Foreign investors turn to Spain in bargain hunt

Spain's attractive pricing is prompting foreign investors to look back at the market for opportunities.

But, with the property sector close to a turning point, international players risk missing the boat if they do not invest this year, according to Roger Cooke, head of Cushman & Wakefield’s office in Spain.

'There's consensus that Spain is getting interesting again, and this is the time to seriously make a move, because investors might be surprised how quick things will go when recovery starts,’ he commented. ‘The bravest will end up reaping the rewards of the market.’ Henderson Global Investors has taken a similar view. In a research report entitled ‘Time to re-think Spain?’ the international fund manager recently noted that ‘there should be good buying opportunities for early movers’. ‘Past evidence reminds us that the window of opportunity to invest at the bottom of the cycle can be narrow,’ it added.

So far, Spain’s investment arena has been dominated by the local family offices and other opportunistic investors while institutional money has either disappeared or remains on the sidelines. Deka Immobilien is one notable exception. The German fund manager in early May made a courageous step back into the market with the purchase of the Ronda de Sant Pedro 5 mixed-use complex for around €19 mln. The fully let office and retail property in the hearth of Barcelona was acquired from a family office. ‘The Deka Immobilien fund has exploited an investment opportunity against the cyclical trend to acquire this commercial building in a prime location,’ the investor said.

According to data from Cushman & Wakefield, Spain saw as little as €63 mln of deals in the office sector so far this year, while first-quarter retail investment came in at a historic low of €11 mln. April saw the largest deal of the year with the sale and leaseback by Deutsche Bank of its headquarters in Madrid.

Located at 18, Paseo de la Castellana, the 9,000 m2 building was bought by Indian businessman Ram Bhavnani for €42 mln, believed to reflect a yield of nearly 7%. The building was leased back by the German financial group, which agreed on a new 20-year lease on the asset.

According to those who track the market, a number of sales are currently underway. IVG Immobilien is believed to have mandated Jones Lang LaSalle to sell a 6,300 m2 office building at General Lacy 23 in Madrid. The asset, housing the headquarters of agent Aguirre Newman, is being sold for around €20 mln.

Also in the capital, LaCaixa has hired Cushman & Wakefield to divest the Sorrano 60 mixed-use asset while in the Northern city of Oviedo, Sonae Sierra and CBRE Global Investors are rumoured to be quietly looking for a buyer for their joint Parque Principado mall. The 75,000 m2 retail complex with 134 stores is expected to trade for some €150 mln.

Spain's biggest mall, the 200,000 m2 Puerto Venecia shopping centre in Zaragoza, is also likely to come to the market in the near future with its co-owner, British Land, recently announcing plans to exit Continental Europe. The UK REIT owns 50% of the scheme.

An asset class that is proving incredibly liquid is individual residential units. While Spain's bad bank Sareb is still evaluating its disposal strategy, the local banks which transferred the assets to Sareb have retained the management of the properties and of the sale processes for the time being. ‘They are selling individual housing units along with offering debt to private owners, which makes the deal very attractive, given the adjustment in pricing,’ Cooke of C&W noted.

In the commercial property sector, Cooke noted that over the last year very few properties marketed eventually lead into a sale. ‘We reckon that 80-85% of the sales processes did not result in a sale going through,’ he said. ‘Both purchasers and agents are frustrated with the sales processes, which were hindered by unrealistic pricing at a time when the market was seeing negative tendencies.’ The main reasons for this is the shortage of credit and the lack of transactional evidence, he added. ‘Local banks are so embroiled in refinancing existing loans that they do not have liquidity to finance new investment. In addition, there is still a gap between buyers and vendors expectations. Too many vendors think that the values in their books can be realised. But the biggest issue is the price that buyers are looking for,’ he noted. Opportunistic players - which dominate the investment arena - are looking for internal rates of returns ranging between 18-25% which just are not acceptable to vendors. ‘We have plenty of potential deals but they mostly provide returns of 14-16%,’ Cooke concluded.