Tag: liquidity

CaixaBank Hires KPMG to Accelerate Sale of Rental Homes Worth €3bn

29 November 2017 – El Confidencial

Spanish financial entities have put their foot down on the accelerator to remove a decade’s worth of real estate crises from their balance sheets. The starting gun was fired by Banco Santander in the summer, when it transferred 51% of the €30 billion in toxic assets that it had inherited from Popular to Blackstone; and yesterday, another milestone was marked by the agreement announced between BBVA and Cerberus, which will allow the bank to deconsolidate more than €12 billion in foreclosed assets.

The next major step may involve CaixaBank after the entity engaged KPMG to try to accelerate the sale of a significant batch of real estate assets, with a net value of €12.1 billion. Specifically, the professional services firm is already working on organising one or more processes to allow the sale of some of the €3 billion that the bank owns in rental assets, according to sources familiar with the process.

That portfolio contains almost 40,000 units and, if it ends up being sold, will represent one of the most significant divestments made by the entity to date. Sources at CaixaBank acknowledge that they are working with KPMG and admit that one of the services that the firm is rendering “may include the sale of certain foreclosed rental assets” but they point out that it would only for a portion of the aforementioned €3 billion.

The sale to Testa of 135 homes, announced in September, fits within this strategy – a small appetiser ahead of the main course that the bank led by Gonzalo Gortázar really wants to serve. Its efforts are aimed at trying to taking advantage of the excess liquidity held by the large funds and the current attractiveness of Socimis to find an exit for its foreclosed rental assets.

Despite CaixaBank’s interest in reducing its real estate exposure, something that both the Bank of Spain and the European Central Bank are asking the entire sector to do, the entity is choosing to be cautious. It is pushing ahead one step at a time, according to market sources, who say that the bank is working to redefine the future of its whole real estate division.

New route map

CaixaBank’s real estate activity is currently divided into two large subsidiaries, Building Center, the real estate company that owns the bulk of the entity’s foreclosed assets; and Servihabitat, a platform (servicer), in which the bank holds a 49% stake, whilst the other 51% is owned by the fund TPG.

The second company, which has been given the mandate to manage the bank’s properties, but not ownership of them, has just hired Iheb Nafa as its new CEO, to replace Julián Cabanillas. It has also engaged McKinsey and Oliver Wyman to analyse all of its future options; any change would require the firm to reach an agreement with TPG; moreover, that giant may be interested in increasing its stake in Servihabitat.

CaixaBank has net real estate assets amounting to €12.1 billion according to its most recent quarterly report as at 30 September. All of this “property” is included in the area known as Non-Core Real Estate, which generated losses of €330 million during the first nine months of the year. The jewel in that crown is the real estate company Building Center, owner of the majority of the foreclosed assets, whose accounting coverage ratio stands at 49%.

Sources in the sector expect the bank to make its big move within the next year, and for it to be in line with those already made by BBVA and Santander. For the time being, the entity is limiting its expectations to the field of research, by indicating that “KPMG, Oliver Wyman and McKinsey are redefining operating processes to improve logistics and efficiency”.

Original story: El Confidencial (by Ruth Ugalde)

Translation: Carmel Drake

Sevilla’s Chamber of Commerce Completes Sale of 2 Plots to Helena Rivero

2 November 2017 – ABC de Sevilla

This week, according to sources consulted by ABC, Sevilla’s Chamber of Commerce has sold two plots of land next to the Antares Club and on the Eusa campus to the family of the Jerez businessman Joaquín Rivero, who died in September 2016. The operation was agreed in November 2016 but was subject to the obtaining of municipal licences for the various projects. On the Eusa land, Helena Rivero’s investor group plans to build a university hall of residence for 400 students. Next to Antares, Helena Rivero is still deciding what to do with the 1,700 m2 plot, which has permission for the construction of a hotel given that it has been allocated for tertiary use.

