Almost a decade since the launch of the Spanish equivalent to the REIT regime, listed property vehicles are creating significant business in the debt space.
Spain’s SOCIMI regime – allowing the creation of real estate investment trusts – was created in 2009, with a major modification in 2012, as the country’s property market recovery took hold. Since then, such vehicles have brought dynamism – and foreign capital – into the Spanish property market.
The four largest listed companies – Merlin, Colonial, Hispania and Lar España – have already accumulated an aggregate property portfolio valued at nearly €30 billion in a mere four years of activity. Spanish commercial real estate investment volumes have grown rapidly, from €2.5 billion in 2013 to €11.5 billion last year. Last year, SOCIMIs contributed more than €2 billion, and the number of SOCIMIs launching on the stock market continues to grow.
For lenders interested in lending in Spain, getting to know the country’s SOCIMIs is becoming essential. Last week, BNP Paribas provided a €340 million refinancing to Hispania, the hotel-focused SOCIMI owned by Blackstone. The lending opportunity arose as Hispania sought to address the short-term maturity of a €470 million loan sourced last February to finance acquisitions. With the transaction, BNP has gained exposure to Spain’s strong hotel sector and a firm which posted a net profit of €71.9 million in H1 2018.
As SOCIMIs look to sell assets accumulated during the first wave of their investment drives, lenders can position themselves in new debt structures. Office investment activity dropped 20 percent last year to €2.2 billion. SOCIMIs are expected to reactivate the market by selling assets they had been holding after building up their portfolios. Divestment strategies are likely to lead to transactions in the core and core-plus space. Lenders will need to be competitive, however; senior margins for prime offices now range from 120 basis points to 150bps, down from 150bps to 170bps reported a year ago.
SOCIMIs also provide lenders with a good guide to where the strengths lie in Spain’s property market. Offices have traditionally been the main asset class in which most listed vehicles have invested. Interestingly, new entries listed on the Alternative Securities Market (MAB, in Spanish) show a shift in investment preferences. Of the 14 new joiners to the MAB so far this year, more than a third are mainly targeting housing. The share of retail as a primary focus has increased from 6 percent to 23 percent; while offices, which had led the ranking until now, have been relegated to third place with 15 percent.
As SOCIMIs target residential and retail, financing opportunities will follow. In May, Testa Residencial, the largest SOCIMI listed on the MAB this year with a housing portfolio worth €2.6 billion, secured a €130 million loan priced at 1.6 percent from ING, to fund future asset purchases.
Another recent entry is Castellana Properties, owned by South Africa’s Vukile Property Fund, which is expected to be one of the most active investors in coming months. Last July, the SOCIMI bought four Spanish shopping centres from Unibail-Rodamco-Westfield for €490 million and sourced a €257 million acquisition loan from undisclosed European banks at an all-in interest cost of 2.69 percent.
As new SOCIMIs emerge, lenders should build relationships if they want to make inroads into Spain. As listed investors increasingly specialise, lenders will benefit from canny investors’ strategies in Spain’s alternative property sectors.
Optimus Global Investors acts as a partner to real estate investors and lenders, helping them to source, structure and negotiate the most competitive financing terms on the market. Optimus arranges funding across the capital stack including traditional senior debt, stretched senior, mezzanine, equity and long-term facilities.