Blackstone Begins Rental Housing Empire in Spain

Blackstone Group (BX), builder of the biggest single-family rental home business in the U.S., is using its experience to replicate the model in Spain, where property prices have dropped 40 percent since the 2007 peak. The world’s largest private equity firm agreed in July to purchase 18 apartment buildings from the city of Madrid for €125.5 million ($173 million). “Building a business from scratch without a single employee and buying something like $150 million in homes per week requires a learning process,” Anthony Myers, senior managing director of real estate at Blackstone, said at a conference in Barcelona in mid-October. “When we looked at the situation in Spain, we thought we could see something similar, where we could replicate a lot of the systems and technology that we created in the U.S.”

Spending $7.5 billion to buy 40,000 homes in the U.S., Blackstone has targeted mainly foreclosed single-family properties, renovated them, and sought tenants. The firm is taking a different approach in Spain, where it’s competing with foreign and domestic distressed property investors who are seeking to make bulk purchases of low-cost housing units, mainly already-occupied apartments, in cities where local governments need to sell assets to trim deficits. “They’re focusing on homes complete with tenants and assured rental income in large urban areas like Madrid, where there’s high demand and most people’s salaries can meet the rent,” says Fernando Encinar, co-founder of, Spain’s largest property website.


Price Blackstone paid for 18 apartment buildings in Madrid


Drop in Spanish property prices since the 2007 peak


Projected real estate sales in 2013 by Spain’s bad bank

While Spain traditionally has a lower percentage of renters than the U.S., the government last year introduced measures to increase demand in the rental market by abolishing tax breaks for individual home buyers. Legislation was passed to protect landlords by allowing them to raise rents above the annual inflation rate, speeding up evictions of tenants who don’t pay and reducing the length of leases, which means owners can raise prices more frequently.

The government has pledged that Sareb, a bank it set up last year to acquire soured real estate assets at a discount from bailed-out banks, will sell €1.5 billion of assets this year. Private equity firm H.I.G. Capital agreed in August to buy a majority stake in a portfolio of about 1,000 homes from Sareb. Juan Barba, head of real estate for the bank, says it will prepare a portfolio of rental housing to sell next year in response to investor demand. “This type of sale will be flavor-of-the-month in coming years,” says Alfredo Laffitte, head of sales to investors at Banco Sabadell.

Goldman Sachs (GS) and Azora Capital, a Madrid-based private equity firm, outbid Blackstone in August by agreeing to pay almost 20 percent above the asking price for 32 social-housing developments sold by the capital’s regional government. Blackstone and Goldman Sachs are again competing to purchase a portfolio from the regional government, according to a person with knowledge of the bidding who asked not to be identified because the information is private. The portfolio includes 22 developments with 1,458 housing units and 1,588 garages situated in and around the capital, according to an investor presentation.

Spain has the highest rate of homeownership in the euro area after Slovakia and Estonia: About 83 percent of dwellings are owned by the people who live in them. The weak economy is changing Spaniards’ mentality, says Mikel Echavarren, chief executive officer of Irea, a Madrid-based restructuring firm. He estimates the rental market in Spain will double in coming years. The downturn has also hurt rents in Madrid, which have fallen 19 percent from their June 2008 peak. In Barcelona, Spain’s second-largest city, rents have dropped 24 percent, according to Idealista data. That doesn’t trouble investors. “Job insecurity, salaries that are frozen or falling, and bad experiences with mortgages and foreclosures are all going to translate into a barbaric rise in the demand for rental accommodation,” Echavarren says.

Source: Bloomberg