In 2011 the Spanish position in the international market was nearly desperate: nothing with a Spanish surname interested investors from London. Currently, and quite the opposite, candidates are multiplying, specially in the Spanish Real Estate Investment industry.
Not even the political uncertainty casts a long shadow. “Although it can slow down investment decisions, a large aircraft carrier can’t turn around radically”, explains Federico Roig from an investment fund, making an allusion to investors’ voracity.
Roig highlighted that investors rely on a certain situation of a stable regulatory framework, with enough liquidity and financing with low-interest rate and with the competitive advantage of the profitability of the property market, compared to others such as the bonds.
In the forum, organised by Mergermarke, a new scenario was defined: when at one time, in the property market, a 4.5% profit was the minimum, now, 3% is acceptable. Also, since 2013 the investors’ profile hasn’t stopped diversifying. The bank, the only financier in the market, has been displaced by venture capital funds and these, in turn, have seen how their old clients – insurance companies or pension funds -, compete by investing directly, as stated by Jorge Valle, from Deutsche Bank.
“It is, it was and it will be the right time to invest in the real estate sector, something crucial for Spain”, according to speakers at the Forum.
But that’s not only true for our country. The same sources at the Forum mentioned: “in 1995, the big global Pension Funds only allocated 5% to alternative investments, out of which the real estate was a small part. In 2014, the percentage, which is still growing, rose to 18%, a sixth of it being the real estate.”
He added more figures: during the last trimester, 74 billion Euros were invested in Europe, 200 million for the whole of 2014, a historic maximum peek never before invested in the continent. In Spain, direct investment nearly reached 10 billion Euros and a few more in purchasing loan portfolios mainly to Sareb (Company for the Management of Assets proceeding from Restructuring of the Banking System) and other financial entities, with another 3,000 million Euros to listed real estate agencies, mainly Socimis (Listed Investment Companies in the Property Market). Losantos estimates that, in Spain, demand is ten times higher than offer.
The summary for such overwhelming numbers is that “there is much money and despair to invest in a global scene of very small rates the real estate sector is one of the few with attractive profits, and the Spanish one is the most interesting one to invest in from a qualitative point of view. We’re in fashion. There is a big demand, and the market with all its reforms favours attraction for our country”.
“This appetite for investing for the European property market, and especially the Spanish one, faces a lack of product in which to invest. One of the key things to do is to opt for problematic buildings; to add good management them and thoroughly know the local market”, according to sources from the group GIC, the Singapore Sovereign Wealth Fund .
As the classic aphorism says, “location, location, location” to which we add “timing, timing, timing”: the key isn’t so much location as when the real estate asset was bought. “It’s starting to be too late. A year ago, nobody wanted anything, and now, everybody wants something which is why there is a certain aggressiveness when buying. The value per square meter is very low, comparatively good and with prospects of rent increase given the economic growth that other countries don’t have.”
GMP was established in REIT (Real Estate Investment Trust), he concludes by saying: “it was catalytic from foreign investment that couldn’t find a way to access and that has found an available and friendly local tax structure. They’ve proven to be a success. We’ve started to buy buildings, buildings that we couldn’t buy before due to their sizes”, he concludes.
“Low interest rates have been a breeding ground for REITs to generate profit in a changing environment”, specified Javier Rapallo, from Deutsche Bank. Rafael García Tapia, a venture capital fund manager, explained that the REIT they created, specialised in business premises in good locations, “as a low-risk venture capital fund agent we have more visibility and it is enormously positive. We’ve been listed in the stock exchange since July and we’re collecting more capital than we can invest in”.
And, due to a lack of product, “we buy what nobody wants, as old rent rate, in co-ownership, foreclosures and pending projects, and we don’t tend to buy bank-owned property”.
The REITs have been like a soothing balm for medium companies, but the same can’t be said about venture capital. As Miguel Zorita from Grupo Daorje, an industrial and environmental services company, sees it: “the policy of a more expansive investment by banks and capital expenditure funds still doesn’t flow to the SMEs easily. Specifically, financing international projects is still hard for them”.
Zorita showed two problems that risk capital investments have: they aim for the biggest leverage for their investments, something that doesn’t necessarily fit with the SMEs’ business plans that also tend not to have any leverage activated. And, in second place, they want to have control of the societies in which they invest, making the profile of executive teams of their investees more adjusted to the executive/employee model than the association with the manager/entrepreneur one.