CESCE: The Construction Sector Will Grow By 3% In 2015

18 August 2015 – Expansión

The construction sector will grow by 3% in 2015 and building work will begin on 45,000 new homes, according to the Sector Report prepared by CESCE, the company responsible for the Integrated Management of Commercial Risk and Credit Services.

This increase represents a turnaround for the construction sector with respect to the previous seven years, which have seen nothing but decreases.

In this sense, CESCE’s analysis predicts that the highest growth will be seen in the renovation and maintenance segment (3.9%), followed by non-residential construction (3.2%), residential construction (2.8%), and finally, by civil engineering, with a rise of 1.8%.

The company states that the production value of the construction sector amounted to €97,972 million in 2014, and that this figure is expected to increase to €100,900 million in 2015.

In total, 58,776 construction permits were granted in 2014, an increase of 0.06% with respect to 2013 – although minute, that rise was significant, as it was the first time the number of permits had increased after seven years of consecutive decreases. Nevertheless, the figure is still a long way below the peaks recorded in 2006, when 911,000 permits were granted in a single year.

According to CESCE, the adjustment in prices has resulted in a prolongation of the good times in the wholesale real estate market, but the improvement has been slow to impact retail sales and even slower to affect the construction market itself.

In 2014, the sale of homes increased by 21.6% YoY, to 365,593 units, with rises reported in all of the autonomous regions, in particular in Ceuta and Melilla, Madrid and Navarra, which recorded annual increases of 44%, 31% and 31%, respectively.

In 2014, the construction of 46,795 new homes was completed, a decrease of 93% since 2007, when 641,419 properties were finished. The figure in 2014 was 28% lower than in 2013, and represented the minimum of the historical series, which was created in 2000.

Nevertheless, the rental market in Spain has been strengthened by the economic crisis, since it has gone from being practically residual to accounting for 20% of Spain’s households (compared with 80% of homes that are occupied by their owners).

This percentage is still a long way below the average rate of rented homes in the rest of Europe (38%) and Germany (60%), although analysis of the data indicates that there has been a structural change in Spain both in terms of the market, as well as in terms of society’s mindset.

Original story: Expansión

Translation: Carmel Drake

Amancio Ortega’s Real Estate Offensive

2 February 2015 – Expansión

The owner of Zara has bought the former headquarters of Prisa. The founder of Inditex has allocated €1,215 million to the expansion of his non-residential asset portfolio in Spain since 2010 and is now the second largest investor, behind Merlin.

Amancio Ortega’s scouts are back out on the streets of Spain. The founder of Inditex resumed his real estate activity in Spain last week, with the purchase of Gran Vía 32, the former headquarters of Prisa, which is now being refurbished. The property will house the largest store of the fashion retailer Primark in Spain.

Pontegadea, owned by Ortega, acquired the building from Drago Capital for €400 million.

Through this transaction, the owner of Zara, who was advised by Aguirre Newman and Broseta, reactivated his real estate offensive in Spain. Since 2010, Ortega has spent €1,215 million on the expansion of his non-residential assets in Spain (office buildings and high street shops). Pontegadea holds these properties to benefit from their rental yields and to generate profits from their sale.

This outlay makes Ortega the second largest investor in non-residential assets during this period, according to data provided by Real Capital Analytics. He is exceeded only by Merlin Properties, the largest Socimi currently listed in Spain.

Pontegadea has also acquired properties overseas during this time, in the USA, Canada, France, Italy, Germany and Great Britain, amongst others. Altogether, the book value of his investment property amounted to €4,207 million in 2013, the latest data available. His investments outside of Spain amounted to €2,536 million.

The market value of these assets is unknown, but sources close to Ortega estimate it amounts to €6,500 million.

Most of his spending in recent years has been used to buy office buildings, as well as retail outlets and hotels. Pontegadea diversifies its risk across a variety of non-residential assets and has a more stable profile than other companies that invest only in a single segment, such as offices.