In this way, the Chamber of Commerce, chaired by Francisco Herrero, will obtain a sizeable liquidity injection thanks to an operation that was closed for around €7.5 million. The negotiations for the sale of these plots were initiated by Joaquín Rivero Valcarce, the real estate businessman who chaired Bami. Following the death of the businessman in 2016, his only daughter, Helena, decided to push ahead with the operation.

Nevertheless, the sale of the two plots in question was subject to the Town Hall of Sevilla granting the necessary authorisations to build on the Eusa and Antares plots. Once municipal authorisation had been obtained to build a university hall of residence on Eusa’s plot, which has been allocated for social/educational use, the sale of the land was closed this week, according to the same sources. The sale had previously received the green light from the plenary of the Chamber of Commerce and the Junta de Andalucía, which oversees the region’s chambers of commerce.

A multi-national firm will operate the hall of residence

In terms of the university residence planned for Eusa, the plot sold to Helena Rivero’s investor group has a surface area of 2,200 m2 and permission to build up to 11,000 m2. According to sources consulted by ABC, a leading European multi-national in the hall of residence sector, which is listed on the stock market, will take over the operation of the building.

The other plot, measuring 1,700 m2 has been allocated for tertiary use – it is currently home to the exhibition hall, auditorium and parking lot of the Antares sports centre. On that plot, the company managed by the Rivero family may be able to build a hotel with a maximum buildable area of 6,000 m2, equivalent to around 100 rooms.

The hotel was promoted initially by Antares and it was precisely that project that led the company to file for creditors’ bankruptcy when the real estate bubble burst and it was unable to refinance a mortgage loan that it had requested from La Caixa in 2008 to build a four-star establishment in El Porvenir. Antares Andalucía had managed to reclassify the 1,740m2 plot, and so it was valued at €10.2 million in 2007.

In the end, the mercantile judge authorised the sale of the assets of the Antares Club, with their charges and levies, as well as of the brands “Antares Andalucía” and “Encuentros 2000”, to the Chamber of Commerce – through Eusa. The Chamber spent €4 million on the operation, including taking on a €3.2 million mortgage with CaixaBank.

With this sale of the two plots, the Chamber of Commerce will now have sufficient revenues to undertake projects in its two business units: Eusa and the Antares Club. The Chamber of Commerce plans to completely renovate the Antares Club, given that it is more than 30 years ago, and move its training activities to the SGAE building in La Cartuja. That building has a surface area of 35,000 m2, including an auditorium measuring 22,000 m2.

Original story: ABC de Sevilla (by M. J. Pereira)

Translation: Carmel Drake

MAB Approves Debut Of Hotel & Tourist Apartment Socimi Elaia

31 October 2017 – Eje Prime

The hotel and tourist apartment Socimi Elaia has received the green light from the Alternative Investment Market (MAB) to make its stock market debut. The company will make its debut with a market valuation of €119.1 million, equivalent to €10.55 per share.

The firm just received a favourable assessment report for its debut on this market, through which it is seeking to increases its capacity to capture resources and provide liquidity to its shares, as well as to comply with its legal requirements as a Socimi.

Elaia owns a real estate portfolio comprising two residential buildings in the centre of Madrid, as well as five tourist apartment buildings and five hotels, all of which are located in Gerona, Málaga, Barcelona and Mallorca. The Socimi has made a total investment in these assets of €145 million.

The company is currently embarking on the comprehensive renovation of its two buildings in Madrid. In both cases, the properties date back to the nineteenth centre and are located in the centre of the Spanish capital (on Calle Bailén and Calle Atocha, respectively). The Socimi will invest €9.6 million and €5.2 million, respectively, on the work to improve the two properties, which will subsequently be used as rental apartments.

Original story: Eje Prime

Translation: Carmel Drake

Spain’s Residential Sector: A Fleeting Boom Or A Genuine Bubble?

3 October 2017 – El Confidencial

A fleeting real estate boom or another bubble in the making? Although many in the real estate sector – property developers, banks, experts… –, deny that Spain is committing the errors of the past and are instead convinced that we are witnessing the creation of a new real estate boom, the truth is that some indicators have started to trigger the first alarm bells, in particular, those relating to the evolution of house prices. The increases in house prices are not only generalised, in certain markets, they are very striking.

