Merlin to Spend €250M Developing New Logistics Assets

8 May 2018 – Expansión 

The Socimi Merlin plans to spend €250 million launching new logistics assets over the next four years. “We are continuing with our ambitious expansion plan, primarily through the development of land and the construction of turnkey projects”, said Merlin’s CEO, Ismael Clemente (pictured below), speaking yesterday at the company’s General Shareholders’ Meeting.

The director explained that Merlin is going to add another 500,000 m2 of space to its existing portfolio to exceed “by far and in record time” the 2 million m2 of logistics space that it currently manages. “That will place us in a clear position of leadership with respect to our competitors”, he said.

This investment will be made in addition to the €370 million that the real estate company is going to use to reform and reposition its portfolio of offices and shopping centres.

Clemente explained that the intense investment activity in which Merlin has been immersed since its creation was obeying a “strategic vision”. “We were living through the start of the upward trend of a new real estate cycle and there was a window of opportunity open to buy some very high-quality assets and companies at very attractive prices. That quality and those prices will not be seen again until the next cycle comes around”, he said.

The director reiterated the “outstanding” return to shareholders of 21.6% in 2017. In this sense, yesterday, the shareholders approved a 9% increase in the dividend, to be charged against the results for 2018, to reach €235 million.

Clemente also revealed that his firm will be looking carefully at the real estate plans designed by Aena for the airports in Barajas and El Prat. Aena is planning to market 2.7 million m2 of buildable space for logistics, hotel and office use on land that it owns at the Adolfo Suárez Madrid-Barajas airport and another 1.85 million m2 of land at Barcelona-El Prat airport.

Original story: Expansión (by R. Arroyo)

Translation: Carmel Drake

Overseas Funds Compete to Finance & Buy Land in Spain

15 April 2018 – Voz Pópuli

At the beginning of 2012, at the height of the economic crisis, one of the directors of the Bank of Spain – José María Roldán, now the President of the AEB – faced a tough meeting with investors. One of them told him that land in Spain was worth nothing. “If that’s the case, then I’ll take it all”, replied Roldán.

And if he had done so, today, the executive would be a millionaire and the same funds that raised doubts over the banks’ balance sheets would today be knocking at his door to buy that land and finance developments on it.

The good times in the Spanish economy and the real estate recovery are causing the opportunistic funds to look for ways to take advantage of the situation. They are buying assets, real estate companies – Habitat and Inmoglacier are the most recent examples – and trying to fill the gap left by the banks in the financing arena. That is where they have set their sights on land, the last bastion, where traditional entities are still wary of lending.

“Bank financing is available for projects and occasionally for parts of plots, but it is inflexible and restricted to certain locations and pre-sales levels. Ours (financing) is flexible in terms of volume, periods and conditions”, says Luis Moreno, Senior Partner at Ibero Capital Management, a firm that has just teamed up with Oak Hill Advisors to lend the property developer at least €400 million. In just a few weeks, they already have projects on the table exceeding that amount.

Types of investors

“Bank financing is still almost non-existent and is only granted in very low percentages in situations of high pre-sales”, says Pablo Méndez, National Director of Capital Markets at Savills Aguirre Newman.

The example of Oak Hill is just one of many. Julian Labarra, National Director of Corporate Finance at CBRE, explains the different types of investors that are interested in land. A first group comprises funds that provide bridge loans. Whilst the banks require “that a development already has the necessary permits and a certain level of pre-sales”, some of the funds financing certain projects with “yields of 14-15%”. And they exit after 18-24 month, by which point the development meets the requirements of the traditional banks (…). Active funds in this segment include Incus, Oquendo and Avenue.

Other funds have chosen to team up directly with Spanish property developers: they put up the capital to buy and develop land and the managers contribute their knowledge. There are several examples: Lone Star with Neinor, Castlelake with Aedas, Cerberus with Inmoglacier; Bain Capital with Habitat; and Morgan Stanley with Gestilar.

Another similar, more recent, example is the association between FS Capital – from Finsolutia – and Inmobiliaria Espacio, a company owned by the Villar Mir group, to relaunch the construction business and sell homes by investing €400 million on land purchases (…).

