The New Kings Of The Residential Market

17 November 2016 – Expansión

The crisis in the real estate sector not only led to the disappearance of some of the historical giants, such as Martinsa Fadesa, Reyal Urbis and Nozar, it has also resulted in a structural change in the residential landscape, with the emergence of new players, including several international investment funds, which have revived the market by injecting their capital. (…).

“Traditionally, the residential sector has been a very polarised market, with lots of local developers playing key roles. Nevertheless, the residential business model has changed following the crisis. In 2014, we began to see new players emerging in the form of partnerships between local property developers and international investment funds, with the funds providing the capital and the developers the local knowledge and ability to manage the market”, explains Ernesto Tarazona, Partner-Director of Residential and Land at Knight Frank.

Meanwhile, the National Director of Residential at CBRE, Samuel Población, explains that the partnerships created by the international funds and local developers bring together the local developers’ capacity to manage and know the local market, and the funds’ capacity to invest and provide solvency levels (…). “Grupo Lar and Pimco; Renta Corporación and Kennedy Wilson; Momentum Real Estate and HMC; Aquila Capital and Inmoglacier; Mina Inmobiliaria and Eurostone; Aelca and Värde; and Q21 Real Estate and Baupost, are just some of the partnerships that have been formed in recent months”, he says.

In this way, we are seeing “the professionalisation of the sector with institutional money that wants to enter this market”, says Borja Ortega, Director of Capital Markets at JLL. (…).

Enrique Isla, Partner at King & Wood Mallesons (KWM), explains that, in addition, some of the funds have burst into the market by purchasing real estate companies in order to access their portfolios of land as well as their management teams. “That was the case with Lone Star’s purchase from Kutxabank of its real estate subsidiary Neinor; and Värde’s acquisition of Sanjosé’s real estate subsidiary to create Dospuntos; it also explains Castlelake’s interest in Aedas, the property developer that has emerged from the ashes of Vallehermoso”, he adds.

Isla thinks that the investment funds see great potential for growth and profitability in the residential sector, given the improvement in the Spanish economy and employment, as well as the favourable financing conditions.

In this sense, Población points out that the new developments in Spain will have to respond to the depletion in the stock of new housing that we are seeing. “Given the high number of housing permits granted in 2015, we expect between 60,000 and 65,000 new homes to be ready in 2016”. (…).

In addition to the funds, Spain’s banks, through their servicers – companies created during the crisis to streamline the administration and sale of portfolios of properties and loans by financial institutions – are becoming increasingly involved in property development.

In this sense, Anida, one of the few large platforms that is still completely owned by its parent company, BBVA, has just signed an agreement with Inveravante, a holding company owned by Manuel Jove. During the first phase, the new company, in which Jove holds a 70% stake and BBVA the remaining 30% stake, will develop 850 homes in Málaga, Madrid and Las Palmas.

The experts think that other movements of this kind may well take place in the real estate market, given that many of the banks are still major land owners.

Meanwhile, Sareb is continuing to be a major player in the residential market, with its stock of almost 100,000 units as at June last year.

Original story: Expansión (by Rebeca Arroyo)

Translation: Carmel Drake

Spain’s Banks Still Own €350,000M Of Toxic Assets

26 September 2016 – Expansión

Spain’s banks still have €350,000 million of problem assets on their balance sheets, which they must get rid of if they want to tackle another major problem that they are now facing: their lack of profitability. Most of them have already strengthened their capital to comply with the regulatory obligations demanded by the European Central Bank (ECB).

However, according to data compiled by the ratings agency Moody’s, based on statistics from the European Banking Authority and the Bank of Spain, the burst of the real estate bubble in 2008 and the subsequent financial crisis have left non-performing loans, properties and deferred loans, with a total value equivalent to one third of Spain’s GDP, on the entities’ balance sheets.

