, Castlelake with Aedas, Cerberus with Inmoglacier; Bain Capital with Habitat; and Morgan Stanley with Gestilar.
Another similar, more recent, example is the association between FS Capital – from Finsolutia – and Inmobiliaria Espacio, a company owned by the Villar Mir group, to relaunch the construction business and sell homes by investing €400 million on land purchases (…).
Other funds also interested in land are those committed to financing the whole process, such as Oak Hill, and those that are buying portfolios of land from the banks and from Sareb, but not to resell them, such as Deutsche Bank and Blackstone.
By location, the experts agree that financing has gone from being limited to the large capitals to appearing in increasingly more cities. “(…). Until two years ago, interest was limited to Madrid, Barcelona, Málaga and the Balearic Islands. Now we are seeing operations along the whole coast, as well as in Sevilla, Zaragoza and Pamplona, amongst others (…)”, says Labarra, of CBRE. “This year we will see operations in cities such as Bilbao, Vigo, Salamanca, Zaragoza and Murcia, which have recently come onto the radar of the large investment groups”, adds Méndez, of Savills (…).
Original story: Voz Pópuli (by Jorge Zuloaga)
Translation: Carmel Drake