Other funds also interested in land are those committed to financing the whole process, such as Oak Hill, and those that are buying portfolios of land from the banks and from Sareb, but not to resell them, such as Deutsche Bank and Blackstone.

By location, the experts agree that financing has gone from being limited to the large capitals to appearing in increasingly more cities. “(…). Until two years ago, interest was limited to Madrid, Barcelona, Málaga and the Balearic Islands. Now we are seeing operations along the whole coast, as well as in Sevilla, Zaragoza and Pamplona, amongst others (…)”, says Labarra, of CBRE. “This year we will see operations in cities such as Bilbao, Vigo, Salamanca, Zaragoza and Murcia, which have recently come onto the radar of the large investment groups”, adds Méndez, of Savills (…).

Original story: Voz Pópuli (by Jorge Zuloaga)

Translation: Carmel Drake

ST: Rental Yields Soar in Sevilla, Valencia & Tenerife in Q1

2 April 2018 – Expansión

The three cities recorded increases of more than 16% during the first quarter, whilst the national average improved by 7.6%. Barcelona offers returns of 8.7% and Madrid 7.5%.

Buying a home to let it out has become one of the most attractive investment options of recent times. The returns offered by renting a home, in an environment of low interest rates and moderate inflation, are greater than other options, such as those generated by debt and deposits. In this way, during the first quarter of 2018, the average rental yield in Spain amounted to 8.2%, according to the Real Estate Sector Trends Report for 2018, compiled by Sociedad de Tasación. Although Barcelona is the province that offers the highest return (8.7%), the overheating of prices there is reducing margins, making it a safer location but with less potential. In that context, Sevilla, Valencia and Sant Cruz de Tenerife are emerging as interesting targets.

The evolution of residential yields in Spain, which soared by 7.6% during the first quarter of this year, suggests a sustained trend over the coming months, favoured by an increase in demand, the strong performance of the economy and the growth in house prices, which rose by 4.3% in April.

The increase in prices is still more pronounced in Spain’s provincial capitals. In Barcelona, for example, prices rose by 10.2% in 2017. In that province, rental housing generated a return of 8.1%, representing an asset with “very limited risk”, according to analysis from Sociedad de Tasación. It was followed by Lérida, also in Cataluña, where rental housing offered a return of 8.45%.

Although prices are high in Barcelona, they have not had an impact on rental yields, something that has happened in other areas, such as the Balearic Islands. The return offered by a rental home in the islands fell by 3.2% during the first quarter. That reduction could be due to the increase in house prices in recent years due to the tourist rental boom, which has reduced the scope for further increases. In Palma de Mallorca, for example, the number of beds from unregulated tourist rental platforms now exceeds the supply of hotel beds by 100%, according to data from Exceltur, which may, in turn, have an impact on prices. In fact, the Balearic Islands is the autonomous region where the most effort is required to buy a home in all of Spain.

An average citizen would need to allocate his entire salary for 14.9 years to be able to buy an average home in the Balearic Islands, twice the national average (7.5 years). That conclusion can be deduced from Sociedad de Tasación’s real estate effort index, which shows that, despite the increase in incomes, buying a home in many cities in Spain is still prohibitive for many.

In this context, markets such as the one in Valencia are interesting. Not only is it the province with the third highest rental yield (8.11%) in the country, it also ranks highly, in second place, in the increases in returns: an increase of 16.7% that more than doubles the evolution of the most profitable province, Barcelona, which saw its yields rise by 5.2% during the first quarter.

In terms of Madrid, although the average rental home in the province offers a yield of 7.46%, which is below the Spanish average, that is due to the differences between the rental market in the capital and other cities in the province.

Sevilla is the province that leads the yield increases. During the first quarter, yields there soared by 17.7%, well above the rises in Madrid (6.2%). In third place was Santa Cruz de Tenerife, where letting a home is now 16.2% more lucrative than it was a year ago.

Original story: Expansión (by I. Benedito)

Translation: Carmel Drake

Bankia, BBVA & Abanca At War with Sareb for “Breach of Contract”

30 January 2018 – El Independiente

Bankia, BBVA and Abanca are at war with Sareb. The three entities are not willing to sacrifice their own results just because the bonds issued by the ‘bad bank’, which they received as payment for the real estate assets that they transferred to it, are now generating a negative return when, according to the conditions established, the coupon should not have been allowed to fall below 0%.