Approximately €140,000 million of the total €350,000 million accumulated on the balance sheets of the entities corresponds to non-performing loans or NPLs, whilst the rest is divided between assets such as property developments and land owned by the banks and loans whose recovery has been postponed because the borrowers have not been able to afford the repayments.

As a whole, this burden is reducing the banks’ ability to handle their other great problem: monetary policy at zero-interest rates. Between January and June 2016, the revenues of the banks listed on the stock market which decreased by 1.3%.

In order to resolve this problem, the large entities are having to resort to the market to get rid of their bad loans, albeit with average discounts of 30% on their original values. Various alternatives are being explored to this end, including the structure being prepared by entities such as Banco Popular, which will debut a subsidiary on the stock exchange containing up to €6,000 million of toxic assets. Other entities are packaging up and selling loans and properties to funds that specialise in their management. According to the consultancy firm Deloitte, Spain’s financial entities currently have problem assets worth €20,000 million up for sale.

The analysts at Moody’s consider that the rate of reduction in the non-performing loan balances of Spanish banks is clear for all to see. “But it is not as visible in terms of the volume of foreclosed properties or deferred loans, which are still classified as performing”, explain María Cabanyes and Alberto Postigo, analysts at the ratings agency. They consider that it is essential that these latter loan categories be included within the “problem” loan balance so as not to hide any of the risks.

Moody’s, which estimates that Spain’s banks have deferred loans amounting to around €100,000 million, highlights that on the basis of the transparency exercises performed by the European Banking Authority, Spain is one of the banking systems that is most exposed to the problems of toxic assets. (…).

For this reason, from 1 October 2016, a new calculation method for recognising provisions against these assets will come into force, imposed by the Bank of Spain. (…).

Original story: Expansión (by Daniel Viaña)

Translation: Carmel Drake

The Socimi VBA Will Debut On The MAB In November

16 August 2016 – El Confidencial

Another new Socimi, VBA Real Estate, is planning to list on the stock exchange and has decided to accelerate its debut. It is now working against the clock ahead of its listing on the MAB (Alternative Investment Market) in November. But that is just the beginning, given that the company hopes to move onto the main stock market and to start competing with the large Socimis in the field, in other words, with Merlin, Hispania, Lar and Axiare.

In fact, its strategy on the stock market partially replicates those adopted by these large vehicles, given that the reason why VBA is debuting on the MAB is not just to comply with the legal requirements imposed on Socimis to benefit from their special tax regime. In this case, VBA also wants to raise money to finance new purchases and grow in size, a policy that would involve future capital increases, and that means that its upcoming debut on MAB will be structured as an IPO (Initial Public Offering or Oferta Pública de Suscripción or OPS).

To accompany it on its stock market debut, the Socimi has hired Renta 4 and Aguirre Newman, and has also hired professionals from firms such as PwC and McKinsey to comprise its management team, with David Calzada at the helm, as the CEO of VBA.

The Socimi already owns assets for rent in its portfolio, comprising 166 homes, 17 parking spaces and 68 storerooms, spread over four complete buildings; as well as others, scattered across several properties. It has performed these operations with a net direct profitability of 5%, without gearing, and a discount of between 10% and 30% on the market value, which has allowed it to accumulate an increase in its asset value of 34%.

To build this portfolio, VBA has invested €14 million, after having analysed operations worth €420 million and having raised €16.2 million, as well as having closed financing amounting to €3 million. With its upcoming debut on the stock market, the Socimi hopes to secure another €15 million, which will allow it to continue to progress towards its investment objective of €100 million.

According to its roadmap, the company hopes to have a gearing or Loan to Value (LTV) ratio of close to 50%, an ambitious challenge, given that it currently amounts to 16%.

Diversified shareholding

To give credibility and transparency to these numbers, VBA subjects its accounts to a quarterly review and publishes the corresponding financial statements, along with a valuation of its assets, a policy that adopts in order to provide a period point of references to investors interested in investing in its shares. This approach means that it is already complying with the practices of the (main) stock market, even though the obligation does not apply to MAB-listed companies.

