With the purchase of Diagonal Mar in Barcelona, Deutsche Bank’s investment arm, has now transacted more than €950 mln in Iberia over the last 12 months, writes Deals Editor Isobel Lee.
Deutsche Asset Management, emerged ahead of several other bidders including ECE, CBRE GI and TH Real Estate in the bid to acquire the asset from Northwood Investors for €495 mln for its Grundbesitz Europe fund. The purchase was the largest shopping centre deal seen in Spain in recent years.
Carlos Manzano-Cuesta, head of real estate Iberia at Deutsche AM, told PropertyEU: ‘This investment clearly fits the acquiring fund's strategy due to the asset’s strong core typology. It has delivered an outstanding performance in terms of recurrent cash flow since opening in 2001, and even throughout the economic crisis it was more resilient than other Spanish peers. This is due to the asset’s continuously increasing sales figures, supported by occupancy rates of over 98%.’
Bargain price
Northwood bought Diagonal Mar in 2014 for a bargain price believed to be around €150 mln from a group of investors represented by Avestus Capital Partners and including Ireland’s bad bank NAMA. The US investor purchased 60,000 m2 of the 87,500 m2 mall which was developed by Hines in 2001 and designed by shopping centre expert Jean-Louis Solal and architect Robert Stern. The remaining 27,000 m2 of the mall is owned by Spanish anchor tenant Alcampo. The scheme was held in a REIT structure called NW Diagonal DM1 valued at €260 mln and with €165 mln of debt.
Quinlan Private, which rebranded as Aves-tus in 2010, bought the mall from Deka at the peak of the market in 2006 for some €300 mln. Back in 2002, Deka bought the asset for €240 mln.
The centre – the second largest in Barcelona – is situated on a prime freehold site located three miles northeast of the city centre in the 22@ district. It is almost fully let to 190 tenants including Media Markt, Fnac, Primark, Zara, and H&M and includes 5,000 parking spaces.
Tourism growth
Opened in 2001, it registered nearly 17 million visitors last year with total retail sales of over €20 mln. ‘We have no doubt this trend will continue, especially when considering the remarkable development in the surrounding areas of the 22@ district in terms of residential, hotel and office markets, the tourism growth and finally the improvements that will be implemented to the shopping centre,’ said Manzano.
Deutsche AM said it intended to invest more than €30 mln in several projects to enhance Diagonal Mar by creating a new fashion sales area alongside a general internal and external refurbishment.
‘This investment is intended to bring the asset to its full potential, by rebalancing the commercial mix as well as refurbishing it both internally and externally, explained Manzano. ‘We believe that the scheme currently allocates an excessive weight to both leisure and restaurants and that this space could be optimised through the creation of a new area dedicated to fashion, where additional trend-setting international retailers could complement the centre’s offer. The food-court will also be given a new image, as well as several areas of the shopping centre, where we believe the asset’s look and feel does not match its potential.’
With the purchase of Diagonal Mar, Deutsche AM’s Iberian real estate investment business has now transacted more than €950 mln in the last 12 months, bringing the division’s total assets to 17.
Spanish economic recovery
‘We expect to continue investing, taking advantage of the Spanish economic recovery, which will significantly increase real estate rents in the short to medium term,’ said Manzano when asked about the business’ Iberian strategy. ‘In the Madrid and Barcelona office markets, for example, rents are expected to increase by approximately 30% until 2020. We are mainly targeting three sectors: offices, shopping centres and logistics.’
He added: ‘Having said this, one should also be prudent, especially when considering the strong investment made in Spain over the last two years, which has led to a significant compression in yields and consequent price increases. Due to the high liquidity available, easier access to financing and low interest rates, it is expected that investors’ appetite will continue to be strong for some time. The scarcity in terms of quality products will surely strengthen the rising prices trend. So we expect to keep on investing but only when the opportunities presented meet our prudent strategy.’