The conflict is in the middle of an arbitration process to determine whether the banks will be forced to accept that Sareb has decided to change the price of those bonds, explain sources familiar with the negotiations, speaking to El Independiente. The affected entities accuse “Sareb of a breach of contract”.

Sareb was created to take on 200,000 financial and real estate assets from the banks in exchange for which it issued €50.781 billion in 1-, 2- and 3-year bonds, which are renewed each time they mature. The interest rate on those bonds comprises two variable components: the 3-month euribor rate – which is currently trading at -0.32% – and the Treasury interest rate over the term in question. On the secondary market, that interest rate currently amounts to -0.43%, -0.21% and 0.03% for one, two and three years, respectively.

Of the €50.781 billion issued, Bankia granted the company assets worth €22.317 billion, Catalunya Bank – now absorbed by BBVA – contributed €6.708 billion and Novagalicia – which now belongs to the Venezuelan group Abanca – just over €5.0 billion.

Officially, the bonds were issued with a coupon that included a floor clause to prevent the interest rate from being negative depending on the conditions in the market. That floor had its own raison d’etre: so that the securities could be used by the entities to approach the ECB to request liquidity, given that, until last year, the bonds had to trade with positive coupons in order to be discounted by the central bank.

Nevertheless, a regulatory change in the middle of 2017 means that the banks can now use this debt as collateral even when those coupons are negative. This argument is enabling Sareb to refuse to maintain the floor clause that kept the coupons at 0%. And Bankia, BBVA and Abanca are not willing to assume that cost.

An executive familiar with the conflict explains it like this: “Sareb agreed that,  in exchange for the real estate assets that the banks transferred to it at the end of 2012, it would pay them a specific amount, not in cash but in bonds. Now it says that it is going to pay less and so, naturally, the banks need to defend their interests and those of their shareholders”.

Of the more than €50 billion in Sareb bonds issued to pay for the 200,000 real estate assets – 80% in loans and credits to property developers and 20% in properties – which nine entities transferred to it, the outstanding balance now amounts to €37.9 billion. In this way, the company has repaid almost €13 billion. Moreover, it has also paid interest on that debt of almost €2.8 billion.

Original story: El Independiente (by Ana Antón and Pablo García)

Translation: Carmel Drake

The Owner of Santander’s HQ is Set to Emerge from Bankruptcy

26 January 2018 – Voz Pópuli

There is light at the end of the tunnel in the creditor bankruptcy of Marme Inversiones 2007, the company that owns Banco Santander’s Ciudad Financiera (in Madrid). This week, a key meeting was held to unblock the bankruptcy proceedings, with deliberation over several appeals, something that the courts will come to a decision about over the coming weeks.

The parties potentially interested in this process have started to take positions regarding the possible sale of the Ciudad Financiera, which could happen in the middle of this year. The best-positioned player is the fund AGC Equity Partners, with a proposal that values that bank’s headquarters at between €2.7 billion and €2.8 billion, as this newspaper revealed.

But two competitors have emerged: a consortium formed by Madison Capital, Glenn Maud and GCA; and a proposal from the Iranian-born financier, Robert Tchenguiz, according to financial sources consulted by Vozpópuli.

The offer that most concerns AGC is the one presented by the US funds (Madison and GCA) and the British property magnate Glenn Maud, who was one of the original buyers in 2008. The price that they may put on the table is close to the figure being offered by the Arab fund, around €2.7 billion.

Months of advantage

Nevertheless, AGC is the favourite in the race because it has been negotiating the operation with Santander for several months. Santander is not only the tenant in this case, it also holds a small part of the debt and a right of first refusal. Having said that, the Commercial Court number 9 of Madrid has denied that preferential right until now. Be that as it may, an agreement with Santander would facilitate everything.

Meanwhile, in addition to these two offers, further competition has emerged in the form of Tchenguiz, owner of the company Edgeworth Capital. The Iranian national has been trying to harness his investment in subordinated debt for years. By holding one of the riskiest tranches, he has to make sure that the liquidation plan protects him, otherwise, he will be exposed to discounts. That negative scenario would become a reality with AGC’s liquidation plan.

