Investors may get lost in Spain without local guides

Jane Roberts

Orion Capital Managers has a loyal fan base among limited partner investors, having raised more than €1bn of new capital for pan-European opportunistic investing during 2012, when few others could. The private equity firm was an early entrant back into the Spanish property
market, so its managing director, Aref Lahham, should know his cebollas and is likely to be right when he says “Spain has definitely turned the corner.”

The list of other investors who agree is rapidly growing longer: Ameriprise Financial, APG, Cohen & Steers, Fidelity, Franklin Templeton, Henderson Global Investors, Paulson & Co, Pimco, George Soros’s Quantum Strategic Partners, Qatar Investment Authority and UBS have all
tucked euros into the Spanish recovery story since the beginning of the year. They have invested via the listed sector, either through the restructuring of Colonial or in one of the three new flotations since March.

On the heels of initial public offerings by Lar España and Hispania, which raised €400m and €550m, came Merlin Properties, which closed on €1.25bn on 30 June – slightly less than the €1.5bn the confident management line-up had boasted of, but impressive, and quick, nonetheless.
Their story is a familiar one, although it has been a very long time since there have been so many listings of European property companies, let alone so many cashbox IPOs with no assets in their flotations (Merlin is an exception here).

As in Ireland, where Green REIT, Hibernia, Kennedy Wilson Europe Real Estate and Irish Residential Properties REIT have all had IPOs in under a year, it’s about heavyweight international capital backing managers with proven local knowledge.

parallels with irish market

Ireland and Spain may be totally different property markets and Spain is far, far bigger, but they have things in common. The obvious one is that both saw real estate values collapse spectacularly; another is that, unlike Germany, France or the UK, the dominant holders of commercial property were local investors.

It therefore requires very good contacts to find and acquire a portfolio of attractive assets that will show a good initial yield. The complaint from international investors trying to buy in Spain has been a lack of assets. The best Madrid and Barcelona offices and shopping centres remain hard to acquire, although the investors who recapitalised Colonial are getting access to over €1bn of such stock.

However, in Spain, as in Ireland, the local groups and investors who own many of the assets are highly leveraged, or have had their properties taken out of their hands by SAREB, so there will be a structural change in ownership. This should make it a good time to buy. You just have to hook up with the right people.