trends 06

Real Estate Report
TRENDS
06
Trends
Real Estate Report
06
Offices in Spain / CB Richard Ellis S.A.
MADRID
Edificio Torre Picasso, planta 27
Plaza Pablo Ruiz Picasso, s/n
28020 Madrid
Tel.: + 34 91 598 1900
Fax: + 34 91 556 9690
madrid@cbre.com
BARCELONA
Edificio Testa Diagonal
Av. Diagonal, 605, 8º-1ª
08028 Barcelona
Tel.: + 34 93 444 7700
Fax: + 34 93 419 0285
barcelona@cbre.com
VALENCIA
Paseo de la Alameda, 35 bis
3º dcha.
46023 Valencia
Tel.: + 34 96 316 2890
Fax: + 34 96 316 2891
valencia@cbre.com
ZARAGOZA
Paseo de la Independencia,
21, 1º centro
50001 Zaragoza
Tel.: + 34 976 48 46 35
Fax: + 34 976 48 46 33
zaragoza@cbre.com
PALMA DE MALLORCA
Av. Comte de Sallent, 2, principal A,
esquina 31 de diciembre
07003 Palma de Mallorca
Tel.: + 34 971 45 67 68
Fax: + 34 971 45 68 98
mallorca@cbre.com
MÁLAGA
Edificio Málaga Plaza
Don Cristián, 2-4
Planta 1ª, ofic. 2
29007 Málaga
Tel.: + 34 95 207 0710
Fax: + 34 95 207 1705
malaga@cbre.com
MARBELLA
Edificio Golden
Av. Ricardo Soriano, 72
Planta 1ª
29600 Marbella
Tel.: + 34 95 276 5130
Fax: + 34 95 276 5830
marbella@cbre.com
CASABLANCA (Marruecos)
190, Boulevard d’Anfa
Étage 2
20000 Casablanca
Marruecos
Tel.: +212 (0) 22 953 250
Fax.: +212 (0) 22 364 238
casablanca@cbre.com
New Strategies
Carolina Muñoz-Torrero,
Director of Marketing and Communication
CB Richard Ellis Spain
This sixth edition of Trends is one of its most informative issues to date. The authors agree that the real estate sector has entered a new, more promising and much more complex phase. If the market has evolved
rapidly over the past ten years, we believe that it will envolve even quicker over the next five years. In their
articles, our contributors put forward various arguments, predictions and theories about which areas will
change and why, and give a rough idea of where the sector could be at the end of this decade.
From the outset, it seems that the Spanish real estate market is going to have a much larger financial dimension in the future than it has had up until now. Venture capital companies began enhancing the value
of real estate assets that they acquired some time ago. Since then, purchase and refinancing transactions
have spread among real estate firms, private wealth, investment funds and sector players as a whole. In
fact, last year the combination of real estate and finance revolutionised the Spanish economy and the
stock exchange, and the forecasts for this year and next year are for even more activity.
Caring for the environment is another impending and attractive new development in the real estate sector. For example, it is driving the boom in infrastructure and urban and social development in Zaragoza
that is being planned around the International Expo in 2008 and as part of a serious push for awareness
about water and sustainable development. In addition energy efficiency is going to be a rising star in the
sector as a whole, on the heels of the next Technical Building Code and the environmental responsibility
regulations put in place by many companies. Most office buildings already include these innovations and
push design to the limit in large towers in prime areas as well as ecological business parks in the new
business areas.
Signatures
Investment and overseas operations will also continue to be a cornerstone of the sector. This time round
Trends features a shortened and reworked version of its Real Estate Barometer which is more qualitative
than previous surveys. The 342 executives surveyed this year expect to see more investment, more companies investing abroad and general growth in business activity, especially in the office sector. They also
believe that the increase in transactions will investment funds and consultancy firms have more leading
role in transactions, which are two more interesting new developments.
Fourth CB Richard Ellis Real Estate Barometer.
Under full sail
Everything would seem to suggest that movements by real estate companies abroad will continue to
focus on primary hotspots consisting of Morocco, France and Poland and secondary areas made up
of Portugal and the other Western European countries. Also on the rise is a new double triangle in the
Americas, with priority destinations in Mexico, Brazil and Chile and emerging opportunities in Panama, the
Caribbean and even the United States.
Intense investment activity is also expected in shopping centres, in well-located logistics products with
quality facilities and in the luxury hotel sector. Many others think that local and regional real estate firms are
going to take over from the large ones, and will lead their own corporate developments and international
transactions which will be just as important as those that have taken place up until now. In general terms,
these are the essential ingredients that the reader will find in the following pages. It is a comprehensive
exercise in forecasting and analysis and I encourage you to read it as I am sure that you will find all of its
articles to be useful.
4 | Trends 06
Sumario
Eduardo Fernández-Cuesta. The future and
corporate growth
Juan Alberto Belloch. Zaragoza’s time has come
Monteverde Grupo Inmobiliario. “Not everything is
worth the same”
Barometer
Markets and ideas
Adolfo Ramírez-Escudero. When squirrels rent
office space
Nicolás Llari. Private wealth in the investment market
Edward Farrelly. The changing face of institutional
investment in Spain
International market
06
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62
Domestic market
Research Department. Going up
Alfonso Galobart. Higher up or further out
Basilio González. Logistics, the quiet investment
José Manuel Peidró. Through the looking-glass
Enrique Martínez Laguna. Retail and sustainability
Mark V. Clifford. Hotels, the luxury investment
Pieces
90
Yolanda Lozano. Grow and diversify
Alberto Álvaro. Coming to terms with NAV
Patricia García de Ponga. Mechanisms to prevent
money laundering
46
Laurent Lehmann. Trends in Spain
Javier Marquina. Latin America: optimism or
euphoria?
Anthony Labadie y Karim Beqqali. The Moroccan
real estate boom
Mikolaj Martynuska. Poland direct
SUMMARY | 5
Signatures
The future and corporate growth
The real estate market just keeps on
expanding. First we saw international
players coming into Spain. Next up was
the exit of Spanish players heading in
the opposite direction.
Then along came real estate disinvestment by
major companies, the growth strategies of real
estate firms, floating on the stock exchange and
the acquisition of stakes in other sectors. Plus
there has also been the rise of venture capital
and an innovative combination between the real
estate and financial sectors, a decisive formula
which in just one year has given a major boost
to the domestic economy.
The outcome is a much more interconnected
and complex sector in which having a sufficiently
broad perspective has on many occasions made
the difference between success and failure. The
real estate business has become more integrated, more international and more finance-based
than ever before. Different factors in different
locations affect every decision. It has become
materially impossible for companies to have all
the information they need. The vast majority are
forced to turn to the advice of those consultants
who are to be found in all the world’s major markets and are experts in each of them.
The spanish real estate market has grown in leaps
and bounds over the last ten years. The backing
of the Common Market and subsequently the
European Union has driven the entire sector to
the point where Spain is in the forefront in Europe
and on a level footing with other more advanced
and mature markets. The time when foreign
investors chose Spain above all for its greater
initial returns has long gone. In fact, profitability
levels in the various tertiary sectors were among
the lowest in the EU last year, yet still investment
in 2006 broke all records with great international
interest in gaining positions in shopping centres
and office space. The business just keeps on
growing. Last year the increase in the price of
rented office space in Madrid was the second
biggest among the world’s ten leading business
cities, only beaten by Hong Kong and ahead of
leading locations such as London’s West End,
Tokyo and New York.
Cross-border rhythm
Eduardo Fernández-Cuesta,
President
CB Richard Ellis Spain
6 | Trends 06
In fact, real estate investment in the tertiary sector was nearly nine billion euros in 2006 with an
annual increase of nearly 50%. As noted above,
the investor boom was especially marked in retail, where last year investment was up by 57%
to a little more than 2.6 billion euros, practically
all provided by international investors, and in
office space, where investment was nearly four
billion euros with an annual growth figure of
slightly above 50%. Although domestic investors
retained their traditional leading role in offices,
international investors were also constantly
loo-king towards this sector and they closed
major operations such as Morgan Stanley’s
purchase of the IBM headquarters building in
Madrid, the biggest of its kind last year. The rise
of real estate in Spain is the underlying cause
of this competition from international investors,
even though the process has spread to the whole
of Europe, and it is highly likely to become even
more significant in the future. In the first half of
2006, tertiary sector real estate investment in the
Real estate
investment in the
tertiary sector was
nearly nine billion
euros in 2006 with
an annual increase
of nearly 50%
SIGNATURES | 7
Signatures
in these countries, while Spain came up with a
rather more modest 2% of total investment in
the six-month period. This is a pointer to the fact
that Spain is starting to become both a source
of, as well as a destination for cross-border real
estate investment. It has been calculated that
in recent years Spanish real estate firms have
invested some 12 billion euros in France, while
countries such as Portugal, Morocco and Latin
America are also sparking off unusual interest
in Spain.
From organic to corporate growth
Investors are turning more and more
to refinancing as a means of capitalising
the value of their assets
fifteen original member states of the European
Union came to 89.7 billion euros, with a year-onyear increase of 42%. Of that sum, 42.9 billion
euros, or 49% of the total amount, was spent on
cross-border investments, in other words ones
in which the investor is not from the country in
which the investment is made.
Something similar is taking place in Central and
Eastern European. Between January and June
last year, Bulgaria, the Czech Republic, Hungary,
Poland, Romania, Russia and Slovakia between
them totalled 3.9 billion euros in tertiary real
estate investment, with a year-on-year increase
of 29%. Austria, the United Kingdom and
Germany provided 78% of the capital invested
8 | Trends 06
In short, real estate internationalisation and globalisation are now givens for most players in the
industry, but new market features do not stop
there. CB Richard Ellis Spain’s Capital Markets
Department has produced a theory about this
which I would like to tell you about. It explains
that 1996 and 2005 was an organic growth
stage for the Spanish real estate market, led by
the boom in the economy and the residential
sector and marked by incoming international
investment. The Department adds that we are
now in a different real estate period, one which
is set to run from 2006 to around 2010 and will
be marked by corporate growth, product diversification and exportation by firms of capital and
management systems.
There are lots of pointers to this new stage.
They include the proliferation of venture capital
operations with real estate content, the outcome
of the rotation of real estate stock carried out by
the banking system, the floating on the stock
exchange of a number of real estate firms, the
movement of many real estate reference shareholders into leading financial companies and
institutions, and the development of the debt
and property refinancing markets.
Corporate finance operations are set to be the
main innovation of this new period. Their goal is
to make the right use of financial resources and
commit to corporate growth at the right time.
Last year we saw a number of these operations
in which corporate operations were closed with
the subsequent sale of non-strategic assets.
Thus real estate companies are tending to use
management criteria that are similar to those
employed by venture capital firms, with dynamic
models for rotation and enhancing shareholder
value. Many of the large companies have already undertaken initiatives of this type, and
the regional and medium-sized ones may well
follow suit in the medium-term.
This same real estate/financial combination
presided over the great real estate firm takeovers seen in 2006. These operations have
also given the real estate sector a leading role
on the stock exchange, and are a foretaste of
a more intense movement of financial assets
from construction companies and real estate
firms towards listed large enterprises and financial institutions.
Whatever the case may be, the fact is that investors are turning more and more to refinancing as
a means of capitalising the value of their assets
in a process that is encouraged by the way financial markets and the tertiary sector itself are
going. Applying financial reinforcement to the
real estate business and vice-versa was just
a matter of time. It has been in use for a long
time in the UK and the US where the amounts
involved are very significant.
In Spain the growth margin for these types of
operations is even more impressive. It has been
calculated that a seventy per cent of domestic
real estate assets value has not been enhanced,
and moreover the real estate sector is one of the
most fragmented in the Spanish economy in
spite of recent integrations between companies.
With this background, everything would seem to
suggest that future corporate or venture capital
operations will continue to make use of real estate value enhancement to gain in competitiveness and efficacy.
The venture capital route
have been closed, and there’s no doubt that a
lot more will be closed in the future.
All of the new factors outlined so far will continue to feature in 2007 and the years to come.
CB Richard Ellis’s Capital Markets Department
expects there to be a 20% per annum increase
in tertiary real estate investment in Spain in forthcoming years. At the same time the weight of the
overseas portfolios of the ten leading domestic
real estate firms has risen from 3% just a few
years ago to the 30% it reached in 2006. In short,
investments, internationalisation and refinancing
have become key factors in the real estate sector
at the start of the 21st century and will continue to
be so in the future.
These factors increase the importance of real
estate and financial consultancy services. We
consultants need to become the wide-angle lens
which real estate companies and players use to
understand the reality of every sector of the market. At CB Richard Ellis we have made progress
towards providing this objective in 2006, both
panoramically through the acquisition of our
competitor in the United States Trammell Crow
for 1.724 billion euros, and in close-up with,
for example, the opening of our eighth office in
Spain in Zaragoza. With our global perspective
provided by 24,000 professionals and our experience in each of the major markets around the
world and in Spain, our daily work will continue
to be previewing real estate conditions, trends
and market opportunities for our customers
wherever they may be. ■
We expect a 20% per annum increase
in tertiary real estate investment in
Spain in forthcoming years
This model is also being used by venture capital companies which are convinced that value
enhancement of real estate assets of acquired
companies is the ideal way of driving these operations. Many important transactions of this type
SIGNATURES | 9
Signatures
Zaragoza’s time has come
I am very grateful for the opportunity Trends
has given me to tell its readers about this
marvellous shared project we are all working
on with great enthusiasm and maximum effort.
Because Zaragoza’s time has come.
Juan Alberto Belloch Julbe,
Mayor of Zaragoza
10 | Trends 06
Our city is really excited about what 2008
holds for its future. If I had to explain briefly
why we are so keyed up, I would say that it is
because we have started up the biggest public
investment project in the city’s history (more
than 1.5 billion euros) and that moreover it is
to be put in place in just three years. And if
add to that investment in major ongoing public and private projects (the Digital Mile, the
AVE high-speed train, Port Venecia, Pla-Za,
Aragonia, the Recycling Technological Park,
etc.), then the sum comes to 9 billion euros.
Furthermore, Expo 2008 is expected to receive
between six and seven million visitors during
the three months that it is on, which is the
same number as are received in total by the
four largest Spanish theme parks in the course
of one year.
We are convinced that Expo 2008 is going to
be relevant and unique; an extraordinary event
for Zaragoza, for Aragon and for Spain. One
reason is that it is to be the only Expo held in
Europe in more than ten years. In this first decade of the 21st century only Aichi, Zaragoza
and Shanghai will be Expo cities, while in the
previous decade four Expos were held in Europe. Thus we are going to target a “market”,
which is far from saturated and has significant
unsatisfied demand.
The goal of Expo Zaragoza 2008 is to become
a genuine factory for producing ideas, contents
and solutions for water management, a focus for
spreading the values associated with responsible use of water resources, a world forum for
dialogue and agreement, and a showcase for
social, environmental and technological best
practice.
It should be borne in mind that at present Zaragoza is fourth in the economic league table of
Spanish cities and we hope that in the next few
years we can move up to third place behind Madrid and Barcelona.
Likewise the Aragonese economy has begun to
diversify with a major commitment to emerging
activities such as logistics and significant growth
in sectors such as tourism, which to be sure will
be one of the direct and long-term beneficiaries
of the Expo effect. Indeed, back in 2004 Zaragoza had the biggest population growth among
the large Spanish provincial capitals.
Entrepreneurial initiatives
Yet in the same way that being named as the
venue for the Expo was achieved through the
efforts of all, entrepreneurial initiatives for the
great city project that we are building are also
necessary, essential and decisive. Zaragoza is
already a successful project, a place of opportunities, a location where companies and corporations can grow, develop and diversify.
The project has been set to be finished in 2015.
By then the forecast is that our city will have
200,000 more inhabitants (half of them in the
city centre and the other half in its surrounding
metropolitan area) and that the three strategic
lines on which we are basing our future will be
The Aragonese economy has begun
to diversify with a major commitment to
emerging activities such as logistics
SIGNATURES | 11
Signatures
fully developed and in place: logistics (Pla-Za,
airport, Mercazaragoza), urban mobility (HST,
metro, tramway and commuter trains) and an
economy linked to new information and communication technologies (the Digital Mile).
Thus there are clear trends in economic growth,
employment and demography which point to-
Zaragoza is already a successful project,
a location where companies and corporations
can grow, develop and diversify
wards an expanding Zaragoza. Moreover, in
addition to the direct impact of the Expo in the
next few years we will also have a fully operational high-speed train line running between
Madrid and Barcelona, meaning that we will
become integrated into their metropolitan areas
in both business and functional terms.