Currently, the Socimi’s share capital is owned by 35 different shareholders, from Israel, USA and Spain, and none of them owns more than 15% individually. Part of its decision to accelerate its debut on the stock market (it could have waited until 2017) was based on the fact that several investors are interested in buying its share capital, but they will only do so once the company is listed.

Madrid, Málaga, Valencia, Sevilla and Bilbao are the cities where VBA has set its sights. It tends to close its investments in specific areas and neighbourhoods outside of the centre of those capitals, focusing instead on more popular areas, where rental prices are more affordable.

Original story: El Confidencial (by R. Ugalde)

Translation: Carmel Drake

Aguirre Newman: Logistics Inv’t Totalled €413M In H1

4 August 2016 – Mis Naves

Investment in the logistics sector amounted to €413 million during the first half of 2016, a similar figure to the one recorded during the same period last year, according to the conclusions of the Logistics Market Report for H1 2016, a study conducted by the real estate consultancy Aguirre Newman. The report explains that fewer operations have taken place during this time period, but those that have been completed have been larger (in value), including the portfolio sales undertaken by Gran Europa and Zaphir Logistics.

Almost all of the profitable investments have been made in the prime markets, Madrid and Barcelona, which together accounted for 80% of the total volume bought and sold. In addition, as a result of the product shortage, investor interest is starting to move to focus on secondary markets, such as Valencia, Zaragoza, Sevilla and Pamplona.

Demand for logistics space in Madrid during the second quarter of the year decreased by 76.3% with respect to the previous quarter (Q1 2016), with just 34,233 sqm of space leased. The most significant operations, of which there were seven in total, took place in Cabanillas del Campo and Coslada, which accounted for 45% of the total space leased.

The highest rental incomes recorded in Q2 amounted to €5/sqm/month and the rents in the prime areas remained stable at between €4.5/sqm/month and €5/sqm/month, as a result of the scarcity of operations completed.

According to the report, despite the low demand for logistics space, demand for industrial assets has been dynamic with 30 operations closed during the period, corresponding to 80,829 sqm of space, half in the rental segment. In terms of sales transactions, 63.6% related to spaces measuring less than 1,000 sqm. This data indicates an improvement in terms of demand in the industrial market, with a high number of low volume operations.

Just like in previous quarters, there was a high level of activity in the market for land dedicated to industrial/logistics use, a clear indicator of the return to property developer activity and the recovery of the sector. Six operations involving land were closed both for end clients and for development through new projects. They included the purchase of more than 160,000 sqm of land in Illescas (Toledo).

In Barcelona, during Q2 2016, demand for logistics space was very positive, reaching 160,469 sqm, a very similar figure to the one recorded during the same period in 2015 and almost 80% higher than during the first quarter of 2016.

During this period, 11 operations were closed, of which four involved spaces exceeding 10,000 sqm, accounting for more than 85% of the total space leased, which focused primarily on the regions of Baix Llobregat and Tarragonès.

In terms of the most significant operations by surface area leased in Q2 2016, Aguirre Newman’s report highlights the operation closed by Amazon in Prat de Llobregat covering 60,000 sqm on the ground floor. On the other hand, in the region of Tarragonès, an operation involving 42,250 sqm of land was closed to provide services to Amazon in the performance of its activity. These two operations accounted for 64% of the total space transacted. (…).

Original story: Mis Naves

Translation: Carmel Drake

Veracruz Properties Acquires Parla Natura Shopping Centre

4 August 2016 – Mis Locales

Veracruz Properties has acquired the Parla Natura shopping centre (in Madrid) in an operation advised by Cushman & Wakefield and Savills, marking a new milestone in the sale and purchase of shopping centres in Spain.

Opened in 2009, Parla Natura has a gross leasable area of 18,000 sqm spread across twelve stores, which are leased to brands such as Decathlon, Aki and Kiabi, as well as 1,200 parking spaces. Moreover, its location is unbeatable, given that it is easily accessible from the A-42 motorway that links Madrid and Toledo.

