Spain’s Largest Landlords are Merlin, Colonial, GMP & Mapfre

19 April 2019 – Expansión

Merlin, Colonial, GMP and Mapfre: three Socimis and one insurance company together own 16% of the total office space in Madrid. Blackstone, Realia, Mutua Madrileña, Tristan, Pontegadea and Starwood complete the Top 10 ranking.

According to a report from Deloitte, the ten largest landlords own more than 3.1 million m2 of leasable space in Madrid, out of a total spanning more than 13 million m2 (24%). In Barcelona, there is 6.1 million m2 of leasable space.

Leading the ranking is Merlin, which owns 7% of the total stock in Madrid and more than 3% in Barcelona. Its 140-strong office portfolio is worth €5.5 billion and accounts for 45% of its total assets. The Socimi’s tenants include BBVA, Endesa, Inditex and PwC, and its star assets include Torre PwC in Madrid and Torre Glòries in Barcelona.

Behind Merlin is Colonial, which owns 3.8% of the office stock in Madrid and 4.6% in Barcelona (where it is the market leader). Its key assets include the building located on Paseo de la Castellana, 52, two properties on Calle Miguel Ángel (numbers 11 and 23), all in Madrid, and Torre Marenostrum in Barcelona.

Completing the podium is GMP, which owns 2.8% of the gross leasable area in Madrid, including Torre BBVA and Torre Ederra, both in Azca. Meanwhile, the insurance companies Mapfre and Mutua Madrileña own 2.7% and 1.4% of the total stock in the Spanish capital, respectively.

In addition, the funds have strengthened their positions in recent months. The US fund Starwood purchased a portfolio of offices in Madrid and Barcelona from Autonomy for €125 million. It also acquired the San Fernando Business Park, in conjunction with Drago, from Oaktree for €120 million.

The British fund Tristan has also been active, with the acquisition of an office complex on Avenida de Manoteras in 2017 and the purchase of six offices spanning 78,000 m2 from Colonial in 2018 (…).

Original story: Expansión (by R. Arroyo)

Translation/Summary: Carmel Drake

Hispania Will No Longer Be a Socimi & Blackstone Will Channel its Future Profits via the Cayman Islands

13 June 2018 – El Confidencial

Following the green light granted by the CNMV – Spain’s National Securities and Exchange Commission – for Blackstone’s takeover of Hispania, the countdown has begun for the US fund to take control of the company, a milestone that is dependent upon it obtaining 50% plus one share and which, if no rival offer prevents it, could start to take shape on 13 July, when the term for the acceptance of the offer comes to an end.

From that moment on, Blackstone plans to exclude the Socimi from the stock market, which means that it will lose the benefits of the special tax regime, whereby it has been exempt from paying corporation tax in exchange for distributing at least 80% of its profits in the form of dividends, which are taxed at between 19% and 23%.

Blackstone’s decision will, therefore, have a direct impact on the public coffers, given that the conversion of Hispania into a limited company (SA) means that it will now be taxed as a company. Nevertheless, as is typical amongst these large investment vehicles, the fund has created a company structure aimed at financially optimising its tax bill for the duration of the investment period.

According to confessions made by Blackstone itself to the CNMV, the offer is being made through the company Alzette Investment Sarl, which was constituted on 2 February in Luxembourg for the purposes of this operation. Its only shareholder is Alzette Holdco Sarl, also a Luxembourg-registered company and itself wholly owned by BRE/Europe 9NQ Sarl, which is in turn controlled by BREP Investment 9NQ LP, an exempted limited partnership registered in the Cayman Islands.

As such, the ultimate parent company operates under a tax haven that ensures that it will be free from paying taxes for 50 years (…). In fact, the shareholders of BREP Investment 9NQ LP are different offshore companies owned by Blackstone, which are also covered by the exempted limited partnership structure of the Cayman Islands, with the exception of two, which are headquartered in the US tax haven of Delaware, and which are the entities that really benefit from this structure.

Flagships of opportunistic investment

Blackstone’s BREP funds are the US giant’s “flagships of the opportunistic investment funds”, according to its own definition in the takeover prospectus “with USD 75 billion of investment capital, a net return of 16% since 1991 and 1% of losses over 27 years”.