For this reason, Tchenguiz is offering an insolvency exit plan in which he would become the owner of the Ciudad Financiera by purchasing the stake owned by Glenn Maud.

To complete the picture, we should take into account that beyond the bankruptcy of Marme Inversiones, two other companies in Spain are involved in this insolvency: its two parent companies, Delma and Ramblas. And that those creditors and investors are awaiting trials in the UK and The Netherlands. This complex legal battle is starting to see the light at the end of the tunnel.

Original story: Voz Pópuli (by Jorge Zuloaga)

Translation: Carmel Drake

The Hatchwell Family Launches a Luxury Housing Developer

21 December 2017 – Expansión

The Excem group, led by the second generation of the Hatchwell family, has decided to strengthen its commitment to the Spanish real estate sector, which it broke into a few months ago with the launch of several Socimis.

Now, the Hatchwell family has placed its focus on the house building sector, a booming market in Spain. To this end, the company has created a property developer specialising in luxury housing: LOV Real Estate. “Our objective is to position ourselves in the medium-high end market. For that reason, we are launching LOV Real Estate now; it is going to be the brand of our property developer for building luxury homes with a forecast return for investors of more than 20%”, says Andrés Sánchez Lozano, CEO of Excem Real Estate.

Following its creation, LOV has already chosen its first project: the building located at number 142 Calle Fuencarral in Madrid, in the heart of the Chamberí neighbourhood. There, Excem has purchased a seven-storey building and with a total investment of around €14 million, it will build 25 homes, with between 1- and 3-bedrooms and prices ranging between €400,000 and €1.5 million. “LOV RE’s commitment on Fuencarral includes design architecture, bioclimatic features and ecological mobility elements. The large garden terrace with swimming pool, gym and meeting room for residents also stands out as a unique feature in the area.

LOV Real Estate has been structured as another investment line within the Hatchwell family’s real estate business, launched at the beginning of the year (2017) with the aim of investing €600 million in homes, hostels and offices through three Socimis. Currently, two are operational: one specialising in the residential sector, which owns 27 properties after investing around €14 million and which will debut on the MAB in May 2018.

The other, specialising in hostels and tourist apartments (Situr) has invested €22 million in a single asset in the centre of Madrid.

Original story: Expansión (by Rocío Ruiz)

Translation: Carmel Drake

Idealista: Rental Prices Rose by 18.4% in 2017

4 January 2018 – Eje Prime

The price of rental homes is continuing to rise. The residential rental sector ended 2017 with an average price increase of 18.4%, to reach €9.7/m2/month, according to the latest report from Idealista. The fourth quarter saw a slow down in the rate of growth, given that prices only rose by 3.3%. Barcelona and Cáceres were the only cities where rental prices fell during Q4, by 2.4% and 1%, respectively.

“2017 was undoubtedly the year of the rental market in Spain. Between January and September, the sector grabbed the headlines and was a popular talking point amongst the general public. Prices rose in general across the whole of Spain, although the upward trend was curbed slightly during the final quarter of the year”, according to the research.

It is worth noting that not rental prices did not increase to the same extent in all markets: the Canary and Balearic Islands, together with the Andalucían capitals of Málaga and Sevilla, and the Catalan city of Girona led the price rises. Madrid, which together with Barcelona has traditionally spearheaded the rental market in Spain, saw its prices rise by half the national average. And Barcelona was the only Spanish capital, alongside Cáceres, to end the year with a decrease in rental prices after four years of YoY increases.

In all of the other provincial capitals, rental prices are more expensive today than they were a year ago. Santa Cruz de Tenerife is the capital where rental prices increased by the most in 2017, with a rise of 22.7% to reach €8/m2/month. The increase recorded in Las Palmas de Gran Canaria was also considerable, where rental prices rose by 22.5%, followed by Girona, with an increase of 20.5%.

Original story: Eje Prime

Translation: Carmel Drake

Servihabitat: Rental Yields Now Exceed 10% in Madrid, Cataluña, Balearic & Canary Islands

18 December 2017 – Expansión

“The Spanish residential market has been showing clear signs of recovery in 2017 and all indications are that the rate of growth will be even higher in 2018. The number of house sales will rise by 16.9% this year, to exceed 472,000 operations, and by another 18.3% next year, which means that we will see the sale of almost 560,000 units”. In this way, Servihabitat summarises the trend in the residential sector, which is enjoying a sweet moment.