Such is the case of large cities, like Madrid and Barcelona, where the increases – in new build and second-hand prices – are now well into the double digits. According to data from the appraisal company Tinsa, in just twelve months, house prices have risen by 20.6% in Barcelona and by 15.5% in Madrid. This means that during the summer months, there has been a real boom in prices since, during the second quarter of the year, the YoY rise amounted to just 1.8% and 2.7%, respectively.

“A sustainable increase in prices would range between 4% and 5%. The double-digit figures in certain areas, where there is limited supply or a tourist boom, such as Las Palmas and Ibiza, are sustainable over the long term”, explained Jesús Amador, Real Estate Analyst at Bankinter, speaking recently to El Confidencial.

Both cities are still well below their maximums of 2007 (Barcelona is 28.3% below and Madrid is 37.4%), nevertheless, since their minimums, prices have now appreciated by 44.4% and 24.9%, respectively (…).

Prices in Palma de Mallorca have returned to the peaks of 2007

The most notable finding in the second-hand market is the rise in house prices in Palma de Mallorca, which increased by 7.3% over the summer, making it the country’s first capital city to exceed the price levels of 2007, followed by Lleida (5.3%), according to data from Idealista. Increases in Málaga (5.2%), Girona (4.9%) and Pamplona (3.9%) are also noteworthy (…).

Five indicators of the health of the Spanish real estate market 

1.- Average sales period (liquidity)

In Spain, it takes 9.1 months on average to sell a home. The cities of Madrid and Barcelona are the most liquid markets, with average sales periods of 3.2 and 3.4 months, respectively. Of the five largest capital cities, Valencia and Sevilla have the longest periods, where it takes 8.7 and 6.4 months, respectively, to sell a home.

2.- Financial effort

On average, Spaniards spend 16.6% of their gross household income to pay the first year of a mortgage. The autonomous regions where below-average financial effort is required are La Rioja (13.2%), Murcia (13.3%) and Castilla y León (14.2%).

At the opposite end of the spectrum (…), a much higher percentage of the household income is required to buy a home with financing in the Balearic Islands (21.2), Andalucía (17.6%) and Cataluña (16.7%) (…).

3.- Average mortgage and monthly repayment

The average mortgage in Spain amounted to €113,130 during the second quarter of the year (the most recent data available), compared to €148,037 in 2007, according to data from Spain’s National Institute of Statistics (INE). The average monthly mortgage repayment amounted to €528 in Q2, almost 40% lower than ten years ago (…).

4.- Sales and purchases

The provinces of Málaga, Alicante and the Balearic Islands, which all have a clear tourist component, are those with the highest number of house sales in the last four quarters with respect to the size of their respective housing stocks: 33.3 homes for every 1,000 properties in the province of Málaga; 29.4 in Alicante and 28.8 in the Balearic Islands.

By contrast, the least active markets include Ourense, with barely 6.6 house sales for every 1,000 properties; and the provinces of Zamora and Teruel, with 9.4 and 9.5 homes sold, respectively, for every 1,000 properties.

5.- Permits for new builds

In terms of property developer activity, the provinces of Madrid, Navarra and Vizcaya are still the ones where the highest number of new build permits were registered over the last four quarters, in proportion to the size of the housing stock.

In the Community of Madrid, 5.4 permits were granted in the last year for every 1,000 homes already in existence, whereby exceeding the number granted in Navarra (4.4 permits) and Vizcaya (4.3 permits). The least active areas in this regard include the provinces of Tarragona and Lugo (0.7 permits for every thousand homes in both cases), followed by Valencia, Pontevedra and Zamora, where 1 permit was issued for every 1,000 homes.

Original story: El Confidencial (by E. Sanz)

Translation: Carmel Drake

Interview With Arcano Bosses: Álvaro De Remedios & Jaime Carvajal

19 September 2017 – Expansión

Interview with Álvaro de Remedios (pictured above, left) and Jaime Carvajal (pictured above, right), President and CEO of Arcano / The executives are committed to backing the Spanish economy and do not believe that Cataluña will break the rule of law.

