Funds Seek Out Dilapidated Buildings For Renovation

24 August 2015 – El Economista

The interest from international funds in Spanish real estate has no limits. These investors are not only looking for iconic buildings and premises right in the centre of Madrid, they are also willing to buy dilapidated residential properties for renovation.

Interest is growing in the acquisition of these kinds of assets in cities such as Madrid and Barcelona, explains Samuel Población, National Director of CBRE Residential. According to the director, these investors, which tend to be international funds of Anglo-Saxon, US and French origin, are willing to pay between €5 million and €25 million to buy properties that need to be fully refurbished. “They spend up to €50 million on a single asset, but there do not tend to be many buildings for that price on the market”, he adds.

The modi operandi of these funds are almost always the same. They form partnerships with Spanish property developers, which contribute a smaller proportion of the capital, but who know the local market and who can streamline the administrative procedures. If a fund has a good business plan, it may generate a return within two and a half year, explains Población.

These investors also purchase properties to demolish them and build new ones in their place; in fact, that is often a cheaper option than a complete refurbishment. In this sense, Población indicates that “the problem they face is that the listing levels (for the protection of buildings) are very high and do not allow developers to demolish buildings and construction new ones. They have to restrict themselves to full refurbishments, preserving elements such as stairways and façades, which drives up the construction costs significantly”.

That is exactly why Población believes that introducing more flexibility in terms of the listing levels of buildings would allow the stock of homes to be refurbished more quickly, since more investors would enter the market. The reality is that Spain needs this type of investment, since around two million homes in the country are in poor conditions and need renovating, according to the figures provided by the Institute for Energy Diversification and Saving (IDAE). These figures place Spain, which has 25 million homes in total, as one of the most obsolete real estate stocks in the European Union.

A real reflection of these numbers has been seen in Madrid this month, where two properties have been demolished due to their poor condition. To avoid these kinds of incidents, Norberto Beirak, a member of the Governing Board of the College of Architects in Madrid, considers that certain protocols need to be established, which must be fulfilled when Technical Inspections of Buildings are carried out (ITE).

“There are no rules governing the procedures for these inspections”, he explains. Moreover, it is typically the buildings’ owners that pay for this service and they tend to commission very basic inspections due to a lack of resources.

Original story: El Economista (by Alba Brualla)

Translation: Carmel Drake

Cataluña Will Fine Banks That Do Not Lease Out Foreclosed Homes

11 March 2015 – Expansión

The Generalitat will impose fines of up to €90,000 on banks that have homes (on their balance sheets) resulting from mortgage foreclosures and the assignment of deeds in lieu of payment, which are in a poor condition and as a result, are not leased out. The 72 municipalities with the highest demand (for housing) will be forced to transfer affected homes to the Generalitat, which, after refurbishing them, will lease them out for a maximum period of ten years. This is one of the measures contained in a law introduced to address urgent housing measures, which the Government of Artur Mas (CiU) announced yesterday.

The text also empowers the Generalitat and the town halls to exercise ‘their pre-emptive rights and rights of first refusal’ for all of the homes that have resulted from mortgage foreclosures and the assignment of deeds in lieu of payment, that the bank wants to sell. The objective is to prevent packages of properties ending up in the hands of international funds and evicting the tenants from those homes.

Original story: Expansión (by A.Z.)

Translation: Carmel Drake