Salvador González, Director of Retail Investment at Savills, commented that “Investor appetite for retail parks in Spain is still very strong, primarily due to the product’s future potential both in terms of revenues and profitability. At Savills Spain, we have always been committed to the retail park sector, and proof of that is the strong track record of transactions that we have advised in this segment. We have successfully closed this operation, together with Cushman & Wakefield.

Rupert Lea, Head of Retail Capital Markets at Cushman & Wakefield Spain explained that: “The sale of Parla Natura is another example of the strong interest that international investors, in this case, from Latin America, have in the retail sector in Spain. Together with our co-agents, Cushman & Wakefield, we have successfully closed another transaction for our client”.

Original story: Mis Locales

Translation: Carmel Drake

HI Partners Buys Hotel In Tenerife From The Polanco Family

26 July 2016 – Expansión

The founding family of Prisa will use the funds (received from the sale) to reduce its debt with the banks and repay a loan from Banco Santander.

HI Partners is pushing ahead in its offsensive to become one of the largest owners of hotel assets in Spain. The subsidiary of Banco Sabadell has acquired the Hotel Jardín Tropical, located in Costa de Adeje, in the south of Tenerife, from the Polanco family, founder of Prisa.

This is a complex operation that, on the one hand, will allow the repayment of a €20 million loan that the hotel holds with Banco Santander. In parallel, the Polanco family will reduce the bank debt that it holds with several financial institutions, according to sources close to the transaction. This is HI Partners’ second acquisition in the Canary Islands, after it purchased Hotel IFA Catarina in Gran Canaria a few days ago, from the Lopeson group.

Through the investor holding company Timón, the Polanco family controls several hotels, which it operates through My Way. This company will continue to manage Hotel Jardín Tropical, which has 419 rooms and has a 4-star rating. The hotel, constructed around thirty years ago and located on the beach front, was designed by the architect Melvin Villarroel, known for integrating architecture with nature. Thus, the hotel has 12,000 sqm of sub-tropical vegetation and a saltwater swimming pool.

The aim of HI Partners is to renew all of the rooms to modernise the tourist complex, located in Spain’s fourth most important destination by RevPar, the indicator used to measure the profitability of hotel assets. The company led by Alejandro Hernández-Puértolas now has 26 hotels in its portfolio and manages €850 million of Banco Sabadell’s hotel debt.

Original story: Expansión (by S. Saborit)

Translation: Carmel Drake

Bank Of Spain: Housing Yields Soar By 10.9% In Q1 2016

18 July 2016 – Expansión

(…). According to the latest data from Bank of Spain relating to the first quarter of this year, the average gross annual return on housing amounted to 10.9% in Q1 2016. Three months earlier, the same indicator amounted to 8.8%, which gives an idea of how much the pace is speeding up.

This gross yield figure measures the combined effect of the appreciation in house prices, plus the income obtained from putting those houses up for rent, before tax. In other words, the figure takes into account not only the amount that each investor obtains from renting out his/her property, but also the amount that he/she would earn from selling it after twelve months, which is the most important information for investors.

Specifically, house prices rose by 6.3% YoY during Q1 2016, whilst rental income generated additional returns of 4.6% over and above the value of the asset. And that profit may increase over the coming years, given that Fotocasa calculates that rental prices increased by 4.8% YoY in June, the second highest rise since 2006.

Moreover, this figure is more significant in the context of depressed interest rates, where investments presented as alternatives to fixed income options are shining. For example, housing yields are six times higher than the returns on 10-year Spanish public debt, which is the reference rate used by the financial supervisor; moreover, housing has also offered a safer refuge against uncertainty than the stock exchanges in recent months. (…).

This gap between housing yields and the returns on other assets means that now is a great time to invest in rental housing, for both individual buyers and investment funds, given that the cost of mortgages are also at historical lows.

