PERE Europe: Spanish returns in doubt

A panel of real estate investment managers at PERE's annual Europe Summit in London questioned whether you can still find opportunistic returns in Spain.

Aref Lahham, a founding partner and managing director of London-based Orion Capital Managers told delegates at the PERE Europe Summit in London today that it is hard to find opportunistic returns in Spain, in part due to a wave of capital that has flooded the market over the past 18 months.

“The Spanish market has had an incredible recovery in terms of liquidity and capital flows over the past 18 months,” said Lahham, who added that the increased capital has led to the market becoming increasingly competitive which is driving down returns.

Orion's Lahham said his firm is still active in Spain, but with a more “niche” strategy to gain access to off-market deals and higher returns.

“The staggering thing is the amount of capital chasing deals, and if you end up competing against a financially driven investor rather than a real estate-focused one you will probably end up losing out.”

Zsolt Kohalmi, head of European acquisitions for Greenwich, Connecticut-based Starwood Capital, agreed and said: “The opportunity in Spain is wherever you can avoid an auction process. We are at a stage where you get a winner's curse.”

Also casting doubt on the relative attractiveness of the Spanish real estate market was Ralph Winter, founder and senior advisor at the Zug-based firm Corestate Capital. “If you want opportunistic returns you need to take risk. If you want to do something mainstream, and Spain is now mainstream, you won't get returns that are 20-plus percent.”

Back in February, Corestate formed a joint venture with Madrid-based asset management firm Inmobiliaria Espacio and its sister company OHL Desarrollos, a property development company.
> The firm's spokesperson said that the current opportunity in Spain is largely due to macroeconomic factors as the Spanish economy is on an upward trend for the first time since 2007. He cited the increase in industrial production while labour costs are falling as examples of Spain's favourable macro conditions.
> However Corestate said it was looking to take advantage of individual opportunities arising in Spain and is seeking to create an optimum balance between cashflow oriented, more defensive deals with a core and core-plus strategy while having the capacity to invest in  value creating, more opportunistic projects via value-add or opportunistic strategies if they arose.