The key factors contributing to the boost in demand include: the growth of the number of solvent buyers; policies by financial institutions to grant more loans; the progress in terms of the construction of new homes; and the increase in investor interest – in the case of holiday homes, investors now account for 19% of all operations.

This last aspect is fundamental for understanding the boom in the most consolidated areas of Spain. According to data from Servihabitat, the average annual yield from buying a home to let is 10%: 5.5% from the gross rental yield and 4.5% from the appreciation in the property value over 12 months, which the real estate servicer calculates in its forecasts at the end of 2017.

This data tallies with the 9.8% calculated by the Bank of Spain. The difference is that Servihabitat breaks down the yield by region and province. The regions in which it is more profitable to acquire a home to let are: the Community of Madrid, (13.3% gross p.a.), Cataluña (13.1%), the Balearic Islands (11.4%) and the Canary Islands (10.8%).

They are the only four regions where yields exceed the national average, which gives us an idea of the importance that the two largest cities and residential investment along the coast play in the overall calculation for the Spanish market. It comes as no surprise that the most profitable provinces are: Barcelona (13.7%), Madrid (13.3%), Las Palmas (12.4%), the Balearic Islands (11.4%), Málaga (10.1%) and Santa Cruz de Tenerife (9.5%). In other words, the six largest real estate markets in Spain (together with Alicante), where demand from overseas buyers is boosting the sector and the cranes are back on the horizon. Overseas buyers now account for 17.4% of all purchases or one in six. That percentage rises to 47.6% in the case of Alicante, 40.8% in Santa Cruz de Tenerife, 33.7% in the Balearic Islands, 32.8% in Girona, 31.4% in Málaga and 22.6% in Las Palmas.

They are clearly the “hot” areas of the real estate sector, but they are not the only ones to be offering high returns. Other examples include: Salamanca (8.4%), Guadalajara (7.8%), Murcia (7.7%), Cantabria (7.6%), Valladolid (7.5%) and Lleida (7.5%), amongst others. This positive trend will become even more marked in 2018 (…).

In the Catalan capital, yields in the district of Sants-Montjuic are off the scale, with an average gross annual return of no less than 32.9% (5.3% from the rental yield and 27.6% from an appreciation in property prices). It is followed by Eixample (26.8%), Gràcia (25.9%), Sant Martí (25.6%), Horta-Guinardó (24.9%) and Nou Barris (21%). The centre (Ciutat Vella) yields 19%, and the exclusive district of Sarrià-Sant Gervasi 13.2%

In Madrid, yields in the Centre amount to almost 20% (19.7%), followed by Salamanca (19.2%) and Chamberí (18.8%) (…).

Despite this inflation in prices and yields, “there is no risk of a bubble in either city”, according to Cabanillas. “The problem is not speculative; the price rises are resulting from the pressure in terms of demand for the use of second homes and tourist accommodation. The risk is that gentrification will force young people out of city centres, but there is no risk of over-financing”, says the CEO of Servihabitat.

Original story: Expansión (by Juanma Lamet)

Translation: Carmel Drake

Gorbea Puts FCC’s HQ on the Market for €150M

30 November 2017 – El Confidencial

The headquarters of FCC, located in the Madrilenian neighbourhood of Las Tablas is on the verging of changing hands. Its owner, Gorbea Arrendamientos, has decided to cash in its holding and, to this end, has engaged CBRE to launch an express sale process. The intention is to choose a winner before the end of the year. Sources at the consultancy firm declined to comment.

This operation is set to be the most important of the year in the office segment, since the vendor aims to close the sale for around €150 million, according to market sources. That amount has not been reached so far by any of the other office transactions closed in 2017.

Gorbea Arrendamientos is owned by the Hernández-Beitia family, which acquired the land where the headquarters of the company controlled by Carlos Slim is now located for €80 million from FCC seven years ago.