In fact, the College of Property Registrars indicates that last year, 12.71% of house purchases were made by legal persons, which shows the interest that housing is sparking amongst companies, due to the double returns it offers.

The business model of these businesses and individuals is clear: obtain fixed income from renting out the asset, for an amount that comfortably exceeds the associated operating costs, and also benefit from the appreciation in the property value, so that they can more than double their returns.

Overall increases

In addition, it is a pretty safe bet, given that house prices are rising in most autonomous regions (and the improvement in the labour market should prolong this rise) and rental prices are rising four times as quickly as purchase prices, according to data from Fotocasa. (…).

The percentage of citizens who prefer to rent rather than buy is increasing, from 19% to 21.2% of Spaniards in 2015. In the last three years, the rental market has absorbed more than 1 million homes and is 42.5% larger. For this reason, investors looking for high returns have thrown themselves into the hunt for properties in established locations, with demand, in order to rent them out.

Location and quality

In fact, the experts recommend paying special attention to the location and quality of housing, because Spain is no longer a homogeneous market…but rather a market evolving at two or three speeds, in which prices have not bottomed out yet or are stable in certain cities and neighbourhoods, whilst prices are clearly recovering in others. (…).

Original story: Expansión (by P. Cerezal)

Translation: Carmel Drake

Bank Lending To Individuals Peaked In April

8 June 2016 – Expansión

The banks are stepping on the accelerator to sign new loan contracts. In April, the rate of new mortgages and consumer loans granted by Spanish financial institutions reached levels not seen since before the rescue (of the sector) in 2012. Nevertheless, new operations to large companies declined during the month, which meant that the total volume of new loans granted in April decreased by 7.9% to €34,600 million, according to data from the Bank of Spain.

In this way, Spain’s banks are clearly focusing on three areas to secure new business and whereby improve their returns:

1. Mortgages: the volume of new mortgages to buy homes amounted to €5,173 million in April, twice as much as last year and the highest monthly figure since December 2012. Even so, that figure does include renegotiations. If we exclude those, the amount of new money granted for mortgages during April amounted to €2,920 million, i.e. 45% more than during the same month last year and the second highest monthly figure in the last year. The banks hope to offset the low profitability of the mortgages granted during the years of the real estate boom with these new mortgages.

2. Consumer credit: Another segment that the financial entities are pushing hard is that of consumer credit, in light of the high interest rates being offered (c. 7.52%), according to the latest figures from the Bank of Spain. In this way, the financial sector granted €2,330 million of new financing to consumers in April, almost 50% more than a year earlier and the largest volume since May 2010.

3. SMEs: The financial sector is also focusing on its business with SMEs, where the banks are waging a battle to secure new clients. Nevertheless, the loan volumes there did not reach record levels in April – €11,710 million was granted, which was 14% more than a year earlier, but lower than the figure in December – like in the cases of mortgages and consumer credit, but the price at which new loans are being granted did, averaging 7.52%, the lowest level seen in recent months.

However, the banks have encountered a more complex panorama in the market for medium-sized and large business. Regarding the former, the volume of new loans grew by just 4% in April, whilst in the case of the later, the volume of loans granted declined by 40%. According to Fernando Alonso, Director of Companies and Corporations at BBVA, speaking in a recent interview, the “political uncertainty may well be delaying investment decisions at the corporate level”.

For the first time, the Bank of Spain provided data about renegotiations in its figures for April; it also gave details about loans to companies by amount; deferred credit card payments – also at record highs -; and overdrafts to households and companies.

Original story: Expansión (by J. Zuloaga)

Translation: Carmel Drake

Deloitte: Hispania & Lar Are The Most Profitable Socimis

7 June 2016 – El Confidencial

They have been accused of: buying up assets expensively, skewing the market by paying stratospheric prices, heating up the market on its way to recovery, when it still needs time for supply and demand to adjust…the Socimis have been accused of many things, but for all their successes and failures, the reality is that they are all managing to generate more profitability than other types of investments, such as fixed and variable income, with average operating yields (net gain over initial investment) of between around 4% and 6%.