In 2003, after a lifetime as an investment banker, Álvaro de Remedios (Madrid, 1968) decided to found Arcano and he was soon joined by Jaime Carvajal (Madrid, 1964). Both shared the vision of accompanying their clients throughout the transaction process and of placing the knowledge of senior executives at their disposal. Fourteen years later, Arcano has 15 partners, a workforce of more than 140 people, offices in Madrid, Barcelona and New York, and it has added the management of alternative assets and real estate advice to its core investment banking business.

Q: The boutique advisors have completed quite a few high-profile operations in recent months.

Jaime Carvajal: It is a world that is growing. The bankers at boutique firms have a lot of experience and the teams are more senior than in the large investment banks, in general. But sometimes, it is good to have both profiles involved in an operation. For this reason, Jefferies makes so much sense for us.

– What fruits are being born from the alliance with Jefferies?

Álvaro de Remedios: We are Jefferies’ partners in Spain. We benefit from its status as a global bank with an international presence and a great sectoral specialisation, and they benefit from our local presence and closeness to the market. Apart from the fact that we have business cards with different logos on them, we act as a single firm. We signed the alliance more than two years ago. The first year was spent understanding each other’s businesses, and during this second year, we have participated in several operations together (…).

Q: Do you expect to see an upturn in corporate operations?

Á.R: Yes, we think so, although that could just be our perception and not the view shared by the sector. We have closed around 30 advisory operations in the last 18 months. We are all very busy.

Q: Are the prices of operations rising due to the high degree of liquidity?

Á.R: There is a lot of liquidity and prices are clearly rising, but there is one key element that is different to before the crisis and that is the fact that financings are much more prudent than before. Prices are higher, but they are not off the scale, and financing is more conservative because investors are being cautious. The scars from the crisis are still there and that is a lesson.

Q: Are investors willing to earn less in this environment?

J.C: The very low interest rates have forced a change in expectations and has resulted in the arrival of new investors, such as infrastructure and pension funds, which are willing to forgo profitability in exchange for assuming lower risk. That is what is driving up prices.

Q: Is the real estate market at its peak in Spain?

Á.R: We are not betting on a rise in interest rates or an increase in prices; we bet on our own added value: we buy a building, we do it up and that is how we generate returns. Our expectation is that prices are not going to grow by much more in the real estate market, but, with our strategy, we are still generating returns (…).

Q: Is the economic outlook bright?

J.C: At Arcano, we started to back the Spanish economy in 2012 and we continue to do so. There are no significant risks threatening the economy: the banking system is robust and the problem of Popular has been resolved. The only clear problem is the inevitable increase in interest rates, but that is not going to happen in the short term, at least in Europe (…).

Original story: Expansión (by S. Arancibia, I. Abril and A. Stumpf.)

Translation: Carmel Drake

Santander Invites NBOs For Popular’s Assets & Aliseda By End Of July

6 July 2017 – Voz Pópuli

It could be the largest real estate operation of the last few decades in Spain. Santander has revolutionised the world of the major investments funds with the express sale of all of Banco Popular‘s property, after engaging Morgan Stanley to coordinate the sale.

The bank chaired by Ana Botín may sell all of Popular’s real estate assets and loans, worth €30,000 million, in one go. The process is going faster than investors expected. Santander and its advisor have given the funds it has invited to participate until the end of the month to submit their non-binding offers (NBOs). And the prices being floated amount to around €5,000 million, according to financial sources consulted.

Blackstone, Apollo and Lone Star are already working on the process and Cerberus may join them shortly. They are the largest opportunistic funds present in Spain, with the most financial muscle to be able to handle an operation of this kind. That is why they have been chosen. However, the doors to new investors have not been closed.

