Azora & Oquendo Capital Join Forces to Finance the Real Estate Sector with €300M

November 2018 – El Confidencial

The fund manager Azora, created by Fernando Gumucio and Concha Osácar, and Oquendo Capital, the Spanish private debt fund manager led by Daniel Herrero and Alfonso Erhardt, are joining forces to facilitate access to alternative financing for companies in the real estate sector. The alliance is creating a “direct lending” real estate platform, which is going to launch its first fund with €300 million destined to financing debt and all types of operations related to real estate, as well as to direct management mandates for individual operations based on their characteristics.

That is according to confirmation provided by sources close to the agreement speaking to El Confidencial. They indicate that any project worth more than €4-5 million will be considered, in both Spain and Portugal, ranging from the purchase of land and logistics warehouses, to the repositioning of hotel assets and subordinated debt, an area in which Oquendo Capital has a lot of experience, given that it already has three funds dedicated specifically to financing corporate debt.

The main objective of the platform promoted by Azora and Oquendo Capital is to cover a market segment that is looking for alternatives to debt to complement traditional bank financing, given that in the midst of the real estate recovery, access to financing to launch real estate project is continuing to represent a real handicap for many companies in the sector.

According to the sources consulted, the investment strategy that the platform proposes will focus on offering flexible financing solutions for small and medium-sized real estate operations, with a moderate risk profile, accessing those transactions in a unique way based on the combination of the successful trajectories of Azora and Oquendo in the real estate and alternative financing markets.

Alternative financing is taking off

With this fund, three vehicles have now been created in the last three months to facilitate access to financing in the Spanish real estate sector. The first to leap to the fore was Ibero Capital, a platform launched by two former directors of Sareb, Walter de Luna and Luis Moreno, with €400 million on the table. A few days ago, that firm closed a €35 million financing arrangement with a property developer in Málaga. The money will serve to pay for three plots in Mijas for the construction of 147 homes, as well as to repay part of its bank debt and finance some of the construction. The remuneration of this operation involves a fixed cost component plus a variable element, depending on the final result of the project.

Behind that fund is Oak Hill Advisors, one of the largest investment funds in the world, with more than USD 30 billion in assets under management, and which has invested more than €1 billion in Spain since 2005, primarily in real estate projects. According to the founders of Ibero Capital, that operation in Málaga will be followed by three or four more operations over the next few months.

Also, three months ago, Colliers International received the exclusive mandate from MCAP Global Finance, the London subsidiary of the manager New York Marathon Asset Management, to manage €200 million dedicated to the financing of buildable land purchases. The firm led by Mikel Echavarren is finalising its first financing deal amounting to €3 million. In its case, unlike with Ibero Capital, the financing will be restricted to land purchases only.

The financing of real estate projects by non-banking entities is an established market in countries such as the US, the UK and France, but not in Spain, where it is still in the development phase. Investment in these types of projects is characterised by its attractive profitability/risk profile with a focus on capital preservation and regular distributions in the form of interest (…).

Original story: El Confidencial (by E. Sanz)

Translation: Carmel Drake

Irea: “Mistakes Are Still Being Made But We Are A Long Way From A Bubble”

22 February 2018 – El Economista

The real estate sector is booming and the euphoria that is being experienced, especially in the residential segment, is leading to a genuine war in the purchase of land. That is according to Mikel Echavarren (pictured below), CEO of Irea, who says that the first mistakes are starting to be made.

The Director, who has participated in significant operations in the sector, such as Bain’s purchase of Habitat, and who has acted as a financial advisor to Blackstone in its acquisition of Banco Popular, believes that the next alliances will be harder to forge, but, even so, expects to see greater consolidation in the sector.

Q: How is the fabric of the real estate business evolving?

A: The residential development sector is giving rise to eye-catching activities in the market, such as stock market debuts and corporate acquisitions. On the one hand, we have the upper part of the sector, with large companies and on the other hand, we have the vast majority of real estate companies, which are lifting up their heads, maximising everything they can with the few resources they have. They have more money now than they did in 2013 and they have resolved almost all of their debt problems (…). They are all taking their first steps with something that did not exist before the crisis: money from funds for specific projects. And that is causing companies to revive and, as always happens, the markets that are recovering first are the Costa del Sol, Madrid, Barcelona, Málaga, Sevilla and Bilbao. But there are still some markets that have not recovered at all.

Q: Do you need to be big to survive in this sector?

A: Being big in the residential sector means that you can access the land purchases that the majority of companies don’t have the capacity to afford. It does not mean you have to be listed, but being large allows you to access faster and cheaper financing, and with that, you can rotate your portfolio much more. Meanwhile, smaller property developers have to hand over developments that they started three years ago to be able to afford to invest in land now (…).

Q: So, whoever can afford to buy land is guaranteed success?

Yes. Whoever has funds today to buy land in good locations is going to emerge victorious. That is one of the reasons why being large makes sense. Land is a scarce asset and since no new plots are coming onto the market due to the active or passive inoperativeness of the Administration, and because there is no capacity to finance the development of new land, prices are going to soar. Developable land prices have decreased by a lot (since their pre-crisis peaks), by between 60% and 80%, and I am certain that they will rise by between 200% and 300% (…).

Q: This situation means that the greatest fights are now over the purchase of land…

A: Yes, punches are already being thrown in this fight and we are entering a time in which mistakes are being made because people are buying land that is too expensive. But given that they are making those mistakes with their own funds, we are not facing a bubble scenario (…).

Q: With Neinor Homes, Aedas and Metrovacesa now listed, do you think we are going to see a boom in the number of property developers going public?

A: Going public is a consequence of the fact that there are funds behind the real estate companies that are looking to obtain returns. Nowadays, there are so many players wanting to invest in property developers in Spain, because, in theory, their performance is going to be very highly correlated with the recovery of the Spanish economy, that with few listed firms and so much capital, the value of them is increasing and it does not make sense for a property developer’s share price to exceed the value of its assets. I think that in two years time, we will see half a dozen companies listed on the stock market, but no more. There are not going to be that many because it is hard for a property developer to be strong, and to have good and geographically diversified plots. There have been some clear examples that are not going to be replicated, such as in the case of Vía Célere, which is a really good company that was sold because it did not have anyone to take over, but it is hard for many more operations like that to arise. Funds that already participate in a property developer do so because they are sure that they are going to go public. But we can expect to see acquisitions, purchases that seem like mergers (…).

Q: One of the major social problems in this country is the difficulty that young people face when affording to buy their first home. Moreover, they are now also struggling in the rental market…

A: It is a big problem and it reflects a structural change, not a circumstantial change. There is a huge proportion of the population who cannot and will never be able to buy a home in their lifetime, and then there is a percentage of people who do not want to buy a home, who prefer to travel or buy a good car, or simply have more flexibility (…). What is happening is that there is an unstoppable process to expel people from their homes who traditionally lived in rental properties in the centre of cities. That has happened in all of the major cities in Europe and it is going to happen here too. The centre is reserved for people with more money and for tourist rentals (…).

Q: In your view, which operations and businesses do you think still offer good opportunities for investors in Spain?

A: Large investors still have the possibility of creating residential development platforms with good managers and to debut them on the stock market or sell them to another party. I also see options in the sector for alternative financing. If everyone wants to buy land and the banks don’t want to finance land purchases, then there is a niche to lend (expensively) to whoever wants to buy. I also see opportunities in the market for land purchases; for example buying land to develop it or to carry out the final management procedures and then sell it on (…).

Original story: El Economista (by Alba Brualla)

Translation: Carmel Drake