A lack of choice will force real estate investors in the increasingly competitive Spanish market to consider substandard assets, according to the country鈥檚 biggest listed property company.
Pere Vi帽olas-Serra, CEO of Inmobiliaria Colonial, told IP Real Estate that the biggest risk facing overkeen investors was in treating secondary assets as prime.
鈥淭here鈥檚 a scarcity of product alongside considerable capital,鈥� Vi帽olas-Serra said. 鈥淲e want to avoid the temptation to buy what is not secure.
鈥淚t鈥檚 easy to make a mistake and investors risk buying an asset they would not otherwise consider.鈥�
Colonial will continue to focus on the central markets of Barcelona and Madrid, Vi帽olas-Serra said. It will also continue to be active in the Paris office market through French REIT Soci茅t茅 Fonci猫re Lyonnaise, of which it owns a majority share.
鈥淭here are, however, micro-bubbles where as many as 30 parties can sometimes be bidding on a single asset鈥�
Pere Vi帽olas-Serra
Madrid, he said, was further down the road to recovery than Barcelona.
鈥淲hen you move to beyond the prime area, then you are more exposed to the wider macroeconomic issues Spain still faces,鈥� he said, referring to Spain鈥檚 high levels of unemployment.
In its Metro Area Outlook, Moody鈥檚 Analytics said that, while 18% of the population is still out of work, the Madrid area鈥檚 labour market has outperformed, with workers 鈥渓ess concerned鈥� about job security than their counterparts elsewhere in Spain.
Headquarter offices are consequently a safer investment option than back offices in secondary locations, Vi帽olas-Serra said.
Colonial, which has a 鈧�5.5bn portfolio, was recently reported as being in the final round of bidding on the Madrid headquarters of Spanish finance group, Ahorro Corporacion. The prime office, known as Castellana 89, has been on the market for over a year, according to reports. Serra would not comment on Colonial鈥檚 rumoured interest in the building.
Despite the frenzied nature of bidding for Spanish real estate, the sector is not in a 鈥渂ubble鈥�, Vi帽olas-Serra said.
鈥淭here are, however, micro-bubbles where as many as 30 parties can sometimes be bidding on a single asset,鈥� he said, adding that further yield compression was likely for prime properties.
Investor interest also in Spanish REITs, known as SOCIMIs, which promise high yields and a relatively conservative investment approach.
Spain鈥檚 government first cleared the path for SOCIMIs at the start of 2013.
Corporate income tax for SOCIMIs is 0%, with their minimum share capital requirement being 鈧�5m. The vehicles have attracted the likes of Paulson and Co, Quantum Strategic Partners, the Canepa Group and Moore Capital Management, as well as Fidelity and Morgan Stanley.
The firms collectively backed Hispania Activos Inmobiliarios, which trades in the IBEX Small Cap, when it raised 鈧�760m in March last year. APG and also both invested in the new REIT, which had aimed to raise 鈧�500m and is targeting Spain鈥檚 multi-family residential, office and hotel sectors, buying in Barcelona and Marbella.
PIMCO committed 鈧�50m to the Lar Espa帽a SOCIMI, which listed last year with a total offer size of 鈧�408m. PIMCO鈥檚 12.5% stake made it an anchor investor in the SOCIMI, managed by Grupo Lar.
Merlin Properties became a SOCIMI in June last year with a 鈧�1.5bn IPO.
Serra said a conversion to a REIT was unlikely but not impossible for Barcelona-based Colonial, which is backed by Qatar Investment Authority, Joseph Charles Lewis, Fidelity and Spain鈥檚 Grupo Villar Mir.
Serra said he envisages more investment in Spain鈥檚 current SOCIMIs rather than more new vehicles listing, many of which trade on Spain鈥檚 alternative investment market (Mercado Alternativo Burs谩til).
鈥淭here鈥檚 a lack of credible platforms, so they should become bigger,鈥� Vi帽olas-Serra said.
