Overseas Funds Compete to Finance & Buy Land in Spain

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

Morgan Stanley gets rid of its shopping malls.

The market starts to brighten up. Last week, Morgan Stanley closed the sale of its three shopping malls in Spain, christened in the market as the good, the ugly and the bad. The operation, which had been looking for a buyer for a long time, has ended in the hands of Incus Capital, a newly created investment fund that has taken the opportunity of acquiring the first portfolio of assets in the Spanish market, as confirmed by official sources.

The decision taken by Morgan Stanley Real Estate Investment (MSREI) of liquidating its European real estate fund has favored the sale of El Mirador de Cuenca (Cuenca), Los Alcores (Alcalá de Guadaira-Sevilla) and Alzamora (Alcoy-Alicante) for nearly 30 million Euros. This price represents a discount of 75% on the 116 million Euros paid by Morgan Stanley and Grupo Lar in May 2007, just before the real estate bubble burst, in order to acquire the malls owned by the German fund SEB Immobilien Investment.

That operation was part of the investing alliance agreed by Grupo Lar and Morgan Stanley to position themselves in the booming sector of shopping malls, where one of the parts acted as a developer and the other one as a financer. The union of interests went even further, as the investment bank, through its funds, acquired 16,8% of the real estate company for 124 million Euros, as also done with Fadesa, expecting to participate in its initial public offering.

Before the collapse of the market, Grupo Lar had 15 medium-sized (with a maximum 20.000 square meters) shopping malls, most of them located in secondary cities and most of them in a joint investment with the funds of Morgan Stanley (Puente Genil-Córdoba, Navalmoral de la Mata-Cáceres, Puertollano-Ciudad Real, Los Palacios-Cádiz and Arcos de la Frontera-Cádiz). The commercialization of these assets is managed by Gentalia, the consulting and patrimony management firm developed as a line of business by Grupo Lar.

In order to carry out the sale of these three shopping malls, Morgan Stanley has carried out a restricted process, with the participation of funds such as Drago Capital or Baupost, investors with an opportunistic profile attracted by the existing price discount. According to sources in the market, the transaction was finished last week and the final buyer has been the unknown firm Incus Capital Advisors.

In spite of its recent constitution, there are veterans in the financial sector behind Incus Capital, specialists in managing credit and real estate investment portfolios. The drivers of this vehicle are Andrew Newton (ex Lehman Brothers) and Alejandro Moya (ex Morgan Stanley), who have developed the fund as a project parallel to Hipoges, a independent platform for the management and recovery of complicated credits with presence in Spain, Portugal and Brasil.

Source: El Confidencial