Expo 2008 is therefore Zaragoza’s big opportunity. To put it more graphically, our city is going
to become an attractive place for those new
creative classes who pick out the most dynamic
cities and which sociologist Richard Florida
sees as being linked to the values of the three
Ts: talent, tolerance and technology. ■
From left to right, José Antonio León, Vice-president
Carlos Monteverde, President
Monteverde Grupo Inmobiliario
“Not everything is worth the same”
Fifteen years ago Carlos Monteverde de Mesa decided
to set up a residential and tertiary luxury real estate
refurbishment and development company. That is how
the Monteverde Grupo Inmobiliario came into being with the
strongest and most passionate commitment in the sector
to turn each building into a masterpiece.
12 | Trends 06
SIGNATURES | 13
Signatures
The interview with Carlos Monteverde emerged
as one of the main subjects of this edition of
Trends. José Antonio León, Vice President of CB
Richard Ellis Spain, took the role of interviewer
and spoke with the president of Monteverde
Grupo Inmobiliario. Excerpts from their conver-
Madrid Cuatro Torres is in line with
the latest trends that can be seen
in Asia and the United States
14 | Trends 06
sation are given below, with José Antonio León’s
questions in bold type.
Monteverde Grupo Inmobiliario is one of the
leading wholly private companies in the luxury
sector. Since it was set up in 1992, it has specialised in the acquisition and subsequent
refurbishment of unique, landmark buildings
as well as the development of new buildings. It
develops residential and tertiary real estate especially in Madrid and Barcelona and it has just
made its first investments in Paris and London. It
has twenty-nine projects underway with 142,000
square metres of floor space above ground,
and its portfolio last year had a finished product
value of more than 1.2 billion euros.
In 2006 it acquired three unique buildings
for residential use with business premises in
Madrid for more than 60 million euros at Calle
Velázquez 29, Carmen 9 and Cabeza 16, with a
total surface area of 11,500 square metres.
It also carried out its first transactions in Barcelona. It bought the old Banesto headquarters
at Paseo de Gracia, 1, on the corner with Pl.
Catalunya, which it is to be remodelled and converted into sixty flats and three thousand square
metres of business premises. It also acquired
the Torre Tarragona, a 19-storey, completely
leased office building located next to Sants railway station and the Montjuïc trade fair site for 90
million euros.
Among other initiatives it is developing a project
for the total refurbishment of the Teatro Albéniz
in Madrid which will allow the building to function as a theatre and symbol of Madrid’s culture.
It has been the owner of landmark buildings in
Madrid such as calle Salustiano Olózaga 11 and
Velázquez 123, the early 20th century novecentista mansion at Fernández de la Hoz 9 and the
semi-industrial property at López de Hoyos 145,
converted to tertiary usage. Recently it acquired
Inmobiliaria Mola S.A., a real estate company
with more than 30,000 square metres of office
space among its other real estate assets and
with buildings located in calle Estébanez Calderón and Príncipe de Vergara in Madrid, for 134
million euros.
Quality or Paris
The most outstanding feature of Monteverde’s
track-record is its loyalty to and consistency
with its business plan. It chooses very select
investments and developments with an easily
recognisable hallmark. Based on this philosophy, the company has grown continuously
and everything would suggest that the next
step will be heading abroad. Do you have a
strategy in place for this?
We want to build a significant international portfolio with at least 70% of it in Paris and London.
This year we will invest 600 million euros in Paris
and up to 200 million euros in London. We have
finalised the purchase of two major buildings in
Paris with an investment of one hundred million
euros and another building in London in which
we have invested another one hundred and five
million euros, always keeping in line with our
commitment to buy unique products located in
the best areas. They are in fact really extraordinary
locations on the golden miles in the two cities.
The London building is in the middle of the City, next
to the famous circular ecological tower designed
by Norman Foster. The location is strategic plus it
has expansion potential as buildable area has not
yet been used up. We are planning to commission
a first rate-international project to totally rehabilitate
and expand it. In Paris, we are currently studying
several other projects which will enable us to
acquire a portfolio of landmark buildings in the
city’s prime central areas.
Has it really become so essential to go abroad?
Is it a good idea to diversify just as a business
strategy, or is it perhaps also because a certain
type of residential business in Spain is showing
signs of running out of steam?
Paris fits in perfectly with our business strategy. We
are looking for unique, landmark buildings in exclusive locations. Few cities in the world can compete
with this one. In addition, we are convinced that
the majority of buildings in Paris still have something left in them, in terms of both acquisitions
as well as subsequent sale. In this respect, Paris
is very much a business commitment.
We assign most importance
to the quality and structure
of the buildings
SIGNATURES | 15
Signatures
then a high price might be warranted, but not
all good locations justify the prices in the area
as they contain low quality buildings with little
real estate potential. In the world of real estate
not everything is worth the same. There is no
way that all of the Salamanca neighbourhood
can be worth the same. This is why we have
to appraise each of the properties in which we
are thinking of investing and ensure beforehand that they will have real estate potential.
We assign most importance to the quality and
structure of the buildings together with their
distribution, because it is these factors that will
determine how well we can work on the final
development.
The soul of buildings
Once again quality. The thing that catches the
eye on reading your corporate brochure is that
the first message on the first page is so direct:
“Exceptional buildings only”. A pretty powerful
statement of purpose.
Our business goal is just that: a strong commitment to quality and the highest level of specialisation to bring it about. Our targets are only unique
buildings, with optimal occupancy levels and able
to provide added value through remodelling. Each
building that we buy has a soul. We choose them
because of the opportunity to carry out a unique
architectural project in them. We always subcontract the architecture and always to the leading
professionals in the sector, and through our technical team we ensure that Monteverde quality is the
keynote in all our real estate transactions.
Not all buildings are
worth what people
think they are
16 | Trends 06
However, generally speaking it’s now also going to
be a good idea to be a lot stricter when it comes
to choosing products in the domestic market. At
least from our point of view the margins on the
transactions in Madrid and Barcelona have
narrowed substantially. In most of the main cities
throughout Spain residential prices have reached
their limit.
Not all buildings are worth what people imagine.
If you have good, premium quality products
So far we have been discussing the residential sector, which as you say should be
approached building by building rather than
through general guidelines. By contrast, such
guidelines are often used with office space.
What’s your view of the Spanish office space
sector at the beginning of 2007?
Office space is an important part of our growth
strategy in Madrid and Barcelona for this year.
From the outset, it now gives more security than
the residential market. It is clear that we are
We are looking for unique,
landmark buildings in
exclusive locations
going to continue to buy attractive and unique
residential buildings, but we are not going to
do that at any price, or in any place, or with any
product. At times, some requests might make
you think that people are starting to lose respect
for what things are worth, and I would repeat
that not everything is worth the same. The key
factor is the quality of the property. Having said
this, at Monteverde we think that office space
is now particularly attractive. There is strong
demand for it, the supply is interesting and we
have decided to include it in our growth plans.
Monteverde’s dream
I recently heard that you would like to do something in New York, the dream whether admitted
or not of most real estate professionals. Are
you still dreaming of that?
Why not? The Monteverde dream has always
been to develop premium quality products with
very sophisticated architecture.
I always dreamed (and some day I hope to
achieve that dream which all real estate firms
aspire to) of developing a tower block or an important business park. We have worked with the
leading firms, and for the architectural side of
our most singular projects we use leading international practices such as Kohn Pedersen Fox,
Norman Foster, and internationally renowned
Spanish architects such as Lamela, Allende Arquitectos, etc. This philosophy will finally bring
us to New York. Of course it is a dream of ours
to develop there, a dream strictly in the real
estate sense, by the way, and we will make this
dream a reality as soon as the opportunity arises.
Meanwhile, we have developed genuinely New
Yorker style projects. In Madrid we have acquired
SIGNATURES | 17
Signatures
a 17,000 square metre building where we are
going to carry out a very ambitions project,
a very special one, as the Teatro Albéniz development will also be, where the design has
come from Allende Arquitectos and which will
be remembered for its quality.
Well, those are your real estate dreams. What
about the stock exchange?
We are not planning on floating on the stock
exchange. We grow by reinvesting profits in our
developments. At Monteverde we do not see
ourselves as financiers. Of course we admire the
ability shown by other real estate professionals,
who in some cases have acquired companies
that were much larger than the purchasing ones.
I’m talking here about terrific professionals who
have focussed their efforts on the acquisition of
companies. Our mission is different. We want to
stay centred on the day-to-day operations of facility management and direct development. Our
priority tasks are to work with architects, award
projects and negotiate contracts. I have already
said that we subcontract all our projects and in
all cases to leading companies such as Eralan,
Dragados, etc. That is the only way we know
how to work. Wherever we are, we want to do
real estate business, carry out developments,
create value. Our greatest merit is that we buy
unique quality products at a good price.
Luxury is what inspires you,
makes you excited and provides
you with a special feeling
18 | Trends 06
You are defining a type of motivated, specialised
and committed company
To be sure a fundamental aspect of Monteverde is its team of professionals. It is a compact, young and highly experienced team. The
management team’s track record is impressive.
There are thirty-five of us, we are a tight group
and we really enjoy our work. With our philosophy we have to be dynamic and flexible. We
work long hours, like so many other people, and
in addition we have the advantage of believing
in what we do, of enjoying our work and being
able to create business wealth. We have many
friends in the real estate business, and when
they look over our portfolio they are surprised
that we have bought so much quality in such a
short period of time.
This management style must be related to
your human side. What is the President of
Monteverde like when he gets home?
Carlos Monteverde de Mesa is a person who
likes to enjoy his family and his life. I have five
marvellous children. My wife and I are immensely
lucky to work together, sharing our great real
estate project and most of our business trips.
Olga López de Vera, my wife, is an interior
designer and heads the decoration and marketing departments of our company with great
success and skill. So when we get home after
work, we often carry on discussing and dealing
with professional matters, the aesthetics, orientation or the style of each of the projects that we
put in place.
We like going to the major European trade
fairs (Milan, Paris, London, etc.) to check out
specifications and new trends. We compare new
design developments in kitchens, bathrooms
and interior decorating; we try to be up to date
with all new developments. We enjoy travelling,
which makes going to fairs a plus. As for me, I
am an economist and my education has been
mostly in business, although I do particularly
like architecture, painting and sculpture. I am
also passionate about hunting and skiing and
especially about museums, exhibitions and
discovering new cities.
SIGNATURES | 19
Signatures
Luxury is an emotion
I would say that some personal hobbies, sensibility and a way of seeing things end up spilling
over into professional life.
In the luxury real estate sector, sensibility is a
value which is as intangible as it is decisive.
Luxury requires special discretion. It is a good
idea to keep away from shrillness and respect
quality and the appearance of things. The most
expensive is not necessarily the best, far from
it. Here I’m talking more about a question of
style, taste and aesthetics. You can find luxury
in, for example, a mountain viewing point, it
does not have to boil down to something
expensive. In reality luxury is that which inspires
you, makes you excited and gives you a special
feeling. These are the values that we want to
achieve in our projects.
How do you think the real estate sector will
evolve in 2007?
I do not want to sound gloomy about the future
of the residential market because there are no
reasons for alarm, though there are some for
caution. I would repeat that some prices may
well have gone as high as they can go and
that not all real estate is worth the same. In
some residential buildings in prime Spanish
areas the price is warranted, but in other areas
it is less so. I would recommend being cautions when choosing residential products. It is
probable that the luxury residential market is
more removed from general economic conditions and from fluctuations in interest rates,
but it is still a good idea to be cautious. I am
convinced that there is no risk of a real estate
bubble, not today or in the future, but we are
getting to the market ceiling, and once that
has been reached prices will rationalise and
tend to stabilise.
What about office space?
I think it still has potential left in it. The market
is extremely active and some very interesting
projects are being carried out. Madrid Cuatro
Torres is the prototype of a quality project,
proof that we know how to put up landmark
buildings, because it consists of four skyscrapers that are in line with the latest trends
that can be seen in Asia and the United States.
This period is going to be very good for office
space. And in the residential sector things will
also be okay. It is likely that sales will fall, because it is physically impossible to maintain
the rate of previous years. It is also likely that
we’ll have to take more time over each project
and analyse it in detail, but at the end of the
day good things and good locations will always
do well. We will continue bringing our products
out onto the marketplace. For sure. ■
20 | Trends 06
Each building that we
buy has a soul
SIGNATURES | 21
Fourth CB Richard Ellis Real Estate Barometer
Under full sail
Real estate professionals are brimming with optimism about
2007. The vast majority believe that office space investment and
overseas operations will continue to invigorate the sector.
They are also expecting quite a lot more operations, a growing role for investment funds and
more advisory work on the part of consultants.
A total of 342 real estate executives answered
the fourth edition of the Real Estate Barometer,
which is drawn up each year by CB Richard Ellis.
This time round they have responded to an updated questionnaire with just twenty questions
and which has been even more practical than
previous surveys.
This edition of the Barometer gave the best results
of the last four years. Among other opinions, the
executives who were surveyed believe that the
Spanish economy will grow even faster in 2007
than the European average, that the performance
of the various real estate players will be better
this year than last year, that Spanish real estate
firms will continue to bolster their diversification
and their presence abroad, that initial real estate
yields could begin to pick up during the year, and
that residential prices will rise at an increasingly
slower rate.
In 2006, Spanish real estate investment broke
its all-time record in office space and shopping
centres. Real estate professionals forecast a
very similar picture for this financial year, and
naturally they are ruling out major slowdowns in
the residential sector. 29.4% of those surveyed
believe that investment in office space will
increase in 2007, compared with 19.1% who
foresee increased investment in the residential
sector and 18.2% who predict more investment
in shopping centres. No one seems to want to
stay put. 49.21% of the executives think that
they will be net buyers this year in terms of their
investment position in Spain, while 42.86%
reckon they will be net sellers.
the highest and are expected to perform best.
On a scale of 1 to 5 points, investment funds
got an average score of 3.71 points (36% higher
than last year) and consultancies achieved 3.56
points (a rise of 28% in one year).
Overseas operations are the second major
feature of the study. 54% of executives expect
an increase in the investment their companies
make in other countries, and another 42.9%
think that this investment will remain stable over
the next few months. Just 3.1% of the responses
mention possible reductions in the Spanish real
estate presence abroad.
More assets in the rest of Europe
In fact, operating abroad has become the main
profile for a real estate firm. 27.14% of the professionals consider it essential, compared with
22.86% who place the property strategy first
and another 21.43% who opt for a multi-product
strategy. In addition, 48.41% of those surveyed
believe that the most attractive foreign countries
in which to invest are in Central and Eastern
48% of those surveyed believe that their company
will ask for advice from a real estate consultancy
to finalise an operation this year, 31.5 percentage
points more than two years ago
Demand for consultancy
services is growing
Almost all of the executives expect more investment operations and transactions in 2007. At first
sight this would seem to raise the profile of real
estate consultants. 48% of those surveyed believe that their company will ask for advice from
a real estate consultancy to finalise an operation
this year, 31.5 percentage points more than two
years ago. Investor interest is also changing the
way real estate agents are seen. In the survey,
investment funds and consultancies are valued
22 | Trends 06
BAROMETER | 23
Fourth Barometer
24 | Trends 06
Economy at record level. The fourth edition of the Barometer
contains the best appraisal yet of the Spanish economy. 82.14%
of those surveyed believe that the situation is good, 7.5 percentage
points more than 2006, and 16.25 points more than 2005.
0
21.15
15
Much
more
Somewhat
more
Te same
Somewhat
less
4.2
19.5
14.29
10
2.85
Bad
11.43
1.1
1.41
0.72
Bordeline
20
3.04
Good
30
28.9
18.31
Excellent
2006
40
40
0
2007
50
60
20
60
52.11
2005
65.9
80
74.65
82.14
100
2006
Do you think that Spain will be a more dynamic real estate
market than the rest of the European Union?
82,14
56.43
82,14
2007
10
70% of executives expect increases in rental
prices for centrally located offices
In terms of real estate sectors in Spain, office
space will once again be at the forefront. 70%
of the executives expect increases in rental
prices for centrally located office space, another
67.4% believe that the sale prices of these
offices will rise, and 73.2% believe that the
absorption of office space will be up in 2007.