The idea is that the buyer will acquire a 51% (or higher) stake in a joint company together with Santander and that that company will hold Popular’s €30,000 million assets. These assets are provisioned at 69%, and so they have a net value of almost €9,250 million. We calculate therefore that to acquire 51% of these assets and loans, plus take over Aliseda (which Santander repurchased last week), the buyer will have to pay around €5,000 million.

The key, after the summer

In addition to the bids for the 51% stake, experts are not ruling out the possibility that one of the funds will go off piste and put a proposal on the table for a smaller package of assets. Santander is open to all ideas at this stage. The group plans to first listen to the proposals, analyse them over the summer and then negotiate the small print between September and December.

This is the operation that the large opportunistic funds have been waiting for since 2011. Those investors arrived in Spain during the worst period of the crisis with the purchase of small loan portfolios and real estate platforms, with their sights set on the hope that large opportunities would arise some day, such as in this case with Popular.

In fact, they have been complaining for a couple of years that the portfolios coming onto the market are too small (ranging between €500 million and €1,000 million) for their appetite, given that other types of competitors have emerged that have caused prices to soar and have left them without any assets.

It is also worth considering that the funds that are participating in this process raised capital at the end of last year to invest in Southern Europe. Specifically, €15,000 million. As such, they have liquidity to handle operations such as Popular’s.

The three funds and Cerberus starred in major acquisitions in Spain during the crisis. Blackstone acquired Catalunya Banc’s macro-portfolio of doubtful mortgages amounting to €6,400 million. Apollo purchased Altamira, several portfolios and Evo Banco. And Lone Star secured Project Octopus (€4,500 million in large real estate loans), purchased Neinor and listed it on the stock market, and has recently agreed to acquire Novo Banco in Portugal.

Original story: Voz Pópuli (by Jorge Zuloaga)

Translation: Carmel Drake

Mazabi Prepares To Debut Its Socimi On Stock Market In 2018

12 June 2017 – Expansión

The family property management firm Mazabi is preparing to debut its Socimi – Silicius Inmuebles en Rentabilidad – on the stock market. It plans to list it on the stock exchange at some point next year, with a target valuation of €400 million.

The multifamily office, which was created in 2009 and which currently manages assets worth more than €1,000 million in 14 countries, wants its Socimi to be constituted as an ideal investment vehicle for families interested in obtaining returns from their assets and improving liquidity, as well as for institutional investors interested in obtaining a coupon from their investments.

Silicius was incorporated in 2015 and was registered under the Socimi framework last year. The company, promoted by El Arverjal – a family office owned by the Mencos family – and managed by Mazabi, will debut on the stock market before September 2018.

Currently, Silicius owns assets worth €90 million and generates revenues of around €5 million. It is finalising additional financing amounting to between €20 million and €30 million so that it can undertake new investments before the summer. In parallel, the group is negotiating the contribution to its fund of assets from other partners and the incorporation of investors who will contribute capital depending on the opportunities that are generated.

Incorporation

“The objective is to debut on the stock market with a value of between €200 million and €250 million next year and, once listed, incorporate an individual or institutional shareholder with a placement on the stock market to try and reach the target market capitalisation of €400 million”, explained the CEO of Mazabi, Juan Antonio Gutiérrez.

The Director said that the Socimi’s average debt will be in the order of 25%: “The objective is to pay a coupon and, for that, the level of debt has to be low”.

The company focuses its investments on assets worth between €5 million and €30 million and is currently analysing purchase opportunities amounting to €100 million. “We focus on the segment that private investors can’t afford, but which fall below the level of interest of the funds and large Socimis, which is where there are more opportunities and less competition”, explained Juan Díaz de Bustamente, CEO of the Socimi.

Currently, the firm’s portfolio includes a hotel in Conil (Cádiz), two office buildings in Madrid – one on Calle Obenque and another on Calle Virgen de los Peligros – and four retail assets – including a store leased to Cortefiel on Paseo de la Castellana, 18 (pictured above) and another set of premises leased to Vips on Calle Velázquez 136. It also owns a stake in Lazora.

The company is not going to limit its acquisitions to Spain and will analyse opportunities in the main European capitals. “Our investments have to fulfil three principles: diversification, liquidity and coupon”, they state. Specifically, the company is currently evaluating the possibility of completing an acquisition in Portugal.

