AXA Real Estate beat off more than 60 competitors to become the preferred bidder for Barcelona’s Diagonal 00 skyscraper, in what will be one of the largest single asset deals in Spain since the credit crisis.

AXA Real Estate beat off more than 60 competitors to become the preferred bidder for Barcelona’s Diagonal 00 skyscraper, in what will be one of the largest single asset deals in Spain since the credit crisis.

Acting on behalf of an unnamed client, Europe’s largest real estate asset manager presented a €107 mln bid for the tower which is the Barcelona headquarters of Spanish telecom operator Telefónica. The offer represents a 9% premium to the asset's selling price of €98.5 mln.

If successful, the transaction would represent one of the largest single asset deals in Spain since the credit crisis. The purchase is believed to reflect a net initial yield of 6%.The building is fully let to the telecom operator until 2060.

Andres Escarpenter, managing director of JLL Spain which is advising AXA RE on the deal, reckons that the transaction’s return ‘compares very favourably to that of a 10-year bond’. ‘This asset really ticks all the right boxes; it is hard to find a product that is more core than this one,' he commented. The sales process is being overseen by Catalan public agency Consorci de la Zona Franca de Barcelona (CZFB).

DIAGONAL 00
Built in 2010, the 110-metre high tower has been dubbed Diagonal 00 due to its location at the start of the Barcelona's main avenue, Diagonal. The property provides a total of 32,811 m2 of gross area over 24 floors and 295 parking spaces.

While Spain has undergone something of a resurgence in the past 12 months, particularly among opportunistic investors, the Telefónica asset sale shows that investors appetite is now as strong for core assets as for riskier product.

'The Telefónica building represents a rare opportunity to acquire a prime office building in the Catalan capital city which is let to a strong tenant covenant on a very long lease and matches our client’s requirement for assets which can deliver highly visible and secure income,' commented Hermann Montenegro, head of asset management and transactions, Spain at AXA Real Estate.

He added: 'We will now focus on working hard to complete the transaction on behalf of our client as soon as possible.'

AXA Real Estate made a comeback to the Spanish property market in June last year when it bought a portfolio of up to 13 government-let office buildings in Barcelona, as part of a sale-and-leaseback transaction with local authority Generalitat de Catalunya for €172 mln. Diagonal 00 was put up for sale by CZFB last month with a guide price of €98.5 mln. It is understood to have attracted some 66 expressions of interest, 60 of which from international capital, including an offer from Qatari private investor Ibrahim Hassan Al Asmakh, advised by DTZ, as well as bids from several German funds and some of Europe's largest insurance companies.

Closing of the deal, which is expected to take place in the next two months, is conditional upon the successful completion of due diligence. AXA RE is believed to be in discussions regarding the lease terms with Telefónica, which is currently paying €21 per m2 per month compared to an average of €18 for the best assets in the area. According to market rumours, Telefónica is looking to extend the lease now that the asset is no longer owned by a public company, while AXA Real Estate is not willing to grant Telefónica a requested veto power on the future sale of the scheme.

This is the second asset sold by CZFB in 2014, following the disposal of the Banc de Sang i de Teixits for just over €38 mln to Recober Inversiones. The public development agency is the owner of the free trade zone at the port of Barcelona and has built a number of high-profile assets on the area including Las Gloriès shopping centre, currently being redeveloped by Unibail Rodamco.

Virna Asara
Correspondent Southern Europe


DEAL FACTFILE
BUYER: AXA Real Estate
VENDOR: CZFB
ASSET: Diagonal 00 in Barcelona
PRICE: €107 mln
YIELD: 6%
ADVISOR: JLL for AXA RE