Business premises and shopping centres are
the other two most dynamic sectors. More than
half of professionals foresee increases in sales
prices for business premises (59.35%), rental
prices (52.03%) and absorption rates (57.72%).
The outlook is similar for shopping centres, as
55.29% expect rental increases in this segment
and 52.04% in sales prices, even though less
than half think that absorption will rise (46.34%
of the total). As for industrial real estate, the best
scenarios suggest a recovery in absorption
(51.22% of the total expect this) while forecasts
for stability dominate the prices and absorption of business parks and hotels. With respect
to the residential sector, a strong polarisation
has been maintained between the 36.22% of
those surveyed who expect price rises of up
to 5% over the year, and another 37.01% who
forecast increases of between 5.1% and 10%.
The proportion is almost identical to the 39.1%
obtained in each of these options last year.
Even so, the main change this time round is
that 13.4% of interviewees say that prices will
hardly change this year, 9 percentage points
more than in 2006.
A fall in house sales is also expected. 56.7%
of those surveyed think that the demand for
new homes will decrease in 2007, compared
to 65.2% of executives who thought the same
thing last year.
How would you rate the state of the Spanish economy in 2007?
5.63
Office space picks up speed
Part one. General economy
4.1
Spain in the residential sector (in 2006 they only
made up 11.67%); 33.71% expect to include
office space in their foreign portfolio (last year
this figure was 60%, almost twice as high); and
16.43% of the professionals are considering the
purchase of a shopping centre abroad (the year
before they were only 6.67% of the total).
7.14
Europe, another 23% prefer the rest of Western
Europe and 14.3% go for Portugal.
As for overseas operations in specific segments, the order of office space and residential
property has been reversed with the surprising
appearance of shopping centres among the
preferences. 34.86% of those surveyed say
that their companies have plans to go outside
Much
less
The real estate market will grow in Spain more quickly than
in the rest of Europe. The optimism of the real estate executives
increases when comparing the real estate sector with the rest of
the European Union. 70.72% of those surveyed believe that this
year the Spanish market will grow somewhat or much more than
the European one, whereas in 2006 only 22.54% thought this.
How do you think the following economic indicators will evolve in 2007
compared to 2006?
Will increase
significantly
Will increase
slightly
Will not
very much
Will decrease
slightly
Will decrease
significantly
GDP
10.71
35.71
45.71
7.87
0
CPI
12.86
31.43
39.29
4.29
2.13
Interest rates
20.00
71.43
7.86
0.71
0
Employment
3.57
28.57
55.00
11.43
1.43
71.43% of real estate
2007expect
2006 slight
executives
increases in interest
rates in 2007
More interest rate increases. With respect to economic indicators, 71.43% of real
estate executives expect slight rises in interest rates in 2007, while another 20% are
expecting large increases. They also think that Gross Domestic Product and the
Consumer Price Index will remain stable or increase slightly, and 55% do not expect
significant variations in employment levels during the year.
BAROMETER | 25
Fourth Barometer
Part three. Yields and real estate investment
82,14
Part two. Real estate sector
3
Real estate
consultancies
Real Estate
Agencies
Real estate
investment
funds
Developers
Constructors
Multi-product
strategy
Property
strategy
Priority for going abroad. Real estate executives are tending to
change their business strategy. Having a presence abroad has
become their main priority at 27.14%, higher than traditional
property (22.86%) and multi-product (21.42%) policies.
Slight increase
18.25
Stable
2
2,86
Asset purchase
strategy
2.78
3.56
3.71
3.39
3.27
2.85
2.73
2.35
9,29
Project
development
strategy
Land reserves
strategy
0
2006
Spain ended 2006 with real
estate yield figures amongst
the lowest in Europe
Strong increase 0
2,5
4,1
Presence
abroad
5
3,5
3
15
10
4
3.07
21,42
22,86
16,43
25
20
Of the following, what is your forecast for prime yields in Spain
in 2007?
Average rating of the evolution of the following real estate
players in 2007 (1 to 5)
2007
3,02
30
27,14
In your view, which real estate company profile
is most significant?
43.65
Slight decrease
30.95
Strong decrease
7.15
0
Investment funds and consultancies. Real estate professionals
have confidence in all sector players. All of them have improved
evaluations with respect to the previous year, especially investment funds and real estate consultancies standing at the head
of the table and with annual increases of almost one out of five
possible points.
10
20
30
40
50
Real estate yields recover in Spain. Spain ended 2006 with
real estate yield figures amongst the lowest in Europe. Executives
responding to the Barometer believe that they have bottomed out
and could begin to increase slightly. 43.65% believe that they will
remain stable, 30.95% expect slight increases and 18.25% still
think that there may be occasional falls.
In your opinion, how will prime yield figures evolve in the rest
of Europe in 2007?
Strong increase
0.79
In which sector does your company have plans to go abroad?
Slight increase
2007
60
50
Strong decrease
11.66
6,67
6.67
10
4.29
5
5
5.71
16.43
30
10
26 | Trends 06
Residential
Offices
Business
premises
Industrial
real estate
Hotels
Shopping
centres
0
International profiles. Interest among Spanish real estate firms
in going abroad is divided between the residential sector (34.86%
of responses given), office space (33.71%) and, as the main new
factor, shopping centres (16.43%).
30.16
34.86
33.71
40
20
52.38
Slight decrease
6.67
Valuation of consultancies
is up by one point out
of five in a year
Stable
60
70
11.11
2006
5.56
0
10
20
30
40
50
60
And somewhat less in the rest of Europe. The forecast for real
estate yields in the rest of Europe is practically the same as for
Spain. 52.38% expect stability in European yields (in Spain it is
43.65%); another 30.16% predict slight increases (in Spain it is
30.95%); and 11.11% think that there will still be occasional falls
(18.25% for the Spanish prediction).
BAROMETER | 27
Fourth Barometer
Which of the following markets do you find most attractive for
diversifying your investments?
What will your investment plans for Spain be like in 2007?
Probably
a net seller
Oceania
42.86
Neutral position
Africa - Marocco
7.94
Probably
a net buyer
10
20
30
40
50
1.59
North America
49.2
0
0
60
Non-stop movement. The generalised interest in investment
means that very few companies are going to stay put. 49.2% will
be net buyers, another 42.86% will be net sellers and only 7.94%
of those surveyed will opt for neutral positions.
0
Asia
3.97
South America
8.73
Central and
Eastern Europe
Rest of Western
Europe
23.02
Portugal
In 2007, how will your investments in other countries develop?
Half of the executives surveyed
expect to increase their
investments in other countries
Strong decrease
1.59
Slight decrease
1.59
Stable
42.86
Slight increase
Central and Eastern European
countries attract 48.41%
of those surveyed
48.41
14.28
0
10
20
30
40
50
60
Concentrated in Europe. When it comes to going abroad,
Spanish real estate firms have their eyes set on the rest of Europe. Central and Eastern European countries attract 48.41% of
those surveyed; other Western European countries 23.02%; and
Portugal 14.28%. Outside Europe, only South America stands out,
with 8.73% of the preferences.
30.16
Strong increase
23.8
0
10
20
30
40
50
Sights set abroad. There is much more unanimity about overseas
operations. Of the real estate executives surveyed, 23.8% expect a
strong increase in investment by their companies abroad, 30.16%
predict a slight increase and another 42.86% believe that the rate
will be similar to 2006. In short, almost 97 out of every hundred
believe that this year Spanish real estate investment abroad will
be the same or higher than in 2006.
28 | Trends 06
BAROMETER | 29
Fourth Barometer
Fourth part. Residential market
Triumphant office sector. Office space once
again stands out in terms of investment in Spain.
29.37% of responses predict an increase in investment in this segment, as opposed to 19.05%
who opt for the residential sector and 18.25%
who go for shopping centres.
In your opinion, in 2007 the demand for new housing in Spain
With respect to the Spanish market, in which sector do you think
there will be the biggest increase in your investment in 2007?
2006
65.2
60
56.69
50
1,59
31.5
30
Residential
10
Hotels
26.1
20
19,05
7,14
11.81
0
Industrial
8.7
Will increase Will remain the same
Will decrease
15,08
Shopping
centres
18,25
Business
premises
9,52
In your opinion, the average price of homes in Spain in 2007
Offices
2006
30 | Trends 06
They are listed
at a fair price
0%
2007
Will increase
more than 10%
Will increase between
5,1% and 10%
2006
Will increase
up to 5%
24
13
12.5
10.5
Will remain
the same
7.87
2.6
Do you believe that the Stock Exchange is properly valuing listed
real estate firms?
5.51
10%
4.4
20%
17.5
17.5
30%
12.5
40%
2007
4.4
50%
13.39
40
23.7
30
39.1
25
36.22
20
39.2
15
40
10
37.01
5
39.1
29,37
0
Stock exchange overvaluation. Another new
feature in this barometer is a question about the
performance of real estate firms on the Stock
Exchange. We asked whether they are listed at
a fair price (21.43% of responses), whether they
ended the year overvalued (76.19% of those
surveyed believe so) or whether they were undervalued (2.38% of managers believe so).
Residential activity is gradually falling. The
majority of real estate professionals think that
residential activity will be a little down this year,
although proportionally in 2006 they thought that
the fall would be sharper. In short, slightly lower
demand for new housing seems to be in store,
but at the same time the worry of a sudden
bursting of the bubble may well have dissipated
forever.
40
Other
Three out of every ten executives
surveyed believe that growth will be
highest in office space investment
2007
70
2005
2004
Will decrease
21.43
No, they are
undervalued
2.38
No, they are
overvalued
76.19
0
10 20 30 40 50 60 70 80
Residential prices seem to be rising less and
less. Most real estate executives expect residential prices will rise this year by up to 5% (36.22%) or
by between 5.1% and 10% (another 37.01%). The
risk of falling prices has lost ground: only 7.87% of
those surveyed expect it to happen in 2007 compared with 24% in 2004 and 13% in 2006.
Slightly lower demand for new housing
seems to be in store, but at the same time
the worry of a sudden bursting of the
bubble may well have dissipated forever
BAROMETER | 31
Fourth Barometer
Fifth part. Consultancies and forecasts
How do you think rental prices will evolve in the following real estate
segments in 2007?
Indicate in which of the following segments your company asks for advice from real estate firms
50
Will decrease Will decrease
a lot
slightly
47.98
2005
40
2007
Centrally located offices
16.5
6.8
Which type of consultancy service has the brightest future?
32 | Trends 06
26.83
3.25
0
Business parks
6.50
35.77
49.60
8.13
0
Industrial real estate
9.76
34.96
41.46
12.20
1.62
Business premises
17.07
34.96
42.28
4.88
0.81
Shopping centres
9.76
45.53
34.15
10.56
0
Hotels
8.94
29.27
43.90
16.26
1.63
How do you think sales prices in the following real estate
segments will evolve in 2007?
Will increase
a lot
Wil increase
slightly
17.89
49.49
28.46
4.16
0
Business parks
7.32
34.96
47.97
8.12
1.63
Industrial real estate
8.94
35.77
42.28
11.38
1.63
Business premises
19.51
39.84
31.70
8.94
0
Shopping centres
15.45
36.59
38.20
9.76
0
Hotels
12.20
27.64
46.34
7.32
6.50
Centrally located offices
Will remain Will decrease Will decrease
the same
slightly
a lot
60
12.12
11.38
0
3.03
9.09
10
0
20.33
21.22
18.7
18.18
20
27.64
24.24
21.95
30
2005
How do you think space absorption will evolve in the following
real estate segments?
18.18
50
2006
39.39
54.55
2007
40
New magic formula for consultancy. The question about which real estate consultancy services were most in demand among companies
was also illustrative. We are moving towards a
hitherto unseen universal generic proportion
made up of 27.64% for transactions brokerage,
21.95% for strategic consultancy, 20.33% for
land management and project execution consultancy, 18.7% for corporate operations consultancy and the remaining 11.38% for strategic
plans and real estate appraisal.
51.22
4.88
8.7
1.63
9.7
0.81
2.9
0.81
3.9
0.81
2.9
2.44
0
5.69
14.63
18.5
8.94
ty
er
op
Pr
Consultancy services for transactions. The
responses in the Barometer point to a market
with more investment transactions and which is
more internationalised. Ideal conditions in fact
for increased appreciation of the work of consultancy firms. 47.98% of companies foresee hiring
a consultancy this year to close a sale while in
2005 only 16.5% expected to do so (this question was not in the survey last year).
18.70
Sky high office and business promises sectors.
The situation is very similar for tertiary product
sales. Office space continues to lead the way,
with 67% of those surveyed believing that sales
prices will increase this year. 59.35% and 52.04%
of executives hold the same view about business
premises and shopping centres respectively. Stability is once again the name of the game in the
case of business parks, where 47.97% of the professionals believe that prices will remain the same;
this view is shared by 46.34% in the case of hotels
and 42.28% for industrial real estate.
re Ma
se rk
a e
m rch t
an
m a a
an nd ge
ag fa m
em cil ent
e ity
Se nt
ar
fin ch
an fo
cin r
g
fo S
rp e
sr arc
t
Va ner h
s
l
u
co ta
m tio
Va
pa n
lu
ni of
ta
es
tio
n
of
as
se
Be
ts
nc
hm
ar
ki
ng
Du
e
di
llig
Vi
ab
en
ili
ce
ty
str
at
eg
ie
s
N
eg
ot
ia
tio
ns
Tr
an
sa
cti
on
s
0
10.7
10
11.38
20
19.4
30
Will remain Will Increase Will decrease
the same
slightly
a lot
Office rents are to go up more. The executives
expect a good performance by rents in the various
tertiary sectors in 2007. 69.92% believe that
office space rents will rise. Next come shopping
centres at 55.29% and business premises at
52.03%. 49.59% think that rents for business
parks will continue to be stable, an opinion held
by 43.9% for hotels and 41.46% for industrial
real estate.
Strategy
consultancy
Real estate
asset
transactions
brokerage
Corporate
operations
consultancy
Strategic
Land management
plans
and project
and real
execution
estate appraisal consultancy
Will increase
a lot
Wil increase
slightly
Centrally located offices
33.33
39.84
24.39
2.44
0
Business parks
13.82
33.33
43.10
8.94
0.81
Industrial real estate
4.63
36,59
39.84
8.13
0.81
Business premises
18.70
39.02
39.02
3.26
0
Shopping centres
11.38
34.96
47.15
5.70
0.81
8.13
22.76
38.22
22.76
8.13
Hotels
Will remain Will decrease Will decrease
the same
slightly
a lot
Absorption of office space, business premises
and industrial real estate will increase. The
executives point to some new features in the
absorption of tertiary products. 73.17% believe that
the absorption of office space will increase this year,
followed by business premises where 57.72% of
the executives expect to see a greater level of absorption, and industrial real estate which accounted
for 51.22% of the answers. As for shopping centres,
47.15% of those surveyed do not forecast significant
variations in absorption and 43.10% of the survey
takes the same view about business parks. The
range broadens substantially for hotels: 38.22%
do not foresee variations, while 30.89% predict
symmetrical increases and decreases. ■
BAROMETER | 33
Markets and ideas
At present more houses are being built in Spain than in the
United Kingdom, France and Germany combined. In the last five
years, the Spanish market has been in second place in Europe in
terms of the volume of real estate investment carried out by European non-residents. The country has built more than six million
homes over the last 10 years, which makes up more than 40% of
the total number of homes for foreign visitors. In addition, Spanish
developers and constructors are in fashion throughout Europe,
where they are winning tenders and buying companies.
Yet records are not always positive. Spain has achieved the largest
supply of available real estate in the European Union and one of
the highest building rates, yet it continues to be the country where
access to housing is most difficult. In 2005, Spain was in seventh
place in the world ranking for cement consumption. A significant
part of this consumption is used for residential building, but nonetheless the price of housing has reached levels that in practical
terms make it impossible for many young people to get onto the
home ownership ladder.
From another point of view, cement is also a material which requires high energy use. According to a number of studies by the
European Union, real estate consumes 40% of the end amount of
energy distributed in the continent. In fact, the first kilometre of the
Mediterranean coastal strip has an average built-up area rate of
more than 50%.
Construction quality
When squirrels rent office space
Over the past ten years the real estate sector
has without doubt come on in leaps and bounds.
Between us we have generated significant wealth:
the sector provides 10% of Spain’s Gross Domestic
Product and many goals have been achieved.
