Drago Capital, backed by capital provided by PSP Investment, is understood to have sealed the acquisition of a prime mixed-use asset on Castellana, Madrid's main avenue.

Drago Capital, backed by capital provided by PSP Investment, is understood to have sealed the acquisition of a prime mixed-use asset on Castellana, Madrid's main avenue.

Drago Capital and Canada's Public Sector Pension Investment Board have signed a preliminary agreement to acquire the Castellana 200 asset, after negotiations between the vendor and one other bidding group, Rodex and Anchorage Capital Partners fell through due to problems with retrieving the necessary financing.

PSP and Drago are believed to be paying around €140 mln for the property, reflecting a yield of 6%.

The asset consists of two office buildings totalling 21,500 m2 and a 8,500 m2 retail element with tenants including H&M, Media-Saturn and Mediamarkt. The office section, which boasts CBRE as a tenant, is 15% vacant. It also includes 800 parking spaces and a 18,000 m2 hotel which is currently without an operator.

The office and retail complex was formerly owned by bankrupt property group Reyal-Urbis before being repossessed by banks Banco Santander, Banco Bilbao Vizcaya Argentaria and the Bankia Group. The building has attracted over 20 offers exclusively from foreign investors in a sales process which is being run by agents CBRE and Knight Frank.

The asset is believed to have involved a development cost for Reyal-Urbis of around €300 mln, with the banks providing some €240 mln to finance the construction.

The acquisition would mark the second in Spain by a Canadian pension fund in the recent past. In late 2013, a joint venture of Intu and Canadian pension plan CPPIB acquired the Parque Principado regional mall in Oviedo in northern Spain for a yield of 7.2%.

PSP and Drago have alredy bid together in the past for a portfolio of bank branches in Spain but did not succeed in winning the tender, according to market sources.