The businessman always acquires assets that have intrinsic value, due to their strategic location and because they have first-rate tenants. This allows him to generate an average annual yield of between 4% and 7%, according to market sources, at a time when interest rates are at around 0%.

In some cases, the Galician businessman’s company leases his non-residential assets to the various Inditex brands. Nevertheless, he also leases stores to Inditex’s competitors, such as in the case of the former headquarters of Prisa, which will be leased to Primark. His annual rental income amounts to around €200 million.

Pontegadea pays for the real estate assets it acquires with liquidity that it obtains from the clothing business, above all with dividends from Inditex. Ortega is the majority shareholder of the clothing business; he holds 58% of its total equity. The businessman also relies on debt from credit institutions to pay for his purchases. At the end of 2013, bank debt amounted to €748 million. The real estate company had mortgaged assets amounting to €1,237 million to support this debt.

“Ortega diversifies his assets and has a significant international presence in another sector. As an investor, he benefits by acquiring properties at the best time and he almost always pays in cash” and therefore buys cheap, explains Manual Romera, Director of the Financial Sector at IE Business School.

Pontegadea paid €400 million for the Torre Picasso, when valuations of the Madrid skyscraper prior to the sale were rounding the €800 million mark. Ortega’s offer prevailed over the one made by the American real estate giant Tishman Speyer, owned by the business tycoons Robert Tishman and Jerry Speyer. Pontegadea took ownership of the skyscraper that Esther Koplowitz, shareholder of FCC and the former owner, was loath to sell.

With the Torre Picasso, he is guaranteed rental yields of around 6%.

The real estate company is led by Roberto Cibeira and headquartered in A Coruña. The Board is support by Pontegadea executives in each country, including Marcos Fernández (US) and Manuel Criado (UK). In addition, Ortega engages legal counsel (Broseta) and real estate advisors, such as Aguirre Newman, which advised on the purchases of Torre Picasso, Gran Vía 32 and Rio Tinto.

Original story: Expansión (by Gemma Martínez)

Translation: Carmel Drake

Investment In Tertiary Real Estate Tripled In 2014 To €7,000m

21 January 2015 – La Vanguardia

Investment in non-residential real estate in Spain amounted to more than €7,000 million in 2014, almost triple the €2,500 million recorded in 2013, according to the consultancy Savills, which expects investors’ interest in Spain to continue in 2015, at the expense of other European markets.

Nevertheless, the possible political instability following the country’s general elections in 2015 may overshadow the optimistic scenario being painted in Spain at the moment, which is being driven by: better economic forecasts than for the other members of the Eurozone; the relaxation of credit constraints; and growth in yields on the best prime real estate assets.

The segments that played the most important role in the investment market in 2014 were offices, which accounted for 39%, and commerce and retail, with 33%.

The limited supply of “prime” products in these segments has spurred greater interest in secondary areas and other properties, as well as in other segments, such as logistics and hotels, which closed the year with the most notable increases.

Transactions involving portfolios of assets quadrupled their presence in the market, resulting in the geographic dispersion of investment.

Thanks to these types of transactions, which are expected to continue in 2015, 45% of the assets targeted for investment in 2014 were located outside of Madrid and Barcelona.

Socimis accounted for one third of total investments in tertiary assets, whereby becoming the main driving force in the market, a role that is forecast to continue in 2015.

As for the origin of investors, local players recovered market share, accounting for 44% of the total, although 72% of the volume invested by Spain was channelled through Socimis, whose shareholders are essentially international players.

The most active international players were the North American funds, with 40.2% of the market, followed by the Europeans with 37.3%. Investors from Latin America were also present; they focused on the office segment in particular, whilst investors from the Asia/Pacific region accounted for 10.6%.

Although most transactions continue to be financed using own funds, the credit market is showing signs of recovery.

Original story: La Vanguardia

Translation: Carmel Drake