Adolfo Ramírez-Escudero,
Managing Director of Capital Markets
CB Richard Ellis Spain
34 | Trends 06
The importance of these issues and the growing social pressure
associated with them are bringing about political responses. In
January 2006 the European Union directive on energy efficiency
for buildings (EPBD) came into force. Linked to this, the Spanish
Building Technical Code (CTE - Código Técnico de la Edificación),
which aims to foster greater construction quality and reduce the
environmental impact of buildings, will be fully operational by the
end of March 2007.
The implementation of the Building Technical Code will help to
improve sustainability standards in buildings, an issue where at
present and with honourable exceptions we Spanish are well behind other developed countries. That is why there is an urgent
need to foster a national debate on trends and initiatives in real estate environmental management. In a world which is increasingly
globalised, business strategies and trends must also converge
and harmonise. This is what is happening with the concentration
of people in urban centres. 70% of Europeans live in cities, and
this makes more efficient use of energy resources, which are
increasingly scarce and expensive, especially necessary. At the
same time, growing environmental awareness has intensified with
respect for natural and rural environments as well as an interest in
maintaining them in their traditional state.
These are trends which have become increasingly prominent
throughout Europe. The Nordic countries were the pioneers, and
since then environmental responsibility has
spread first to English-speaking countries and
then to southern Europe.
Drivers of change
In the Spanish real estate field, public opinion on
environmental issues is starting to drive urban
planning and construction technology measures
which respect the environment more, together
with better use of scarce natural resources when
it comes to building. These are initiatives which
are now converging on three main drivelines for
change.
1) In terms of demand from the large space
occupiers, the world’s leading companies are
using corporate social responsibility (CSR)
programmes to implement selection and filter
codes which can resolve their needs for space.
At a recent multidisciplinary conference, a Hines
executive, vice-president and partner underlined
the fact that “the added value provided by sustainability policies has become very real”, as is
shown by the “clear increase in the pressure
from corporate tenants who demand green
office buildings”.
The first kilometre of Mediterranean
coastal strip has an average built-up
area rate of more than 50%
MARKETS AND IDEAS | 35
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In this executive’s view, in the future, consultancy firms will expand this customer environmental interest and we will help to
develop sustainable buildings. This will take place due to the
inherent environmental benefits of these initiatives and above
all because of the enhanced image and reputation that the
companies concerned can thereby transmit to their customers
and personnel.
The Hines executive put forth several other arguments: “From
the financial point of view it means a way of cutting the operating
and maintenance costs of buildings and at the same time it
makes the option more competitive for the customer.” A senior
manager from the Wall Mart distribution company took the
idea one step further: “The energy efficiency of each of our
The cost of applying energy efficiency
measures in buildings is relatively low
buildings is of vital importance to Wall Mart, because we are
the leading private purchaser of electricity in the world and,
after payroll, energy is the main cost on our balance sheet”.
2) The qualitative aspects of corporate management are also
becoming more and more valued by capital markets, which are
increasingly sensitive to these issues when drawing up their
investment criteria.
As investors, many companies in the financial sector have
begun to use their property rights to limit the conduct of the
businesses in which they invest. Many large multinationals
have already implemented the triple bottom line system based
on social, environmental and economic/financial performance.
There are also stock exchange indexes of companies that
are heading up these practices, such as the Dow Jones
Sustainability Index and the FTSE4 Good Index. Companies
classified as Socially Responsible Investors (SRIs) have gone
from investing 336 billion euros in 2003 to a thousand billion
in 2006. In short, no one should be surprised that company
managers make an effort to publicise their environmental strategies among their shareholders (the same SRI fund managers)
because the latter are probably going to study it in detail before
investing.
If we transfer this reasoning to real estate investment, there are
still many investors and developers who are asking themselves
whether tenants will assume the extra cost of occupying more
ecological and sustainable spaces. Perhaps we are faced with
one of the classic marketing mirages. Because sooner rather
than later, the pressure exerted by capital and society as a
whole in conjunction with political initiatives will make these
specifications into the commonly demanded minimum standard, and this means that buildings that do not meet them will
be penalised. It is wise not to forget an old law which says that
the specifications of tenant space tend to change more quickly
than the useful life of a building.
Nor should it be forgotten that the cost of applying energy
efficiency measures in buildings is relatively low. The main
studies in this area agree that an energy-efficient building can
use just half the energy of a standard building. As the extra cost
of energy-efficient construction may be only 2%, in the majority
of cases it pays for itself in less than five years.
3) Increased awareness among end users is the final great
goal. More and more companies are preaching by example
and contributing through their own corporate philosophy to the
preservation of our natural heritage. If we transfer this focus to
36 | Trends 06
individuals, it seems clear that housing is possibly the biggest
private investment that the vast majority of families make, both
because of the sums involved as well as its lengthy amortisation period.
Choosing an environmental and sustainable home will have a
favourable impact during the 50 years of the average useful
life of the asset. And at the rate that environmental awareness
is increasing in society, everything seems to indicate that sustainable practices in housing are going to double within five
years.
77% of American architecture and design firms have experienced a significant increase in sustainable architectural
projects according to a survey of major American architects
carried out by Autodesk. Private clients commission the
bulk of these projects, still to a much greater extent than
administrators or developers. Architects expect the number
of sustainable projects to double over the next five years,
thanks especially to computer programmes included in High
Efficiency Systems (HVAC).
In the Autodesk study, 64% of those surveyed clearly stated
that they use these systems in more than half of their projects
and 85% expect to use them in the majority of their projects in
the following year.
Policy and management criteria
We know, to sum up, that these three complementary trends are
shaping a real estate sector which is much more sensitive to bioclimatic and sustainable development requirements. It is a good
starting point which leads us immediately to ask what the main
political factors and practical environmental management areas
should be. In my view, they can be synthesised into four major
aspects.
1) Integration with the environment. Before deciding on real
estate actions, there is a need to formulate a plan which is
coherent with nature and which sets out on a large-scale the
benefits that will later be applied to housing and buildings and
their surroundings.
The fact that future users of a new site will need transport
should also be taken into account. Among many other
aspects, it is a good idea to reduce obligatory travel, build
in transport needs as a determining factor in the localisation of activities, foster public and non-motorised forms of
transport, promote rail freight transport, internalise external
costs, enhance energy efficiency and eliminate duplicated
infrastructure networks.
Likewise, urbanised spaces bordering
buildings must meet certain ecological criteria in terms of both vegetation planning
(choosing plants that do not need much
water) and the use of recycled water.
From now on land or urban planning will
have to make provision for its own environmental evaluation as a universal strategy,
behaviour and practice. In addition, it will be
advisable to prevent urban dispersion and
excessive occupation of land, and to make
passenger and goods transport compatible
with sustainability.
2) Choice of materials. In general, the best
option is to use materials that are natural or
have a low environmental impact, that are local (to limit transport, a source of greenhouse
gas emissions) and that have not been subjected to artificial treatments.
In Spain a lot of building is carried out using
bricks and reinforced concrete, materials
which have high pollution and energy consumption levels. Indicative of this is the fact
that one kilojoule of energy is needed to
produce one kilo of cut sawnwood, while
42 kilojoules are needed for one kilogram
of steel.
It is therefore essential to evaluate the features of the chosen materials depending on
how easy they are to recycle and their toxicity
levels, maintenance, longevity and relative
availability in the area. In short, in line with the
sustainability of supply.
3) Sustainable Energy. The goal here is to take
advantage of the energy that nature provides
in its various renewable forms and to apply it in
house building. Examples of this would be the
sun for heating in winter; wind and shade for
keeping cool in summer; natural light at any
time; and the topographical area, surrounding
vegetation and bodies of water as moderators
and regulators of thermal comfort.
Spain is a country with a significant quantity of
solar energy but one which is poor in terms of
MARKETS AND IDEAS | 37
Markets and ideas
that part of this consumption comes from renewable energy
sources, as a consequence of their planning, construction,
use and maintenance features”.
Architects expect that the number of
sustainable projects will double in
the next five years
conventional energy sources. Moreover, the
renewable energy sources that we should be
taking advantage of are also clean energies.
In addition to making direct use of renewable
energies, the technologies that enable greater
efficiency are often simple and low cost. One
of the most innovative aspects of the CTE is
precisely the section on Basic Energy Saving
Requirements. The idea behind them is “to
achieve a rational use of the energy necessary
for the use of buildings, reducing consumption to sustainable limits and also ensuring
38 | Trends 06
4) Environmental responsibility of suppliers, developers and
constructors of the building. Consumers and government at
all levels will increasingly focus on the degree of environmental
responsibility of companies. It is advisable to check whether
the developer has contracted a constructor who has a certified
environmental management system. These types of systems
are a very useful tool to help companies improve their internal
processes and thus reduce their impact on the environment.
Environmental management systems are not exclusive to each
site or structure, but rather are concerned with the general
management of the entire company. This is why environmental
improvements are usually indirect (reduction of environmental
costs due to greater control of use, waste and emissions; enhanced compliance with prevailing legislation; application of
environmental improvement systems; greater awareness on
the part of employees and suppliers, etc.)
Often construction and demolition materials can be reused,
for example as filler on sites. Another environmental management measure consists of putting in place plans for waste
management or for reusing waste. At present, an environmental management system can be certified with the ISO 14001
standard or the European Union’s EMAS Rules. Both verify
that company management is carried out in accordance with
international standards. Likewise, it is more and more common
when buying a new home for the purchaser to ask about these
certifications and even to request something in writing that
summarises the Environmental Policy of the various companies
involved (developers, constructors, etc.)
As with any change, these new real estate values can be
interpreted as a threat, a fad or an opportunity. At CB Richard
Ellis we are convinced that they are very important. We believe that our mission is to anticipate the situations that our
clients are going to find, and from now on you can be sure
that anyone who wants to maintain a front-rank real estate
offering will also need to provide a comprehensive bioclimatic solution.
Innovation in these issues is another example of the real estate sector’s maturity and dynamism. This is true not only in
environmental terms but also and especially with respect to
social and environmental responsibility, the triple bottom line
referred to above, something which in the end always works to
the benefit of long-run economic sustainability. ■
Private Investors
in the investment market
The professionalisation strategy
of the main portfolios explains the strong
positioning gained by private capital
in the real estate investment market
during the last few years.
Nicolás Llari de Sangenis,
Director of Private Investors, at present Director of the Zaragoza Office
CB Richard Ellis Spain
Historically family groups have invested heavily in real estate,
both in terms of land and hallmark buildings, with residential
property forming a major part of their portfolios.
The investment market has opened up to new professional players
who have two traits that enable them to close a lot of operations:
swift decision-making and aggressiveness in initial yields.
Many of these capital accumulations have their origin in the
following factors:
use buildings, almost always in cities with consolidated economic activity. Hotel properties are
also often very much in demand even though
because of volume they are not always within
the reach of all groups. The list of sought-after
buildings is concluded by industrial and logistics real estate.
Leased properties
• The aggressive entry of venture capital entities into family
businesses.
• Capital gains stemming from the sale of land to developers.
Two years of studying demand from these groups shows that their
main interest focuses on business premises, and they are especially attracted by high street retail. It is in this type of product that
the institutional investor finds it very difficult to compete. In second
place comes the demand for office floors in exclusive and mixed
Demand among family groups for all of these
properties is on the rise. Low yields, due to the
high liquidity levels in the market, are leading
investors to demand external financing that
will enable them to increase the yield on own
resources. However, it is still relatively common
for specific groups to continue to establish their
positions with their own resources.
It is worth remembering that the professionalisation of these groups not only centres on the
MARKETS AND IDEAS | 39
Markets and ideas
acquisition of real estate but is also and gradually
bringing with it the outsourcing of a range of
services, including leasing, facility management
and family wealth appraisal.
Main types
Based on these general guidelines, we can pick
out three large types of Private Wealth depending
on their size and line of activity.
• Family Offices, that is to say family groups
which include a range of firms which cover
different investment alternatives (financial
markets, real estate markets, art, alternative
investments, etc.) in one holding company.
• Individuals who set aside surplus capital for
property investment. Structured through a
company, these investments can be recurrent or
sporadic depending on reinvestment needs.
• Investment pools. They tend to structure the
purchase of a property through a company,
with each investor taking a stake of five percent or more. Using this strategy means
the chances of getting into large buildings,
shopping centres and tertiary complexes are
increased.
Average transaction volume
Family Office
10 - 30 million euros
Pool of investors
25 - 40 millon euros
Individuals
3 - 6 millon euros
Reinvestment
An investment pool increases
the chances of getting into large
buildings, shopping centres
and tertiary complexes
40 | Trends 06
Lastly, it should be emphasised that a significant
number of operations are the result of reinvestment needs, in which an important role is
played by tax savings compared with the initial
yield of the acquired property: this aspect is
decisive when it comes to confronting institutional investors in the competitive investment
market. ■
The changing face of institutional
investment in Spain
In Europe, Cross-border real estate investment
has been increasing progressively to account
for half of all investment currently taking place,
compared to just 31% in 2004.
Edward Farrelly,
Research Capital Markets
CB Richard Ellis Spain
By the same token, investment by foreign entities in Spain represents 50% of total investment
among the office, shopping centre and logistics
sectors. This varies from just 21% in offices to
96% in shopping centres. Traditionally, international investors have concentrated on shopping
centres due to (i) larger lot sizes, and (ii) the
expertise they bring from their more mature
home markets. In addition, Spanish property
companies are more aggressive at high prices
for prime offices, in many cases to redevelop
offices for residential premises or hotels.
Throughout the year, international investors
have captured the headlines with some notable
deals. Not only has the type of product associated
with foreign investors been significant but also the
origin and type of investor. Collective investment
vehicles have displaced property companies as
the main investors, largely as a result of foreign
investors entering the market. These vehicles
are mostly pan-European, and while investment
in Spain diversifies portfolio risk, underlying
factors also support the investment criteria and
lend confidence to continued future inward investment.
Quinlan and Resolution
These deals stand out for a number of reasons,
namely (i) the size, Diagonal Mar is the largest
single asset shopping centre deal ever to have
been completed in Spain, and (ii) the fact that
they represent the first Spanish investment
by the investor in question. Foreign buyers
traditionally seek mature, prime product, particularly in relation to offices. That is to say, well
established assets, fully let to good tenants
in excellent locations. While the Diagonal Mar
deal can indeed be considered prime, it also
MARKETS AND IDEAS | 41
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Apart from the stated major office deal it also
became a shareholder of Grupo Lar and, together with Lar, its real estate funds have been
responsible for a number of shopping centre
purchases.
Where is the money coming from?
Over the past year, international
investors closed some of the
biggest deals in Spain
offers the buyer significant upside potential due
to its location in a dynamic area attracting great
interest. Investment in this area is being drawn
not only into retail but also offices, residential
and the hotel sector. The planning restrictions
in place in regard to retail in Cataluña also limit
future shopping development in the region and
will help to preserve market share.
To the above examples of large deals we can
also add the purchase of the IBM headquarters in
Madrid by Morgan Stanley for over €200 million.
Although not a new investor to the Spanish
property market, Morgan Stanley has been one
of the most active investors during the year.
42 | Trends 06
High liquidity levels are being fed by a constant
stream of new investors, which have been more
competitive on pricing in order to gain a foothold in the market. Demand is broad based;
Irish, UK, US and Dutch investors lead the
way and investor interest also originates from
places such as Australia and the Far East. In
many cases, international capital is channelled
through an investment vehicle, and in some
instances deals are completed in conjunction
with national investors holding a minority stake.
A wider range of investors provides various risk
profiles and therefore boosts demand for a
number of sectors and type of product. Looking
ahead, this provides a platform for continued
inward investment.
German investors, principally open-ended funds,
only a few years ago were the main foreign
investors in the Spanish market, particularly in
prime offices. Their appetite for office investment
has now dried up, although certain funds were
responsible for some shopping centre deals in
2005. During 2006, it is worth noting the disposal
of assets by German investors and the complete
lack of purchases. The result is sales of almost
€1,100 million, divided evenly between offices
and shopping centres, representing just under
20% of sales volume during the period. Rather
than reflecting negatively on the Spanish market,
we can view this as a direct result of problems
in their domestic market and the continued outflow of capital from German open-ended funds.
These funds may suffer further out-flows with the
advent of G-Reits. Legislation is due to be introduced in early 2007 and the first funds should be
in place within the next 12 months.
