After John Carrafiell co-founded GreenOak Real Estate in 2010, the firm’s first investments were in New York, London and Tokyo. But in February, GreenOak and several partners announced that, after almost a year of talks, they had moved into Spain’s downtrodden property market and bought eight shopping centres for €160m.
“There was very little done [in Spain] before the summer of 2013,” says Mr Carrafiell, who was formerly the global co-head of Morgan Stanley Real Estate. “There is always a period of adjustment in terms of where buyers and sellers see value.”
GreenOak’s deal is not the only recent example of buyers and sellers finally agreeing a price. About €5bn was invested in Spanish commercial real estate last year, according to CBRE Spain, the property consultancy, more than twice the 2012 amount. After the government made economic reforms and indicators began to point upward, some investors decided Spain’s market had bottomed and was worth a look.
“No one wanted to put a penny in Spain, because many people thought there was a huge risk of it leaving the euro,” says Enrique Martínez, executive managing director of CBRE Spain. “But at a certain point, the investor community realised that this would not happen. At that point, it was the herd instinct.”
At a recent property conference in Madrid, Marta Gómez, director of investor relations for Sareb, the “bad bank” formed in 2012 to hold €51bn in assets of Spain’s bailed-out banks, said she had spoken in 2013 to 700 funds interested in Sareb’s portfolio.
Last summer, Blackstone bought 1,860 Madrid apartments for €125.5m and Goldman Sachs partnered with a local firm to buy 3,000 more.
This year, Qatari funds bought Barcelona’s Renaissance and Madrid’s InterContinental hotels. And Canadian pension fund manager PSP Investments and a local partner bought Madrid’s Castellana 200 complex for €140m.
The shopping centre market has been active, because many malls had foreign owners who were eager to deal, often because they had loans due that would be hard to refinance, says CBRE’s Mr Martínez.
Patricio Palomar, director of research at CBRE Spain, expects retail space transactions to double this year, to about €2bn.
The office market has been slower. There were €54.6m of commercial office transactions in Barcelona during the first quarter of 2014, compared with €25m the same period last year, says Oriol Barrachina, chief executive of Cushman & Wakefield in Spain. whose data show the per square metre sale price for prime Madrid office space fell from more than €10,500 in 2006 to €5,200 today. Prime office rents fell from €42 to €24.50 a square metre. Both have recovered slightly in 2014.
The combination of lower prices and higher rental yields than Paris and London has attracted investors; prices have “clearly” bottomed and will begin to rise, says Mr Barrachina.
The residential market is more complicated. After price tumbles of more than 50 per cent in some areas, the number of sales is rising. But nationwide prices are still falling, albeit slowly; May’s year-on-year drop of 5.3 per cent was the lowest in three years, according to Fotocasa.es, the real estate portal.
Mark Stücklin, founder of the Spanish Property Insight website, notes that there are two residential markets in Spain: a healthy market for foreigners who pay cash for prime properties; and a difficult market for locals who cannot get mortgages.
Some prime neighbourhoods are seeing increases. In Barcelona, 21 of 35 districts recorded rising prices in May, according to Fotocasa; in Madrid, it was 22 of 52.
Still, there are drags on the residential market. Despite several big transactions, most portfolios for sale are not interesting for investment funds, says Fernando Encinar, co-founder of Idealista.com, a property website.
“Funds are interested in a condominium with 50 units and good profitability,” he says. “What they are finding is dispersed collections of properties, and they don’t have teams to manage all these units.”
And despite a 2 per cent rise in home mortgages in March, the first in four years, most Spaniards cannot access the market, says Beatriz Toribio, head of research at Fotocasa.
“With unemployment and lack of access to credit, we can’t talk about recuperation,” she says. “Interest from foreigners isn’t enough.”
For now, property recovery is nascent. Indeed, the €5bn in deals in 2013 is still only half its 2007 peak.
“Spain has attracted a tremendous amount of interest and a lot of talk, but not as many people have actually got things done,” says Mr Carrafiell.
That could change as Spain’s economy improves. Mr Carrafiell says he expects consumer spending and other indicators to improve in 12-18 months, helping the market: “I don’t know whether it will be in two or three or even four years, but I do think there will be a powerful recovery in Spain.”
Source: Financial Times