The Directors explain that it would be reasonable for 20% of its assets to be located outside of Spain. “You lose the tax effect, but it allows you to diversify geographically”, they add.

Original story: Expansión (by Rebeca Arroyo)

Translation: Carmel Drake

Popular Puts €1,500M Macro RE Portfolio Up For Sale

6 June 2017 – Voz Pópuli

(…). The entity chaired by Emilio Saracho (pictured above) has launched an express plan to sell its problem assets and one of the key elements is the sale of the largest real estate portfolio to come onto the market in Spain since 2015. The portfolio of properties has been designed by KPMG, and has an initial value of between €1,500 million and €2,000 million, according to financial sources consulted by Vozpópuli. This is part of the plan that the entity is presenting to the ECB today to regain the confidence of the regulators. (…).

In addition, Saracho has spent the last few days meeting with investment banks to see how to accelerate the unblocking of Popular’s problem assets. (…).

The sale of problem assets is critical for Banco Popular regardless of its future. The heavy weight of those assets (worth €37,000 million) is the source of this entity’s problems, which have been further compounded in recent months by its capital and liquidity troubles and the risk of claims. (…).

For this reason, Banco Popular needs to accelerate the sale of the €36,800 million that it owns in toxic assets as soon as possible. Above all, it needs to focus on its foreclosed assets, which have the lowest level of coverage (38.5%) and which most concern the market and potential buyers. To bring the provisioning level of its properties in line with the levels adopted by BBVA and Santander, Popular would need to recognise (additional provisions of) around €1,500 million to €2,000 million.

Under the spotlight

With the sale of portfolios such as the one being advised by KPMG, Banco Popular would reduce some of its problems. Even so, financial sources doubt that the short term future of the entity is going to be determined by operations such as this one (…). Rather, they add, that this is a way of getting ahead with the work, regardless of the solution.

In this sense, the banks that are considering submitting a bid for Banco Popular have been making contact with opportunistic funds and investment banks over the last few weeks to work out how to share out the Spanish entity: the good bank could go to Santander, BBVA and Bankia, and the problem assets could go to overseas investors.

The key to accelerating the unblocking of the real estate assets is the prices that Banco Popular can accept on the basis of its provisions. Currently, the foreclosed assets are recognised on the balance sheet at 60% of their initial values, well above the values demanded by the opportunistic funds, which are closer to 30-40% of their initial values (…).

The portfolio that Popular is preparing represents one of the largest currently up for sale in Europe and the fourth largest to go on the market in Spain ever, after: Project Hércules, involving €6,400 million in problematic mortgages from Catalunya Banc, which was acquired by Blackstone; Project Octopus, containing €4,500 million in Eurohypo loans, which were purchased by Lone Star and JPMorgan; and Project Big Bang, which saw Bankia put most of its foreclosed assets up for sale, in a deal that it negotiated to the end with Cerberus, but which failed to close.

The two main favourites to acquire this latest portfolio are Blackstone and Apollo, the two funds that have been buying Popular’s other portfolios to date, albeit smaller ones, averaging around €400 million to €500 million. The entity currently has another process underway, involving a €500 million portfolio, which is being coordinated by Irea, and in which the following entities are competing: Oaktree, Apollo, Bank of America and Bain Capital.

Original story: Voz Pópuli (by Jorge Zuloaga)

Translation: Carmel Drake

Singapore GIC To Expand Its Logistics Portfolio In Spain & Portugal

19 May 2017 – Expansion

P3, the company specialising in the ownership, development and management of logistics assets, wants to take advantage of the support being offered by its new owner, the sovereign fund Singapore GIC, to lead the logistics market in Spain and establish itself as one of the country’s leading developers and investors in this segment.

The company, which operates under the commercial name P3 Logistics Parks, currently owns a portfolio of assets covering 400,000 m2 in Spain, after it purchased eleven logistics warehouses in April. P3 is planning to finish the year with 500,000 m2 under management, according to the CEO of the company in Spain, David Marquina.