European real estate is witnessing large inflows
of capital from a variety of sources as traditional investors (e.g. Pension Funds) increase
the weighting of real estate in their portfolios
and new investors (e.g. Private Equity) launch
real estate funds. With cash in hand, investment and fund managers look beyond national
borders not just for growth and higher returns
but also to diversify portfolios. Initially, a combination of strong economic growth, cheap
prices, available product and growth potential
attracted investors to Spain. However, while
economic growth remains robust, investment
product is now scarce, prices have risen and
yields have tightened considerably across
property sectors. So why do international investors continue to show an almost insatiable
appetite for Spanish property?
to trend upwards and investors are confident
about the prospects for further improvement
in the underlying rental market. This factor,
combined with a shortage of available product
is leading to (i) a large number of off-market
deals, and (ii) an increasing acceptance for
product located in peripheral or emerging
areas. In addition, interest is growing for provincial markets, where local investors are traditionally dominant. National and international
investors are likely to become more active in
these markets over the coming years with the
completion of new office projects destined for
the letting market.
Shopping centres
Offices
Looking at the office sector, current yields are
undoubtedly low in Spain, but the same can
be said across European markets as investor
demand outstrips supply. The CB Richard Ellis
EU-15 weighted average prime yield index reflects this situation with the long term average
exceeding current yields by the widest margin
since 1990. In addition, the risk-free rate of
return, taken as government bonds, started to
trend upwards during 2005, brought about by a
hike in interest rates. This results in a tighter risk
premium, and theoretically makes offices a less
attractive investment. Not so long ago, investors were looking for a downward shift in yields
to make a profit, but it is now difficult to see a
significant downward movement from current
levels. However, mitigating factors are in play.
Investors in less cyclical property classes may
primarily seek security of income but success
in office investment is largely a case of timing
the cycle correctly. While the extent to which
yields have room to continue downwards is
quite restricted, investors are attracted by the
current upturn in the underlying occupier market, brought about by strong occupier demand
and a shortage of available prime space.
From a European standpoint, Spanish office
yields are among the lowest in the EU-15. However, rental levels are only mid-table with room
Demand for shopping centres is extremely
buoyant, with investment volumes for the first
nine months of this year alone exceeding the
total registered in 2005 (itself a record year for
investment). As stated previously, the shopping
centre market is the domain of international investors, accounting for over 90% of investment
volume this year. Liquidity is high and investors
are encouraged by healthy fundamentals underpinning the retail sector. A healthy labour market
Office rental levels in Spain
are only mid-table with room
to trend upwards
MARKETS AND IDEAS | 43
Markets and ideas
has been a feature of the Spanish economy in
recent years and job creation remains strong.
This supports household consumption, which
continues to be one of the main drivers of economic growth, and feeds through to strong retail
sales. Although headline retail sales growth has
slipped somewhat in 2006, this can mainly be
put down to weaker food spending. Real growth
in non-food sales continues to outperform the
general index, particularly in large surface retail
outlets over 2,500m2.
Shopping centre owners now seem more disposed to realise profits on assets and this is
leading to an increase in supply of investment
product, and therefore completed deals. This
represents a change in attitude in respect to
activity during 2005 as owners are now taking
advantage of favourable conditions such as
strong investor demand and expensive pricing.
The most active investors are the Irish,
English, Americans and Dutch, followed
by Australians and The Middle East
44 | Trends 06
However, this is a gradual process and owners
are still slow to come forward with product for
sale. As such, they need to be approached and
many deals are still done off-market. Current
market conditions are favourable for landlords
to obtain attractive prices. Opportunities therefore exist to bring forward planned sales, sell
off non-strategic assets or to reorganise portfolios. Moreover, additional capital can be sought
from financial partners to improve underperforming centres by extending existing premises or
carrying out refurbishments. However, despite
more investment product becoming available it is
still insufficient to satisfy investors as considerable
demand exceeds supply.
Large regional centres remain a principal target and demand is also robust for provincial
centres in towns of approx. 100,000 inhabitants.
In addition, investors are showing an increasing
interest for smaller, underperforming centres
where active management can be employed to
achieve significant returns. The range of investment is reflected in the range of lot sizes bought
during the year. While a number of large deals
were completed, 50% of deals were less than
�50 million resulting in an average deal size
less than the previous year. There is a great
depth to demand with many investors willing
to consider a variety of retail formats across
the country.
Looking ahead, investors may be presented with
greater options in coming years as high levels of
construction over the last 5 years (> 800,000m2
per annum) has contributed to a diverse stock
of shopping centres. As the Spanish economy
has developed, consumer preferences have
changed. No longer is the focus on necessity
but on pleasure, a situation common with a maturing economy. As income levels have risen
and consumers have spent more, food, clothing
and footwear have seen their share of spending
reduced (due to slower growth than the average
for all sectors). On the other hand, the share of
spending dedicated to leisure has increased. In
effect, need is being replaced by want. Retailers,
both national and international, respond to this
with new products, services and brands while
developers create new concepts to adapt to
new market characteristics.
Similar to the office sector, yields continue to
trend downwards due to supply/demand imbalances, resulting in a tightening of both the
risk premium and finance gap. However, rental
growth is evident in prime centres and this bolsters
the premium on offer to shopping centre investors. High liquidity levels are sufficient to withstand tougher financing conditions, whose principal effect may be limited to taking the froth off
demand in the medium term. Interestingly, many
investors completing deals this year have been
leveraged in the region of 40% - 50%, compared
to 70% - 80% normally favoured by shopping
centre investors.
Other sectors
While offices and shopping centres are the two
principal investment sectors, hotels have been
stealing some of the limelight in recent times.
A total of €1,400 million was invested in 2005,
increasing to €1.500 million during the first 9
months of 2006. International investors were
responsible for a large part of this, in fact, they
accounted for the four largest deals completed
this year. The largest deal of these, the purchase
of the Hotel Arts in Barcelona for €417 million
by a consortium headed by GIC was the largest
single asset deal (all sectors) ever to have been
completed in Spain. International hotel chains
have been expanding not only in urban locations but also in tourist areas. While for some this
constitutes expansion of market share, for others
it represents their first venture into the Spanish
market. In various instances, international chains
have bought hotels in urban locations to later
complete sale & leaseback deals with investment
funds. Indeed, the market has evolved further to
incorporate sale & management deals.
The industrial sector until recent years has
traditionally been the preserve of local or
private investors. However, primarily in Madrid
and Barcelona, the development of modern
logistics warehouses in consolidated locations
Shopping center, owners now seen more
disposed to realise profits on assets
has provided investment grade property for a
wider range of investors. Logistics stock offers
a stable letting market, higher investment yields
in relation to other sectors and diversification
opportunities, resulting in significant interest
from international investors. Despite this, investment volumes have struggled to reflect
the strength of demand as available stock is
generally scarce. This should be rectified to an
extent over coming years with the completion
of speculative stock in prime markets (Madrid,
Barcelona), owner-occupied dominated markets
(Valencia) and emerging markets (Zaragonza).
We should therefore see investment extend to
new areas and a general upturn in completed
deals. ■
MARKETS AND IDEAS | 45
International market
Trends in Spain
Key figures and the importance of policy
to better understand the thriving economy
and the appetite of Spanish investors.
With an average construction of 700,000
housing units a year in a country of 44 million inhabitants (in 2006 France will produce 440,000
houses for 63 million inhabitants, a record
figure since 1978) Spain is attracting retirees
from northern Europe as well as holidaymakers
and congress organisers.
In 10 years, this prosperous country has also
opened its door to 4,000,000 immigrants to provide the extra manpower needed by the building
industry; indeed approximately 20% of the country’s population works in the building sector.
In addition, structural European funds have for
a long time enabled the country to build high
quality infrastructure creating “national champions” in the building industry in the process.
The financing of this massive level of construction, achieved using heavy leverage, and, less
directly, recent stock market listings such as
Renta Corporation, Parquesol, Astroc, and Riofisa, mean that the Spanish banking system has
not been left behind.
Successive conservative and socialist governments have encouraged this flourishing branch
of the economy, partially by a smoother process of applying for and granting planning
permission.
By contrast in France, it takes increasingly longer to obtain planning permission, generally
two years and often longer in the Paris region.
People, i.e. voters, living in the vicinity of new
schemes have a tendency to scrutinise every
planning move and use all the legal means
possible to put a hold on development initiatives.
The price of residential real estate has risen in
Spain by 195% in 10 years. Finally, the country
has enjoyed a steady GDP growth of 3.5% a year,
compared to barely 2% in France. These are
excellent figures which make it easier to understand the Spanish boom and Spanish investors’
desire to diversify, particularly geographically, the
investment of wealth accumulated over the last
few years.
France is attractive to foreign investors
Laurent Lehmann,
Deputy Managing Director
CB Richard Ellis France
46 | Trends 06
Yields are 1% higher for prime properties in
the Paris CBD than in Madrid, Barcelona and
London.
The liquidity and depth of the market capitalises
on a size advantage. The Paris region office mar-
ket is very concentrated with 50 million sq. m within a radius of
approximately 20 km compared to 40 km for London. Madrid has
an office stock of 14 million sq. m and Barcelona 10 million sq. m.
Investment volumes will exceed €25 billion in 2006, putting the
French market third in the European ranking after England and
Germany.
Take-up has been a lot higher than in the main European capitals.
For 2006 office take-up is expected to exceed 2.5 million sq. m in
the Paris region and 1.25 million sq. m in the country’s 15 largest
regional cities.
Finally, France has a transparent market that is well organised
legally and ensures transactions are secure.
INTERNATIONAL MARKET | 47
International market
Latin America:
optimism or euphoria?
The ultimate asset of the French market,
tax and the SIIC (REIT) mechanism
Introduced in 2003, the tax regime for listed real
estate investment trusts, known as SIICs, exempts
SIICs from company tax as long as 85% of the
rental revenue is distributed. Up to 50% of capital
gains is also exempt. In exchange for these advantages, when a firm opts for the SIIC regime, it
must first pay company tax at a reduced rate of
16.5% and the properties that are acquired by the
firm must be owned for five years.
The shareholder is taxed. It is therefore a transparent tax system. This system, inspired by
American REITs, has spurred on the property
section of the French stock market. Some 40
SIICs are now listed on the Paris bourse (stock
exchange) and their capitalisation amounts to
€33 billion.
The regime is simple and open, there are no nationality constraints and it has therefore attracted
foreign investors, including Spanish investors.
Another tax advantage, this time for Spanish
companies, is that these companies are not
taxed on their dividends in foreign subsidiaries.
Finally Spanish firms can deduct interest on
debts contracted from their consolidated profits
to invest abroad.
Those of us who work in Latin
America find optimism comes
easily. Thank goodness.
These conditions are favourable for the examination of investment
opportunities in France. We therefore believe that the Spanish are
in the early stages of interest in the French market, and that as
widely forecast, Spanish investment in real estate in France is still
only just scratching the surface of what is possible. Remember that
approximately 12 billion euros have been invested in the French
market in just 3 years by the Spanish. ■
Main Spanish Real State investors in France
Name
Castmor
Grupo FCC y Caja Madrid
Metrovacesa
Inmobiliaria Colonial
Sacyr Vallehermoso
Fadesa
Grupo Lar
Restaura
Santander
Renta Corporación
Parquesol
Participation
In France
Direct Investment
Vehicle
Real State
Buildings
18 Fabourg Saint Honoré
Realia Business SIIC París
SIIC Gecina
SIIC SFL (1)
Tesfran In development
BTP
Financière Rive Gauche
Ogic
Participations in
SIICs francobelgas
Banif Banca Privada
Inmofrancia 1
(1) In November 2006 Grupo Inmocaral carried out an initial public offering
Source: CB Richard Ellis.
48 | Trends 06
Direct
T our Adria
14 buildings in Paris
In development
41 Rue Bienfaisance, Paris
Amont
in M€
7
586
5.500
1.600
562
ND
ND
From
year
2006
2006
2005
2004
2005
2006
130
150
2004
2005
15
2006
Javier Marquina,
Investment Director of Latin America and the Caribbean
CB Richard Ellis Miami
However, we do need to make sure that we don’t get all euphoric, especially when we read that economic growth forecasts
for the region in 2007 are running at 4.1% compared with predictions of 2.2% for the euro zone and 2.9% for the United States,
according to the Economic Commission for Latin America and
the Caribbean (ECLAC), the European Commission and the US
Department of the Treasury respectively. And all of that is in spite
of, or others might say “thanks to…”, political leaders such as
Hugo Chávez, Evo Morales and some others who, to be politically
correct as befits this magazine, generate a degree of uncertainty
among foreign investors.
If we look back over the period since 1998, the year of the merger
with “CB” and when CB Richard Ellis increased its Latin America
presence two-fold, in the year which has just finished the company has hit record highs in turnover in the region. For us this is
a fine barometer of business activity. It is true that the make-up
of this turnover, that is to say the products and services which
we sell in the region, are different to those we see in more developed markets. In Latin America, CB Richard Ellis provides a
lot of consultancy and appraisal services, which
endorses our position as market experts and
trustworthy guides for our customers in markets
where it can be hard to find your way around.
Other highlights include our agency work, that is
to say seeking locations for our customers, and
the sale of land for development. But we would
like to stress that in the last two years our investment (capital markets as the company calls
it around the world) line of business has been
increasing both by weight and volume.
This is interesting because it demonstrates the
progress the market has made towards maturity,
and it is also a source of pride for CB Richard
Ellis as there is no doubt that our commitment
to this line of business has contributed to giving
credibility to and institutionalising this market.
We are not the only ones, and mention should
also be made of the efforts of other companies
INTERNATIONAL MARKET | 49
International market
in financial markets and other alternative investment vehicles which promise precisely that,
high yields in a high-risk environment, which is
mitigated in part by thorough knowledge of the
market in which they are operating. Few companies can offer all the ingredients of this magic
potion. Yield and risk are provided by countries
in the Latin American region, which we cover
like no-one else does. CB Richard Ellis also provides in-depth knowledge, bearing in mind that
our mission is to mitigate, but not to eliminate,
risk. That is why we believe that the real estate
sector in this region is now especially interesting
for developers and investors. While all the talk
in Europe and the United States is about high
prices and low and even falling yields, in Latin
America we are talking about the growth phase,
high yields and, of course, risk and volatility.
Mexico, the most active
In Mexico other
sectors, such as
shopping centres,
also need to be
explored
50 | Trends 06
such as Prudential Real Estate Investors, who
some time ago decided to help institutionalise
the market, and of course there are the investors
who have pledged themselves to the region. The
German fund DIFA stands out in this respect
due to the high-profile operations it has recently
closed, but it is by no means the only one.
But, as mentioned above, we must not get all euphoric. Latin America is still an emerging market
with its challenges and its risks. However, what
is true is that there are more and more investors
who are seeking high yields and unique opportunities, which means taking risks. One result of
this has been the appearance of hedge funds
Let’s keep our feet on the ground. What has
happened in the Latin American real estate sector during this year? Let’s start with the most active country, Mexico. It continues to be the main
recipient of institutional investment and its office
market has witnessed how DIFA, in less than
eighteen months, has purchased seven buildings.
The yields on these acquisitions have fluctuated
between 9% and 9.25%. This bears out the trend
that we have been seeing in the last six years,
namely the squeezing of yield rates as investor
demand grows in a country in which the supply
of buildings suitable for investors is limited. The
square metre prices of these acquisitions have
fluctuated between three thousand and four
thousand dollars, also hitting historic highs. Financing possibilities are extensive, but rates are
not exactly low: by way of example, the banks
talk about spreads on the LIBOR of between
two hundred and three hundred points, which
today translates into rates of between 7.5% and
8.5%. Spanish companies are still interested
in the country. The LAR Group has entered the
residential sector with G Acción, one of Mexico’s most important developers, while Anida
has acquired land for housing developments.
Pontegadea, the real estate investment arm of entrepreneur
Amancio Ortega, carried out a major acquisition in the shape of
a building in preconstruction that is to be home to the new headquarters of Ernst & Young in Mexico DF. Little information about
this transaction has got out, but it is significant that investors seeking product choose to get in via the preconstruction route. It is
another sign of a market that is becoming more complex.
Where are the opportunities in Mexico? As yield rates come down,
it seems more difficult to argue that it is an attractive market, yet
that is precisely what Mexico is. Expectations of a rise in rents, as
the excesses of the 2002 and 2003 construction boom are finally
absorbed, are accurate. Besides, it is still possible to find opportunities at prices below three thousand dollars per square metre
where appreciation can be expected over time, although these
opportunities are usually restricted to the oldest buildings.