And the story goes on and on, because if we add to those figures the fact that Socimis have an easier time when it comes to obtaining financing from financial institutions – they are being offered spreads of just 1.5% – such as in the bond market – an area that several Socimis (Colonial, Merlin and Lar) have already ventured into and which Hispania hopes to explore soon, – the final yield on their investments will amount to 10%-11%.

A recent study by Deloitte, which was published last Wednesday in the Foro MedCap organised by the Spanish Stock Exchange and Markets (BME), highlights the success that these investment vehicles are enjoying, after it has analysed the gains that they are making on their investments from several perspectives. As the table in the article shows, Hispania and Lar España are, in that order, the two companies that are achieving the highest operating returns in the sector with respect to their initial investments.

Colonial, the only large listed Spanish real estate company that has not adopted the Socimi structure yet because it has tax credits from prior year losses, appears slightly behind, with an operating yield of 3%. But as Alberto Valls, Partner of Financial Advisory at Deloitte, explained, this figure is distorted by the high weight that Colonial’s French subsidiary SFL has in its portfolio. SFL is an authentic jewel in the crown of this group but because it focuses on the high-end office market in Paris, it offers lower yields in exchange for holding better assets and it does not include the exchange operation with Finaccess, which the Group will approve on 28 June.

The other side of the coin: the stock market.

Merlin, Colonial, Hispania, Axiare and Lar have an aggregate net asset value (gross value less debt) of €7,576 million, in line with the combined market value of these companies, which stands at €7,655 million. Nevertheless, if we look at each company in detail, we see that Axiare is the Socimi that has managed to best to gain the trust of investors, listing as it does with a discount premium on its NAV of 11.5%, followed by Colonial, with a discount premium of 8%. In exchange, the stock market value of Lar is 8% lower than its asset value, a difference which amounts to -3.5% and -1.5% in the cases of Merlin and Hispania, respectively, figures that indicate that those companies still have some way to go on the stock market.

Despite that punishment, if we compare the evolution of these companies on the stock market over the last two years (all of these Socimis debuted on the stock exchange in 2014) with the performance of the Ibex, we see that, according to Deloitte’s report, whilst the sample of companies increased their values by 18%, Axiare’s share value rose by 34%, Hispania’s by 22%, Merlin and Colonial by 18%, and Lar by 6%. Despite this improved behaviour, the Spanish companies in the sector are lagging behind their European counterparts, given that the EPRA index, which groups together the main real estate companies in Europe, reported an (average) increase of 23%, exceeded only by Axiare.

From this international perspective, the experts agree that, far from heading for another (real estate) bubble, there is still a long way to go in our country and that the phenomenon unleashed in the last two years with the eruption of Socimis in the stock market, is also being experienced in other countries, encouraged by the real estate recovery, surplus liquidity and the need to find returns of around 4% with controlled risks in a zero and negative interest rate environment. (…).

Original story: El Confidencial (by Ruth Ugalde)

Translation: Carmel Drake

Domo Socimi: An Example Of The Boom In Residential Business

11 February 2016 – Expansion

An example of the boom in residential business and new opportunities offered by the development and promotion of housing is Domo Socimi. This company, incorporated in June 2015, is presented as the first in Spain that creates value by offering investors the opportunity to participate and capture the profitability of the entire real estate cycle from the purchase of land, through construction, rental and the subsequent sale. Domo Socimi, with a goal of attracting 50 million initial capital and planned increases up to 250 million, plans to apply for incorporation to the Alternative Investment Market (MAB, in its Spanish acronym) during the first half to provide liquidity for investment. Armabex acts as global coordinator of the transaction and registered advisor for its incorporation to the stock market.

Original story: Expansion

Translation: Aura Ree