“We want to become one of the main suppliers of logistics space over the next three years. Specialisation and a long-term outlook are our mantras”, he said.

To this end, P3 has just opened an office in Madrid and has a team there analysing opportunities. The group specialises in closing off-market operations.

The firm wants to strengthen its two business lines in the country: investment in rental assets and the construction of turnkey projects for clients. “We are analysing both the purchase of companies that own logistics assets, as well as the acquisition of portfolios and individual properties to grow in size”.

Similarly, as part of its expansion plan, P3 is considering expanding its operations into Portugal. The company, which was created in 2002 in Prague and which quickly began its expansion into central and Western Europe, owns a portfolio containing 170 logistics warehouses and parks in 11 countries across Europe, spanning a total surface area of 3.5 million m2 and with a land bank covering more than 1.8 million m2 for development.

“Germany, France and other countries where we have had a more limited exposure until now, such as Italy and Spain, are strategic markets for the group”.

In Spain, P3 has a presence in the central logistics corridor, which connects Madrid, Zaragoza and Barcelona, and it wants to strengthen its presence in the Mediterranean corridor.

The director highlights that 98% of its assets are leased through rental contracts that have an average term of 6.2 years.

For Marquina, the economic recovery and political stability have allowed investors to be interested in Spain, which is firmly back on the investment map. “After the crisis, real estate and logistics development was left paralysed. The stock became obsolete and out-dated. Over the last four years, liquidity has increased in the market and there has been a compression in yields, but there is still a long way to go”, he said.

Original story: Expansión (by Rebeca Arroyo)

Translation: Carmel Drake

Experts Rule Out Risk Of RE Bubble In The Short Term

10 May 2017 – El Confidencial

The fact that the Spanish real estate market is enjoying happier times is more than clear. And all of the players in the sector are aware of the fact: property developers, consultants, construction companies…Nevertheless, the “overheating” that some say is threatening certain segments of the market, is falling well short of a full-blown real estate bubble, for the time being at least. At least that is according to the speakers who participated in the “Real Estate Investment Opportunities” day organised by El Confidencial and Colonial.

Real Estate Market Forum

Indeed, Juan José Brugera, President of Colonial – which is currently evaluating its transformation into a Socimi – stated that the market is “a long way from a bubble. What we are seeing is the launch of projects”. In this sense, he pointed to the German market by way of example. “It is very stable. (…) What you have to do is take a risk and invest. With this stability in terms of value, your investment will be rewarded”.

In his opinion, “a bubble is something else. It is an excessive value, but, one of the characteristics of the European property sector is that financing is very tight in terms of size and type. I don’t see a bubble, what I see is a more professional management of the assets, where the ability to generate value is what will determine prices, provided the markets are not affected by global circumstances”.

The CEO of the consultancy firm JLL in Spain, Enrique Losantos, also rules out the risk of a bubble. “Given current prices, you could be forgiven for thinking that the market is overheating, but the fact is, there is still a long way to go, especially for those investors who know how to extract value from the portfolios of assets that are coming onto the market and which should be invested in and managed to adapt them to the demands of the current market. These players will be able to obtain returns, even in the double digits (…)”.

Who will control the large rental stock?

Meanwhile, Ignacio de la Torre, Chief Economist at Arcano, said that “there is not a bubble at the moment, but if we continue at this rate, there will be one”, especially in the residential market. He highlighted the significant interest that certain assets have sparked in Spain, such as, for example, rental homes, especially amongst institutional investors. “When everything was clogged up, it seemed like Spain was going to go bankrupt, but then investors with large risk appetites entered the market to inject liquidity and the economy started to work again. Now, those hedge funds are starting to recycle the assets they bought and as the market for rental homes increases, so institutional investors are entering the segment, which is what is happening in other countries too. In the future, insurance companies and pension funds are expected to become the owners of the large stock of rental housing in Spain. (…).

Original story: El Confidencial (by E. Sanz)

Translation: Carmel Drake