Other sectors, such as shopping centres, also need to be explored,
and several American funds are already doing this. A country with
the population of Mexico and which is in a growth phase is fertile
ground for the shopping centres sector. The difficulties here are
in finding adequate product. The country’s department stores,
such as Palacio de Hierro and Liverpool, are at the same time the
main developers of shopping centres and this makes it difficult for
property investors to get a foothold. Nevertheless, it is possible to
gain entry to the market by using smaller, second level centres to
establish sufficient credibility and to gain ground on these operators, and even one day convince them of the advantages of hiving
off their real estate.
Brazil holds its ground
Brazil is the other Latin American giant which is staying strong.
As we have remarked on other occasions, the difficulties in
Brazil lie in getting into the market through direct acquisitions
and the high cost of financing. Once you’ve got over these
barriers, you’ll find an attractive market which is much more
institutionalised than Mexico’s. Local real estate funds have
been in operation for years and the real estate market has been
developed with them in mind. That is the root of the problem.
They do not make things easy for newcomers. In Brazil we definitely go for a strategy of gaining entry by indirect investment
in sector companies in joint ventures or going straight into
development. In the office space market both Tishman Speyer
and Hines have been very successful with their office developments, while Sonae has done the same in the shopping centres
sector and has already opened nine centres. Several Canadian investors have shown an interest in the shopping centres
sector. The acquisition of 46% of local operator Multiplan by a
Canadian investment group shows in part the
way to go for other interested investors.
The yields that Brazil offers are the highest in
Latin America, with operations that have closed
between 13% and 16%, but with interest rates at
around 14% this is not really surprising. As we
have noted on other occasions, if you want to
invest in Brazil you need to bring your own funds
as borrowing here is just not cost-effective.
Chile, significant difference
The third country on the list of foreign investors
in the region is Chile. Yield rates there are comparable to the ones you find in Mexico: for prime
office blocks you would be talking between 9%
and 9.5%, but if you take into account that you
can get financing at between 4% and 5%, the
difference is significant. Purchase prices vary
between 2,200 and 2,600 dollars per square
metre for prime office blocks.
The number of institutional investors taking an
interest in Chile is growing all the time. Europeans
and Americans alike are watching this bastion
of stability in the Latin American maelstrom with
interest, although they do complain that it is a
Latin America is still an emerging market
with its challenges and its risks
INTERNATIONAL MARKET | 51
International market
small market. The news that Equity International
has taken a stake in Parque Arauco, one of
the biggest shopping centres in Santiago, with
an investment of around fifty million dollars, has
aroused a lot of interest. The problem in Chile
is the shortage of product, much more marked
than in other countries since its market is smaller.
Nevertheless, in the case of Chile the effort is
worthwhile since making direct acquisitions is
relatively easy from a legal and tax point of view
compared with other countries in the region.
Legislation is clear and the foreign investor is
protected and highly respected. In our view it
would be worthwhile to try to tempt established
local owners with aggressive offers, even if only
as a way of gaining a position in the market,
since the shortage of product means that as
demand grows there will be major increases
in value. One of the German funds is on the
prowl and is shortly to close its first operations.
Range of opportunities
Having looked at the big three, we can now
move on to a brief overview of the rest. In Argentina there has been significant growth in the
residential sector with a lot of construction and
Panama is a market which we shall hear
a lot about over the next few months
52 | Trends 06
strong demand. There have also been spectacular increases in
rents in the office space sector due to the shortage of product.
What is true is that no developer has gambled on new office projects,
maybe because they are aware that there are still important and
unresolved underlying problems in both the economy and in Argentina’s perverse rent legislation that still gives excessive rights
to tenants. We continue to view the market as a highly speculative
destination giving high yields, especially through value appreciation, but also a deciedly risky one.
There is a lot of talk about Panama and in our view it is nowadays
one of the markets in the region with the greatest potential. In
addition to its attractions as a tourism destination, similar to Costa
Rica, it is also an international trade and finance centre. The recently approved widening of the Panama Canal will entail major
investment and its impact will be felt in the long term.
The unwarranted emphasis on the residential sector worries us.
There are about 2,600 units under construction, all of them in
buildings on the seafront with a view over the bay and extremely
similar to each other. In addition there are another eight thousand
units at the planning stage, although it seems likely that a large
number of them will never be built. And all of this is taking place
in a country which is still lacking in good infrastructures. That
being said, we think that Panama has great potential. The recent
enlargement of its airport, which is an important hub in Central
America, and the new direct flights from Madrid are turning it into
a gateway to Latin America and it may, in spite of the apparent
differences, take away some of Miami’s prominence since the latter
has become increasingly inconvenient due to security measures
and excessive immigration formalities in spite of its excellent
connections with the region.
The stock of office space in Panama has doubled recently with the
delivery of four prime buildings. The vacancy rate is still high but
rents have not fallen, even though it is true that here we are talking
about relatively low rents. At 13.5 dollars per square metre and
with acquisition prices at 1,500 dollars, it seems pretty clear that
there is scope for upward movement. The recent openings of new
shopping centres show that the country is consolidating its position as a shopping destination for the whole of Central America
and the Andean countries.
As usual there are some countries and sectors that we have not
been able to cover in this survey, but before closing I would like
to give a special mention to the hotel and tourism sector. The
Caribbean basin, together with Cancun, the Riviera Maya and in
particular the Dominican Republic, are still attractive locations for
Spanish investors. However, moving into islands in the Englishspeaking market is also appealing. In 2005 RIU acquired a hotel
on prestigious Paradise Island in the Bahamas,
right next to the renowned Atlantis Resort, and it
also operates hotels in Jamaica. Iberostar and
Grupo Piñero also have a presence in Jamaica.
These Spanish companies have also positioned
themselves as hotel operators or developers in
destinations such as Santa Lucia and Aruba.
The star product in the Caribbean is mixed use,
hotel/residential or condo hotel developments, a
formula that at present is being very successful in
English-speaking markets and will undoubtedly
become popular in Spanish-speaking ones as
well. The key to the success of this type of
development is the presence of a well-known
hotel chain to operate it. Depending on the
target market, either European or American, it is
best to seek out a recognised brand in Europe
or in the United States. At present the most
experienced ones in this type of product are
Ritz-Carlton, Viceroy and Four Seasons. The
most popular destinations are the Bahamas,
the Turks and Caicos Islands, Barbados and
Santa Lucia, although there is every likelihood
that islands such as the Dominican Republic
will soon be making full use of the formula. For
instance the NH chain has made a major
commitment to the Cap Cana development in
the Dominican Republic, a flagship project both
for the island and for the Caribbean region.
In conclusion and by way of summary, Mexico,
Brazil and Chile are still the main destinations for
real estate investment, and the best guarantees
and possibilities of medium-term growth are to
be found in their markets. Argentina is still not on
this select list, and although there are opportunities for investment and for making capital gains
in the medium term, the basic problems of its
market and its economy have yet to be solved,
which means it is still a high risk option. Panama
is a market which we shall hear a lot about over
the next few months. Many basic aspects of the
country are very positive and make it unique.
However, care needs to be taken with the supply
as it might be oversized. Finally, we have given
a special mention to the tourism sector because
it is a driving force for the region with some very
interesting opportunities and solid demand.
At CB Richard Ellis we are backing up our
commitment to the region and preaching by
example. We have the widest coverage and
our ambitions to keep growing and opening up
new offices and new markets are being fulfilled.
Latin America is a region with challenges, but
these challenges can be turned into opportunities through intelligent risk management. At
CB Richard Ellis we have shown this with enthusiasm, with optimism and sometimes with
euphoria... Well, why not? ■
The acquisition
of local operator
Multiplan by a
Canadian investment
group shows in part
the way to go for
other investors who
are interested
in Brazil
INTERNATIONAL MARKET | 53
International market
In the last few months the basic directives of
Morocco’s Vision 2010 tourism development
plan have been implemented. There is no doubt
that 2006 will be seen as one of the key moments for the country in terms of the real estate
sector.
With the backing provided by 3,500 kilometres
of beach on its Atlantic and Mediterranean
coasts, a favourable climate, its proximity to
Europe and an aggressive tourism policy, Morocco is a country that is awash with real estate
opportunities.
Basing its strategy on the extensive tourism
experience of its Spanish neighbour, Morocco
has started up an attractive development model.
The country’s geographical diversity is also one
of the pillars of its tourism strategy.
With the aim of reaching ten million tourists by
2010, the Moroccan Government has put political
and tax strategies in place which are designed
to attract foreign investors. New governmental
structures such as the Regional Investment
Centres (RIC) are tasked with providing potential investors with all the help they need when
setting up a new office in Morocco.
includes nine hotels, a shopping centre, a private
hospital, a thalassotherapy centre, a medina, a
marina with space for eight hundred boats, three
golf courses, tourist apartments and villas.
But Morocco’s real estate market does not only
provide opportunities for investors in tourist
developments. In major cities such as Casablanca, Rabat and Tangier there are also numerous opportunities available in the markets
for office space, hotels, industrial and logistic
facilities, shopping centres and premium quality
first homes.
In the residential market the low-cost housing
sector, which is both attractive and growing
strongly, cannot be ruled out. Many European
and Middle East investors have entered this
sector, whose primary goal is to eradicate the
Direct real estate investment in Morocco
has reached record levels
Record direct investment
The Moroccan real estate boom
Real estate investment in Morocco coming
from Europe and the Middle East, with
a leading role played by Spanish firms,
has been the outcome of growing
international awareness of a country that
is awash with investment opportunities.
Anthony Labadie and Karim Beqqali,
Directors
CB Richard Ellis Morocco
54 | Trends 06
In this new and much more flexible legal and financial framework, direct real estate investment
in Morocco has reached record levels. The market has benefited from a real estate situation in
which low returns on investment in Europe have
led groups such as Fadesa, Dubai Holding and
Emaar to invest in projects providing greater
returns.
Many of these investors, fed up with bidding
wars when purchasing products, are looking
for opportunities outside their own countries.
These investments in many cases mean getting
in a lot earlier on the development cycle. One of
the directives of the Moroccan Government is
to attract quality tourism based on the AngloAmerican international tourist resort model,
in which hotels, marinas, shopping areas,
golf courses and housing complement each
other.
One of the most representative examples is in
Saïdia, a town which is part of the Plan Azur and
is being developed by the Fadesa group. This
project, covering some seven hundred hectares,
INTERNATIONAL MARKET | 55
International market
townships on the outskirts of the largest cities.
Numerous projects such as the Casablanca
Marina and Bouregreg Valley in Rabat provide
investors with a unique opportunity to take part
in macroprojects designed to bring these cities
up to an international level.
Government backing is enormous and ease
of entry increases the number of investors in
Morocco. By way of conclusion, it only remains
to say that the Moroccan real estate market is
really promising, and that in the last two years it
has undergone astonishing development.
Although the sector is still taking its first steps,
it is fair to forecast strong growth in almost all
sectors of the market, and its modernization has
only just begun.
Investment opportunities
in Casablanca – Rabat
• Offices
• Shopping centres
• Hotels
• Industrial and logistics parks
• Residential (first home and low-cost housing)
Investment opportunities
in Tánger - Marrakech
• Residential (second home and tourist homes)
• Hotels
• Offices
• Shopping centres ■
Poland direct
One of the main milestones in Spain’s
real estate internationalisation was when
ten Eastern Europe countries joined the
European Union in May 2004.
Mikolaj Martynuska,
Director of Residential and Development Consultancy
CB Richard Ellis Poland
Main market players
• CDG
• ONA
• Dubai Holding
• EMAAR
• ADDOHA
• Al Qudra
• Fadesa
Main banks
• Attijariwafabank
• BMCE
• BMCI
• Société Générale Marocaine Des Banques
• Banque Populaire
• CIH
Entry formulae
Investment funds in general seek to enter the
country through a joint venture, since market
information is scarce and to a large extent
erroneous. Due to the lack of experience in
the sector on the part of local builders, foreign
investors have to get involved a lot earlier in the
construction phase, which means funds need a
strong base in development. Developers usually
organise a direct structure in the country, and in
most of the big projects can take advantage of
major tax benefits.
56 | Trends 06
Since then, high liquidity among Spanish
investors together with high prices in the domestic residential market have pushed many
developers towards Eastern Europe, followed
by an interest in Morocco and some other
Mediterranean destinations. Many people are
thinking about investing in these countries, but
increasing competition means that they may not
get the results they had been expecting. Only
comprehensive and consistent analysis of the
opportunities and the different markets will prevent unpleasant surprises. In this article I shall
try to give an overview of the key points to the
residential market in Poland, which is the most
attractive real estate segment for international
investors.
Property
In Poland there are two main forms of landholding:
ownership and usufruct in perpetuity. The first
is the same as the Spanish concept, while the
second is the main Polish real estate peculiarity.
It is extremely common in most of the big
cities and in practice is deemed to be a right
equivalent to absolute estate. According to the
law, the usufruct is constituted by the State or the local authorities
on land that they own. Every beneficiary will be the user of the land
for a period of between 40 and 99 years, which can be extended
by another equal period, during which they will own the buildings
and other structures on that land in absolute estate. If the government wishes to cancel the contract, or refuses to extend it, it has
to buy those buildings from the user at their market price.
Mention should also be made of differences with respect to
the Land Registry. In Poland this is a public body with sufficient
guarantees of public trust, although owners expropriated after the
Second World War and whose details are not in it can file claims.
It is not common for these claims to call into question title deeds,
although they can cause considerable delays to specific projects.
In the case of acquiring buildings for refurbishment, it is a good
idea to check for possible claims of this type and for the existence
of possible tenants who are protected by the law and who the
developer would be obliged to find alternative accommodation
for in another dwelling. The above is reason enough to make
professional legal advice essential in any transaction.
Urban planning and land development
According to Polish law, you must first have a building licence that
has been granted based on a general or partial plan before you
can carry out a development. Local councils are obliged by law to
draw up general plans, even though this town-planning instrument
INTERNATIONAL MARKET | 57
International market
The extra costs
associated
with real estate
transactions
can get to be
very significant
may occasionally not exist especially in large
cities. In these cases a temporary instrument,
the so-called WZ decision on planning conditions, or alternatively a town-planning licence
can be used. The WZ decision is issued by the
Department of Architecture in the relevant local
council based on the documentation provided
by the developer. For example, a study is made
of the area surrounding the plot in question (the
so-called neighbour rule), and if there are no
buildings in the immediate area of the plot, or
there are no access roads leading to the land,
the town-planning licence will not be granted as
the plot is deemed to be a no-build area.
In short, the town-planning process in Poland
is complex and entails a degree of risk that
is hard to foresee. There is a discretionary
margin and cases may be dragged out, two
factors that multiply the complexity of every
real estate development.
Taxation and transaction costs
Likewise, the extra costs associated with real estate transactions can get to be very significant.
If you are buying a plot to build on, you will have
to pay VAT at 22% unless the seller is an entity
which does not have to pay this tax. In that case,
a transaction tax of only 2% is levied, the same
rate as used with purchases of second-hand
properties.
As for Corporation Tax (its abbreviation in Polish is
CIT), and because it is a member of the European Union, Poland has a bilateral agreement
with Spain that prevents double taxation. Spanish
companies registered in Poland can pay 19%
of their profits to the Polish Inland Revenue as
Corporation Tax and then deposit the remainder in their Spanish accounts. Likewise, in the
case of the sale of a property as a real estate
asset, Corporation Tax will be levied at 19% on
the profit.
Notary and legal registration fees vary according
to the value of the property and average around
2%, with the proviso that the maximum notary
fee for a single transaction may not be greater
than 4,500 euros. It is also important to remember that the public notary is responsible for the
proper transfer of the title deed, which includes
drawing up a draft of the sale contract and entering the title in the Land Registry.
In terms of taxation, it is also worth mentioning
that the reduced rate of VAT on purchases of
new houses, which now stands at 7%, might go
up to 22% from 1 January 2008. This is a very
significant factor as trying to forecast its practical impact on the market is still a risky business.
The fact is that there is still a great deal of uncertainty because the Polish government has yet to
make a statement as to the final scope of the
regulation and how it will be applied in practice.
Expansion strategies
It is obvious that there are big differences between
the Polish and Spanish real estate markets.