In order to raise the €1,589.6 million that Alzette will have to hand over if all of Hispania’s shareholders accept the terms of its offer (the fund already controls 16.5% of the share capital after it acquired the stake previously owned by George Soros), the different Blackstone funds have committed to contributing the money, either through capital, shareholder loans or other intra-group financing instruments.

In these types of company structures, the different loans arrangements made between the parent companies and their subsidiaries allow them to decrease the overall tax bill in the different countries in which the corporate chain operates in the form of the interest payments that the funds make to themselves and which allow them to “repatriate” the money invested to the Cayman Islands, at the same time as reducing the profit, and with it, the tax charge.

In the case of the takeover bid for Hispania, in addition, Blackstone is also planning to resort to lenders to raise financing amounting to €850 million, referenced to 3-month Euribor, plus a margin of up to 2.25% per annum, and with a maturity date of 15 May 2021, and with the option of being renewed for one more year.

Business plan

Similarly, in order to acquire the stake from Soros, Blackstone signed a financing agreement with Morgan Stanley for a maximum amount of €250 million, although in the end it only drew down €128.6 million. In terms of the financial commitments that Hispania currently has (€894.8 million), Alzette says that it is analysing different refinancing options, including both raising new debt and increasing the level of leverage.

In terms of the business, Blackstone’s plans for Hispania include completing the sale of the office portfolio, which the Socimi had to put on hold at the last minute, even though it had already reached an agreement with Tristán to sell it for more than €500 million, due to the presentation of the takeover bid.

By contrast, in terms of the hotel assets, which are the jewel in the Hispania’s crown, its intention is to hold onto the majority of them for between three and seven years, and transfer their management to the team at HI Partners, the company that the US fund acquired last year for €630 million and which it will likely end up merging with the Socimi.

Original story: El Confidencial (by Ruth Ugalde)

Translation: Carmel Drake

Operación Neo: Lone Star Negotiates Sale of Former Fecsa-Endesa HQ in Barcelona

28 November 2017 – El Confidencial

Lone Star is on the verge of closing another chapter in its history, with the sale of the last major asset that forms part of Project Octopus, a portfolio comprising more than €4,000 million in real estate loans from the bank Eurohypo in Spain and Portugal, which the US fund acquired three years ago, in conjunction with JP Morgan.

The asset in question is the former headquarters of Fecsa-Endesa in Cataluña, a building with a surface area of 35,000 m2, whose three chimneys form part of Barcelona’s skyline and regarding which, it is holding exclusive negotiations with the joint forces of the Tramway group and the German vehicle Indigo Capital.

The conversations are now in the home stretch and may even be closed this afternoon, according to sources familiar with the process, although they also indicate that a second finalist is waiting in the wings, which could take over if these negotiations do not end up proving fruitful.

This operation marks another step forward in Lone Star’s strategy to unwind its positions in the Spanish real estate market, following the sale of the rest of Project Octopus and of the property developer Neinor Homes. That company debuted on the stock market in the spring and following several share sales, the US fund now only controls a 13% stake. Moreover, it goes against the grain of the current situation in the real estate market in Cataluña, which has all but come to a standstill due to the ‘independentista’ challenge.

This property, which has been empty for five years, has both environmental and change of use problems, which have certainly conditioned its sale. Constructed on the site of an old coal generation plan at the beginning of the 20th century, the subsoil of the plot contains impurities from the former coal and gas operations, which constitute the main risk to this operation and which have convinced other interested parties to withdraw from the process.

Impact of the sovereign challenge

In addition, the property has a key 4 urban planning rating, which restricts its use to public services with a technical component. In fact, its former owner, Grupo Sanjosé, which acquired the building from Endesa in a “sale & leaseback” operation, did not manage to resolve the change of use, which allowed Lone Star to execute the debt linked to the building in 2015.

And so on and so forth, because the sovereign crisis in Cataluña was about to bring down the process, launched in September and managed by JLL, in which firms such as Meridia, Colonial, Oaktree, Tristan, GreenOak, Värde and Stoneweg expressed an interest, according to sources.

In the end, only two candidates have submitted bids, for around €20 million, and the winner will likely have to double that investment figure in order to be able to carry out all of the renovation work that this asset requires to be in a position to generate value again.

Original story: El Confidencial (by R. Ugalde)

Translation: Carmel Drake