Then, the infrastructure group signed a 20-year lease contract, of which almost 13 years still remain. Specifically, this rental commitment is the main feature of the operation, given that it guarantees the future buyer a stable income in one of the fastest growing areas of Madrid.

When Gorbea acquired FCC’s headquarters, a return of 7% was estimated on the basis of the rental contract. However, the new buyer will see that yield decrease to around 3%-4%. That range that makes this purchase a classic operation for conservative investors, such as insurance companies and pension funds.

Cinematographic fortune

The Gorbeas, as the family behind this real estate group is popularly known, amassed their real estate portfolio as owners of important cinemas in Madrid, including Roxy B on c/Fuencarral, Lido on c/Bravo Murillo and Renoir on c/Narváez. From there, they leapt into the office segment, where they are known for naming many of the buildings they own after their parent company, Gorbea.

Despite the box office crisis that caused so many cinemas to close, this family group still owns several subsidiaries linked to the world of cinema, such as Cines Floridablanca, Cines Retiro and Cines Princesa, in the centre of Madrid, as well as several multiplex companies in Majadahonda, Zaragoza and Guadalajara.

Construction of FCC’s headquarters, which cost €48 million to build, was completed five years ago and, since then, the building has housed more than 1,000 employees from the infrastructure group.

The building has a surface area of 21,000 m2, spread over 3 inter-connected buildings, which occupy an entire block and form an H-shape. They have two basement floors and a ground floor, with capacity for 400 parking spaces, as well as six office floors and a rooftop.

Original story: El Confidencial (by Ruth Ugalde)

Translation: Carmel Drake

PwC: Madrid Is One Of Europe’s Top 5 Most Attractive Cities For RE Investment

13 November 2017 – Eje Prime

Madrid is really winning over European investors. The Spanish capital is one of the top five cities to invest in over the course of the next year, as recommended by the consultancy firm PwC, according to its annual study Emerging Trends in Real Estate: Europe 2018. Whilst Madrid rose from 9th to 5th position, Barcelona managed to avoid the tense political situation in Cataluña to rise from 16th to 11th.

One of the reasons that led the consultancy firm to highlight Madrid as a safe house for real estate investment over the next year is its office market, which “after a cycle of compression”, has seen an increase in rental prices in the segment. “The increase in office rental prices suggests that Madrid is one of the most attractive opportunities for investors in Europe”, say sources at PwC.

With the (national) political uncertainty now “dissipated”, the recovery across Spain and, specifically, in Madrid is progressing “at full speed”. Real estate investment volumes in 2017 are on track to exceed records, especially in segments such as retail, where investment in this kind of asset is expected to soar by the end of the year, to exceed €4,000 million. Moreover, Madrid is also starring in alternative investment operations, such as those involving Resa and Nexo in the student hall segment, and the opening of the first Spanish WeWork office in Madrid, in the co-working sector.

During the 9 months to September, Spain closed transactions worth €10,300 million, according to a study compiled by the main real estate consultancy firms in Spain. In the third quarter alone, investment in real estate assets amounted to €3,000 million (…).

Offices remained the second most popular asset by investment volume (accounting for 24% of the total investment volume in Spain). Investors tend to focus on Madrid and Barcelona in this segment, with the two cities accounting for 90% of total office investment (…).

Logistics assets are also sparking a great deal of interest, especially warehouses located in Madrid and Barcelona. The volume of investment in these types of assets has not stopped growing since 2012 and so far this year, investment has reached €811 million, up by €100 million compared to 2016 as a whole (…).

Barcelona rises but misses out on Top 10 place

Outside the top ten by one position, Barcelona is nevertheless above average for the European cities recommended by PwC for investment. After rising several places from 16th to 11th in the ranking, the Catalan capital has caused alarm bells to ring due to the political situation, which has led some funds to put their real estate investments in the autonomous region on standby.

PwC says that, although there is a certain degree of concern, after interviewing a large number of investors for the preparation of its report, it concludes that no one is going to stop taking Barcelona into account for their real estate investments. “Investors are applying almost zero political risk, given that they do not believe that Cataluña is going to become independent”, said one of the main directors of a Spanish real estate business to the consultancy firm (…).

Original story: Eje Prime (by C. Pareja)

Translation: Carmel Drake