Poland’s is a young market, relatively developed in
the commercial and office space segments, and
already capable of attracting the main international
operators. The residential sector is going through
a more marked development process, with
strong unmet demand, interesting mediumterm prospects and the presence of important
international operators. Making sure you have a
sound local structure is essential when it comes
to positioning yourself in the Polish residential
market, where most analysts agree that in the next
few years between two and four million housing
units need to be built to satisfy current demand.
There are two main ways of getting into the
residential market: either through a strategic
alliance with a domestic enterprise or directly by
setting up a branch. Both of them have advantages
and drawbacks. An alliance immediately gives
you an asset portfolio, such as land and projects
in progress, together with an established local
team which has good knowledge of the market
and a recognised track-record and domestic
brand image. Even then it is not always easy
58 | Trends 06
In the next few years between two and
four million housing units need to be
built to satisfy current demand
INTERNATIONAL MARKET | 59
International market
to a number of factors which are making building
into an increasingly complicated process.
Based on CB Richard Ellis’s experience in
Poland, we believe that the chief priorities of
Spanish entrepreneurs when moving into the
country should be to ensure flexible analysis of
investment opportunities in an environment that
is not always transparent together with quick
and firm decision-making. Such mechanisms
call for very horizontal structures and a large
dose of independence for the branch office. Professional advice about legal, town-planning and
real estate issues will also be essential, and it
would be a good idea to supplement the investment strategy with appropriate public relations
and marketing policies. According to a number of studies carried out by our company, the
developer’s brand is an increasingly key factor
in Polish customers’ purchasing decisions. Nor
is it a good idea to lose sight of the preferences
of Polish buyers: for instance, up to now almost
all flats have been bought without finishings, and
surface area is usually measured in useable
metres.
Another relevant factor is that the vast majority
of international companies tend to concentrate
their efforts in Warsaw, although there are seven
cities in the country whose metropolitan areas
contain more than 800,000 people. Apart from
Warsaw, Spanish entrepreneurs have really
only been noticeable in Krakow, Wroclaw and
Gdansk.
from international investors, who are buying
housing at prices that domestic purchasers
cannot afford. If this trend continues, the market
might well overheat and some developers could
find that they have closed overly expensive deals.
Trends
In 2006, prices remained stable in the office
space, logistics and shopping centre sectors,
whereas they were up significantly in the residential sector, especially in Warsaw, Krakow
and Wroclaw, with rises of more than 30% over
the year. Land purchase transactions also hit
a new high, leading to prices that touched or
even exceeded 1,000 euros per square metre
in the case of big developments, and more
than 2,500 euros per square metre for smaller
projects. Most of these acquisitions were
made by Spanish companies, such as Grupo
Prasa, Sando Inmobiliaria and Lubasa, and by
Irish firms.
In any event, we think that during this year the
rate of price increases will fall substantially for
two reasons. On the one hand, production volume in the big cities will start to grow, given the
increasing number of projects for sale. On the
other, domestic demand, chiefly in Warsaw, will
be redirected towards the outskirts and this will
reduce the pressure on the continuously high
prices of housing in the centre. As a slight rise in
interest rates is expected in 2007, after six years
of continuous cuts, the underlying circumstances
that have enabled such rapid growth in the market will also cease to exist.
Another interesting trend will be the significant
growth of demand in regional cities such as
Lódz, Poznan and Katowice. So far, and despite
the fact that they are major urban centres, these
cities have really rather stood aside from the
priority development in the country’s other main
cities. From now on, however, they will tend to
be comparable. ■
Only comprehensive
and consistent
analysis of the
opportunities
and the different
markets will
prevent unpleasant
surprises
Risk factors
to find the ideal partner, results cannot always be guaranteed in
the short term and acquiring a stake may well entail considerable
investment.
The direct entry option is simpler in corporate terms, since the
company itself can decide on the make-up of its land portfolio,
its marketing strategy and the profile of its team of professionals.
Drawbacks include the fact that setting up a branch and
creating a land portfolio will require even more time than buying a
domestic enterprise. In fact, reference has already been made
60 | Trends 06
The main risk factors for developers can be
divided up into external and internal ones. The
former include political uncertainties to do with
town-planning procedures and an occasional
lack of transparency, as well as the possible increase in VAT for new housing. There is also still
some degree of risk attached to exchange rates,
which may change and significantly impact on
corporate budgets and asset values.
Internal risks include the very fast rise in land
prices. This is partially due to intense competition
among developers as well as growing demand
INTERNATIONAL MARKET | 61
Domestic market
The economic situation remains positive with the prospect of
growth in the near future. The last few cycles have been short and
threats have come more from successive economic recessions than
from internal problems. We believe that growth will be supported
by investment, although something seems to be changing as
a result of the conviction that businesses need to diversify towards other activities. The reduced role predicted for housing
could benefit investment in tertiary properties.
The result is tenant rotation and high gross
absorption.
• Rising rents are an incentive to sign up at current
prices before new increases take effect.
Alongside these intrinsic conditions there are
also some situation-specific causes. Without
going into exhaustive detail, we could cite:
Absorption and prices of tertiary real estate
Going up
Both demand and rental prices are
fluctuating upwards in the tertiary sector
after a year and a half of revaluations.
For the tertiary sectors, there is no doubt that the statistics on
absorption of space and the evolution of prices are snapshots of
their respective markets. During 2006 real estate for non-residential
use in Spain performed well in terms of demand, developer activity and rental prices. It would appear that the particular cycles of
each sector are in the growth phase, supported by the favourable
international economic situation following the take-off of influential
European Union countries such as Germany, the United Kingdom,
France and Italy.
Turning to specific figures, gross annual absorption in the office
market in Madrid in 2006 beat the average for the previous five
years by 56.2% and for the last ten years by 63.1%. For its part,
Barcelona was 26.8% over the five-year average and 39.4% over
the ten-year one. As for rents, maximum prices increased last year
by 26.6% in Madrid, while in Barcelona they were up by 6.3%.
Now let’s have a closer look at these figures and try and find
some explanations. In terms of gross absorption rates, we would
suggest that the increase is due not only to stronger, more active demand and more confidence in how business is going but
also as a result of the market’s intrinsic characteristics. Current
features would be:
• International economic growth in both industrialised countries and emerging powers
(China, India, Southeast Asian countries).
Plus there is also the expansion of the European Union as a driving force for EU trade and
investment.
• Competition from new markets calls for efficient
responses from companies. Among other
things this means rationalising real estate use,
reorganising business lines and controlling
leasing costs.
• After company mergers and acquisitions, there
is a need to reorganise real estate use. With
or without business diversification, redundant
space makes no sense.
• Increase in supply. In the last 10 years it has increased by 54%
in Madrid and 26% in Barcelona.
• This fresh supply attracts users. In Madrid more than 800,000
square metres of office space are to be built in 2007 and 2008.
In Barcelona nearly 600,000 square metres are planned for
the same two-year period. Rental or sales transactions are
encouraged by increased supply.
• The localisation of new business areas is moving to the outskirts while communications are getting better. Companies are
heading out towards the periphery where there is more space and
prices are more affordable than in the traditional CBDs.
Research Department
CB Richard Ellis Spain
62 | Trends 06
• Volatility of contracts. Lease terms continue to be set at between
two and five years, with options to extend them for one or two
similar periods. Few are ready to commit to more than ten
years, even though subsequent renewals may be agreed.
DOMESTIC MARKET | 63
Domestic market
• Take-off in levels of activity after several
squeeze years. For example, technology firms
are expanding again and are demanding a
significant amount of space.
chains, franchises and other new leisure and
services concepts such as gymnasiums, spas
and hotel and food facilities. As a result, the
floor space of shopping centres in the whole of
Spain has grown by 10% per annum and now
stands at nearly 12 million square metres of
useable area, which means 266 square metres
for every thousand people. In recent years, almost a million square metres is being delivered
each year, with an occupancy rate above 80%.
There is not the kind of volatility here that you
find in the office space market, as the average
contract duration for small facilities is between
five and ten years. The average rotation rate for
shopping arcade premises is close to 9%. Stability is higher in the case of department stores,
large supermarkets and hypermarkets, with
average contract duration being 15 years.
The key factors in commercial demand have been
the expansion of brands and forecasts for higher
sales. Brands still have hopes of increasing their
market share while the future of sales is less
clear. Even when retail sales remain stable, pur-
Absorption of office space
Thousands of m2
Madrid
Barcelona
1000
• Demand from new companies, SMEs, corporate branches, public institutions and
entities whose volume increases during
periods of prosperity.
Upward demand
How much longer will the expansion of demand
last? There is no way of knowing for sure. In
traditional real estate circles, expansion of
demand has been linked with GDP growth and
job creation. Both macroeconomic figures are
positive: GDP grew by 3.8% and in 2007 growth
will be between 3.0% and 3.4%; the number of
jobs created grew by 4.5% in 2006 and unemployment is expected to fall from 8% in 2007 to
be on a par with the rest of Europe, where the
global unemployment rate is expected to drop
to 7.4% by the end of 2008.
But Spain’s economy still has some latent risks:
competitiveness, labour costs, legal security
and unified markets. Competitiveness has fallen
in recent years for two main reasons: firstly inflation, which has led to high domestic production costs and the need to import products in
addition to oil; secondly, the massive entrance
of immigrant labour, which has also reduced
productivity. Labour costs include salaries,
which at 3.2% are growing almost at the rate of
inflation, and social insurance and redundancy
compensation costs: they provide the legal security which enables businesses to have stability
and plan objectives. In recent months new rules
about regulatory bodies and economic regulations have come out which have increased
uncertainty. Finally, a unified national market is
essential to ensure investment. The tangle of autonomous community legislation in areas such
as land, opening hours and trade licenses are
an incomprehensible barrier to many investors.
Demand is growing in the industrial sector but
with new specifications. Manufacturers have
64 | Trends 06
900
800
700
600
500
400
300
200
100
0
2000
2001
2002
2003
2004
2005
2006
Source: CB Richard Ellis.
headed out to countries with lower payroll expenses. Spain has lost importance as a producer although it is involved in patents, design,
assembly, marketing and logistics. Given these
new factors, demand is seeking locations in
urbanised areas with good communications.
Logistics is the key in this sector which concentrates almost all income investment on these
hubs. Logistic parks are being constructed which
are absorbed even before they are finished. This
expansion is taking place in the most productive regions, although demand is centred on the
Mediterranean area from Girona to Murcia; the
north with Zaragoza as its main focus; central
Spain along the Madrid-Guadalajara corridor;
and the south with Seville as its main hub.
Demand for business premises and shopping
centres remains stable. Retail sales have grown
by an average of 4.9% over the last ten years. This
increase has sparked off interest in development
in response to the growing demand for business
premises and the expansion of commercial
Rental prices for office space
Euros /m2 /month
45
Madrid
40
Barcelona
35
30
25
20
15
10
5
0
2000
2001
Source: CB Richard Ellis.
2002
2003
2004
2005
2006
chasing power falls as a result of increases in
interest rates and the high level of family indebtedness. Traders will continue to sell the range of
products that buyers need and can afford, but
other kinds of products will be less successful.
Rental prices
When examining rental prices we need to look
at the performance of each real estate category.
Office space is recovering with a 26.6% increase
in maximum prices in Madrid in 2006 and 6.3%
in Barcelona. This has occurred after a downward cycle between 2001 and 2004 during
which they fell by up to 38.2%. Maximum prices
for industrial real estate rose 9.7% last year, but
intermediate ones rose by 10% to 15%. Historically, fluctuations in industrial prices have been
smaller due to the chronic lack of supply, even
during periods of recession. The prices of business premises in high streets went up by 12.5%
on average in 2006. In terms of shopping centres, the policy of maintaining high occupancy
levels has prevented excesses and average
price rises stood at 6.1%.
As for future price trends, the most interesting
of all these issues, a number of forecasts are
possible. In the short term they are likely to
continue rising in 2007 as this is what the indicators say. In 2008 the same might well be the
case as long as macro-economic forecasts do
not change, while the outlook becomes unclear
starting in 2009. No one can predict the future
although it will be necessary to keep faith with
well-consolidated markets.
The latest real estate cycles have been short
in the office space market. Between 1986 and
1991 rents in Madrid increased quickly at an
accumulated annual rate of 18% when inflation,
which was high at that time, only went up by an
accumulated annual rate of 5.9%. Between 1991
and 1995 they fell by 54.5% in total and only
recovered in the following cycle, between 1996
and 2001, with a new accumulated annual rise
of 17.6%. The downward stage from the middle
of 2001 to 2004 cut maximum prices by 38.2%.
A new recovery phase started in 2005: up to the
DOMESTIC MARKET | 65
Domestic market
present prices have reached 34.50 euros per
square metre and month, when in nominal terms
they got to a maximum of 39.67 euros per month
per square metre in 2001. There have been
similar cycles in Barcelona, although its market
has experienced smaller changes because of
its size. Its prices did not fall by more than 17%
during the last recession, and now they are
rising by 6.3%.
The wide fluctuations registered in Madrid have
been due above all to periods in which the
market has overheated. The main causes of
increases are as follows. Firstly there is the relationship between a minimum available supply
and a demand with strong short-term requirements; secondly, the improved quality of the real
estate and market consolidation together with
the international status of tenants; and thirdly,
the increase in the cost of investment in real
estate which resulted in setting higher rents so
as to get a reasonable yield. As for recessions,
they have taken place for the following reasons.
Firstly as a result of economic downturns
brought about by oil prices and armed conflicts
in 1991, or because of bubbles created in overvalued sectors such as new technology in 2000.
Secondly, because of increases in availability
with lower cost alternative offerings. Thirdly,
because of restricted demand that could opt
either for not relocating or for squeezing more
into the same or less and thus free up space.
The current situation may be atypical. In Madrid availability is already below 7%, but most
of the supply is not of the best quality. There are
offices which cost less than 50% of maximum
prices, while new buildings are tending to rise.
The market is getting used to decentralised
locations. Nonetheless, real estate in the main
business districts is the most sought-after. Both
Madrid and Barcelona have a large portfolio of
projects on their outskirts and rather less in the
centre, which would suggest two things with
respect to prices: firstly, that the massive entrance of product will cool off progress in prices
even when demand is still strong; and secondly,
that buildings in the centre will continue to
66 | Trends 06
Higher up or further out
Absorption of office space in Madrid
thousands of m2
city
outskirts
1000
900
800
High-rise or a preference for nature.
The alternatives offered by modern offices
include a new image which combines quality
with rationality and impressive designs.
700
600
500
400
300
200
100
0
2000
2001
2002
2003
2004
2005
2006
Alfonso Galobart,
Managing Director of Agency, Building
Consultancy and Corporate Services
CB Richard Ellis Spain
Source: CB Richard Ellis.
be more valued than those on the outskirts,
although they might catch up a little with the
former in the new business areas.
Thus we now have an upward cycle but there
are many uncertainties about how long it will
last: the available supply is larger than normal,
the change from traditional locations is evident
and the state of business confidence fluctuates
easily. In the industrial sector, movements are
less sharp. Quality supply is limited and this is
the only thing that can make prices vary. We
would expect a narrowing of the difference
between middling and high prices as a result
of the absorption of the new business parks
and hubs that are being built. Price policy is
contained in the business premises and shopping
centre sectors and the main interest lies in accommodating successful trading firms. This is
why rents are not going up save in upmarket
units. Income which varies depending on turnover
is another reason why minimum contract prices
should not increase by higher proportions. ■
Most of the new supply is on the outskirts or
in the so-called new business areas, often in
places which were considered outlying districts
a decade ago. With improved communications,
lack of accessibility is no longer valid as an argument at a time when many users would prefer a
more peaceful working environment. As a result,
the supply is expanding to meet business needs
in terms of flexibility, reasonable costs and the
ability to choose.
Generalised shift
A professional, relaxing, well-lit ambience,
with the latest in communication technologies,
good access and additional services to be
used during breaks in the working day: that
is what any executive in a large corporation
would want. It’s what they need to give their
staff to ensure maximum performance. In the
past other factors were more valued, such as
a central location, luxurious finishes, private
workspaces or parking facilities.
Real estate used for office space has been
transformed and upgraded so that it now contains the features that users really like. In any
event, this has been dependant on market
opportunities and circunstances. The sector is
characterised by strongly cyclical behaviour in
which upward swings are followed by downward
plunges. Given that at the same time cities are
developing and expanding towards the periphery,
growth opportunities are now to be found in the
new business areas which are being created by
new buildings.
Centrifugal urban development
This is pretty obvious if you look at any of Spain’s
major cities. In Madrid and Barcelona, for example, the lack and high cost of land have resulted
in their expansion towards their outlying areas,
DOMESTIC MARKET | 67
Domestic market
The design
of modern offices
has changed
radically
or alternatively in the rezoning of erstwhile industrial areas which in part are turned in to office
space. Examples would be the Julián Camarillo
sector and the Las Mercedes, Manoteras and
Fuencarral business parks in Madrid, and the
22@ district in Barcelona.
The roots of centrifugal urban development lie
in congested city centres and impossible traffic
conditions at rush hour. As a result, traditional
business centres have been gradually moving
out. La Castellana in Madrid still remains one,
but eyes in Spain’s capital are increasingly
turning to the north and out towards Burgos as
sites for new projects.
In Barcelona the same thing is happening with Avenida Diagonal, which has already been extended
towards the east, but areas are also being set up
along the new Gran Via in L’Hospitalet. In Valencia the drive for new construction has reached
Avenida Francia and Las Cortes, while in
Málaga the Teatinos area has undergone the
biggest change.
There have been two main effects of the renovation of business areas: the replacement of ob-
Office projects
thousands of m2
800
2007
2008
700
600
500
400
300
200
100
0
Madrid
city
Source: CB Richard Ellis.
68 | Trends 06
Madrid
outskirts
Barcelona
new areas
Barcelona
outskirts
solete stock and a growth in transaction volume.
The Spanish service industry has developed
spectacularly and is the business sector that
has grown the most and provides the majority of
Spain’s national product. Office space markets
have doubled in size in only a few years: in Madrid stock increased by more than 50% between
2000 and 2006, while in Barcelona it went up
by 20% over the same period. Obsolete stock
has been treated differently depending on the
period. Two decades ago, old buildings were
refurbished and turned into luxurious offices in
CBDs. At present, as there is less interest in
luxury and more in real estate costs and yields,
these old buildings tend to be converted for
more profitable uses such as hotels or apartments. In this way, the supply of centrally located office space has fallen slightly in Barcelona
and Madrid.
The main reason behind businesses moving
out to less congested areas was the need for
enough new space to meet demand. As supply
is greater, the leasing of office space has also
increased in all instances. The rationale for this
is not simply to be able to enjoy brand new real
estate but also and simultaneously reduce occupancy costs and provide incentives for leasing
more floor space. Hopes of coming to verbal
agreements about future expansion before a
site is fully taken up may also be a motive.
New technical developments
for high-rise
Contemporary planing is more flexible and the design of modern cities aims to coordinate balanced
development of uses and services. Buildable
area is distributed in a way that enables people
to live together in the same space and avoids
the congestion problems of the past.
Based on these principles, the design of modern
offices has changed radically. In contrast to the
uniform maximum eight storeys in traditional districts with occasional exceptions, such as those
along La Castellana and Avenida Diagonal, highrise towers are already making their mark on
cityscapes. The experiment has been successful
in the Azca area in Madrid and is being tried out
with buildings in the Diagonal Mar and Forum
areas in Barcelona. The Cuatro Torres Castellana
and Gran Via de L’Hospitalet projects will very
soon be unequalled in this respect.
High-rise projects include new technical developments to make sure these forty-storey giants
operate properly. Design is by the leading
names in architecture: Norman Foster, Pei and
Cobb, César Pelli, Jean Nouvel. The prestige of
being located in the best buildings fitted with
state-of-the-art technology and in the CBD is
what draws users toward these offices.
Moreover their size per floor at almost two
thousand useable square metres is what
enables large corporations to make use of them.
It might seem something of a contradiction
to put up such buildings in cities like Madrid
which are surrounded by large amounts of
land. However, given that in the past there had
been so little high-rise construction, it is a very
tempting contrast for the market. Large buildings
are where the sector elite tends to gather, and
rental prices – which are between 36 and 40
euros per square metre per month – are a sign
of the upmarket status that they are designed to
transmit.
In contrast with office blocks, a completely
different formulae has been tried out over the
past two decades: business parks. These
should not be confused with contemporary
alternatives that have consisted of putting up
remote office buildings on cheap land with
poor finishings. These structures have simply
been open plan industrial units with carpeting,
acoustic roofing, small parterres outside and
some parking spaces. This worked because
their rental prices were less than half those for
centrally-located offices and they were a good
option for tenants looking for more than three
thousand square metres.
The business park concept is different. What is
needed is a private site with excellent access
and secured entrances, private maintenance of
common areas, and built-in services such as a
cafeteria, a communications centre, meeting
rooms, nurseries, hotels and banks. These factors make a business complex attractive to large
corporations, who can even customise the area
they lease and still reserve space for expansion.
Large buildings
are where the
sector elite tends to
gather, and prices
are a sign of the
upmarket status
that they are
designed to
transmit
DOMESTIC MARKET | 69
Domestic market
The increase
in supply in
decentralised areas
has changed the
trend in absorption
and more space is
leased outside than
inside cities
Heading out to the outskirts is an option that
has convinced leading companies: Banco
Santander, Telefónica, Vodafone, Price Waterhouse Coopers, Microsoft, Soluziona, Siemens,
Initec, Técnicas Reunidas, Oracle and Orange
among others. Moves to concentrate the whole
business in one location are seen as positive, not
only because of the reduction in costs, but also as
a qualitative leap towards being a modern company that is concerned about the environment.
New examples of these projects include the
Foresta, Adequa, Las Tablas, Omega, Alegra,
Cristalia, Rivas Futura, and Las Rozas business
parks, and the extensions of the San Fernando
Business Park, WTC Almeda, Mas Blau, Parc
Central, Can Sant Joan, Táctica (in Valencia),
the Málaga Business Park and Pla-Za.
At present most of the projects are on the outskirts where there is enough land to develop.
The increase in supply in decentralised areas
has changed the trend of absorption and
more space is leased outside than inside cities.
In Madrid, the proportion is 70% to 30% in
favour of outlying locations. In Barcelona, the
average is 75% to 25%, with the outskirts and
new business areas leading the field.
Given that the proportion of office space
outside the centre in ongoing developments
set to be handed over in forthcoming years
stands at 80% to 20%, demand is going to
head towards the new business districts and
absorption on the outskirts will grow. But as
a counterpoint, high-rise office blocks in the
new business areas near city centres will be
both necessary and successful. The demand
for centrally-located office space is greater
than the supply coming onto the market which
consists of small or medium-sized secondhand facilities.
Thinking in terms of diversification and resource
optimisation, modern companies need to aspire
to the use of the new tertiary spaces. Planning
could include development phases to determine the amount of surface area they will need
at any given time, but flexibility will always be
highly recommendable so as to ensure a good
fit with resources.
This can only be provided by modern offices,
and the selection of the type of real estate,
whether it is office towers or business parks,
will come with the guarantee of a product which
meets the needs of modern companies. ■
Logistics,
the quiet investment
Logistics real estate is slowly becoming
part of the portfolios of the major real estate
investors. As it offers stability and gradual but
more sustained increases in value, logistics is
gaining ground all over Europe and even
more strongly in Spain.
Basilio González,
Industrial Director
CB Richard Ellis Madrid
The industrial sector still accounts for only a
marginal percentage of the global volume of real
estate investment. In the first half of 2006, investment in real estate in the first fifteen European
Union member states came to 89.7 billion euros,
of which a total of 5.4 billion euros was set aside
for industrial real estate, 6% of the total. In 2005,
the industrial percentage of the amount invested
stood at 5%, so there has been slow but steady
progress in industrial investment.
There are several underlying reasons behind the
rise in industrial and in particular logistics investment in Europe. In the first place, globalization
has changed national production systems.
Supply chains are becoming more important
than manufacturers with the goal of optimising
70 | Trends 06
distribution costs, and logistics is key in this
process. The trend has only just begun and
over the next five to ten years the development
of services, technology and infrastructures will
give an even greater boost to this area.
It should be remembered that the logistics sector is relatively recent in almost the whole of
Europe. Only the United Kingdom and France
have a longish track-record: two years ago, for
example, the two countries accounted for 86%
of the industrial investment of the first fifteen
European Union member states. Far behind
them come Spain, Germany, Sweden and
Holland.
Analysts think that the German logistics market
is somewhat underdeveloped, whereas Spain is
DOMESTIC MARKET | 71
Domestic market
beginning to stand out thanks to the growing
interest of international investors and the development of new, high quality products throughout the country.
The increase in tertiary sector investment also explains the greater attention being paid to logistics.
As the office space and shopping centre sectors
start to become constricted by the shortage of
available quality product, the bulk of investment
volume needs to move towards other segments.
The very increase
in tertiary sector investment
also explains the greater
attention being paid to logistics
Investment in logistics. 2006
millions
450
410
400
401
338
350
323
Good prospects
300
250
251
200
150
160
163
2001
2002
100
50
0
2000
Source: CB Richard Ellis.
72 | Trends 06
2003
2004
2005
Logistics provides very stable tenants and incomes and attractive yields, which means that
the majority of institutional investors have started
to build it into their portfolios.
In the last fifteen years, the industrial market has
seen much smaller price fluctuations than those
experienced in other sectors. It is true that it does
not usually attain annual price rises of more than
15% or 20%, as has happened several times in
the office segment, but it is equally unlikely that
falls as sharp as those that have taken place in
the latter would occur.
CB Richard Ellis has carried out a comparative
study of the evolution of rent prices for office
space and logistics real estate. It compared 37
European cities, and one of its main findings
was that while over the period studied office
space varied between a maximum annual rise
of 25.8% and a maximum annual fall of 15.8%,
in industrial real estate the two extremes were
a 12% increase and 4.9% drop.
The smaller volatility in industrial prices is
accompanied by a greater initial yield on
the product, although prime yield margins
between the various segments are tending to
be squeezed throughout Europe. In fact, in
the United Kingdom and in some continental
European cities, the initial yield on logistics real
estate is very similar to that of representative
provincial office space, whereas in the best
Spanish logistics sites the initial yield can
reach 6% compared to 4.5% for office space.
2006
Given this European backdrop, it is possible
to be optimistic about logistics in Spain over
the next few years. In 2006, investment in this
segment reached 401 million euros, only surpassed by the 410 million euros achieved in
2003 as can be seen in the chart on the left.
In some ways, 2003 marked the coming of
age of the logistics sector in Spain. From then
on you can talk about a genuinely national
market, highly concentrated around the major road communication junctions and with a
clear Mediterranean orientation.
In this sense you could talk about a primary national logistics network, made up of Barcelona,
Zaragoza and Álava in the north-east, with
Madrid and Valencia further to the south and
Seville and Malaga in Andalusia completing
this basic network. Almost all the big logistics
companies have large storage facilities in these
cities, which are supplemented by support facilities in other provincial capitals that make up the
diverse secondary national logistics networks.
Improvements in infrastructures and the maturity
of the sector have turned the appearance of the
major international logistics developers in Spain
into a common occurrence. As for the investment logistics market, it continues to be mostly
in the hands of the big international funds.
Average logistics investment operations usually
fluctuate between 15 and 25 million euros for
areas of between 25,000 and 40,000 square
metres. The decisive factors when it comes
to investing are good locations (especially in
terms of infrastructures and communications),
construction quality, prestige tenants and contracts with market rents and sufficient payment
guarantees.
In Madrid the rate of construction
stands at around half a million
square metres per year
In the big cities in the primary logistics network,
investment in land purchase and the development
of modern logistics hubs has become generalised
among both domestic developers and foreign investors. At the same time, demand for space has
grown significantly and we are beginning to see
something of a shortage in supply which makes
non-market and sale and leaseback operations
more common and, in short, is causing a fall in initial yields which at the end of 2006 were fluctuating
between 6% and 6.5% in the best locations.
In addition the big international operators already
have a well established presence in Spain, and
the next step will be concentrations of growing
DOMESTIC MARKET| 73
Domestic market
Through the looking-glass
Spanish firms attempting to gain international
exposure to achieve an international dimension.
With this groundwork, over the next few years the
logistics sector is facing the definitive grading of
its supply. Added value will be extended through
the incorporation of management automation so
that the operator not only performs storage and
distribution but also assembles, packs, labels
and manages inventories and orders. This will
be the next challenge and where investor interest will concentrate.
The residential sector is heading into
a new phase. The period of squeezing
every drop out of spreadsheets and prices
would appear to be over. Now it is time
for common sense and maximising the
effectiveness of marketing analysis.
Demand is not letting up
The appearance of the major international
logistics developers in Spain has
become a common occurrence
74 | Trends 06
Domestic logistics grading has also extended
to demand. Tenants are usually much more
demanding about lease terms and conditions.
They tend to call for more flexible contracts
(binding for between one and three years, with
an early cancellation option), as well as better
construction quality (minimum height of ten
metres in storage facilities, or a ratio of at least
one loading dock for every 500 square metres of
area), proximity to a main line of communication,
large yards and parking for vehicles and trucks.
They also rate fire fighting systems and security
and theft-prevention measures very highly.
Here at CB Richard Ellis we believe that the good
logistics market is going to be maintained with
hardly any changes in 2007. In Madrid the rate
of construction stands at around half a million
square metres per year (with an availability at
present that is barely a hundred thousand square
metres, two per cent of the total surface area),
and in Spain as a whole it could well be above
two million square metres per year. Moderate
increases in rents are forecast, perhaps with
an upward trend that will gradually diminishes. It
should be taken into consideration that the good
state of logistics demand is in the main due to
the strength of domestic consumer spending
and to the outsourcing and subcontracting of
the various stages in the logistics process, with
both factors holding up well at present. It is likely
that in the course of 2008 rents might start to
stabilise, especially due to the large supply of
new facilities that will be opened up that year. ■
La situación política y la prosperidad económica son dos de las
José de
Manuel
Peidró,
razones
fondo para
entender el auge de los inversores españoles.
Managing
of Residential
and elRegional
Offices
Son
muchos losDirector
posibles argumentos.
Por ejemplo,
promedio de
setecientas
mil viviendas
nuevas anuales en un país de 44 millones
CB Richard
Ellis Spain
de habitantes. Es probable que Francia produzca 440.000 nuevas
viviendas en 2006, y será su récord absoluto anual desde 1978. O
el hecho de que España atraiga jubilados de los países del norte
europeo, veraneantes y todo tipo de organizadores de congresos.
have been head of CB Richard Ellis’s
En residential
los últimos diez años, este próspero país
Every year CB Richard Ellis draws up a comdivision for twelve years, and in thattambién
time here
ha at
abierto la puerta a cuatro millones de
prehensive study of the real estate market which
the company we have been witnesses
to anMuchos de ellos se han convertido
inmigrantes.
it presents at the Barcelona Meeting Point trade
accelerated evolution of the real estate
developen mano
de obra necesaria para que la industria
fair. The most recent one was published towards
decustomers,
la construcción siga avanzando. De hecho, el
the end of October 2006 and among other things
ment sector. This is true both of our
veinte or
porend
ciento de la población del país trabaja
it stated that double-digit house price increases
whether they be investors, developers
el sector de la construcción. Además, desde
were over.
consumers, and of the residentialen
consultancy
hacebeen
bastante
In the study we also forecast price rises for 2007
and marketing services that we have
de- tiempo los fondos europeos essimilar to the increase in the Consumer Price
tructurales de cohesión han permitido al país
livering.
Index, followed starting in 2008 by rises close
dotarse de infraestructuras de alta calidad, en un
to changes in Spain’s Gross Domestic Product.
From extravagance to rigour proceso del que han salido varias constructoras
We were the first to announce the soft landing
nacionales
We started out providing residential
services de
in categoría champions.
of the sector and to describe a change in the
1995, in the middle of the sales “crisis”. It is worth
market paradigm. Since then many others have
remembering that the only annual price
fall in the y dinamismo
Construcción
said much the same as us, and everything would
last twenty years took place in 1994.La
It was
a time
financiación
de todo este intenso proceso
seem to suggest that we are embarking on a new
for hanging in there, because the normal
thing thense ha realizado a través de un alto
constructivo
stage in the housing business.
was for a development to drag on fornivel
months
and
de apalancamiento,
o más recientemente
Our consultancy firm has the advantage of a long
even years after delivery, even to the point where
track-record in the residential market. I myself
some homes and parking spaces went unsold.
DOMESTIC MARKET| 75
Domestic market
were commonplace, in which a couple of sales
persons and a nice voice at the other end of the
phone line were seen as more than enough to
close all the sales of a development.
Since then, CB Richard Ellis’s Residential Department has sold more than eleven thousand
homes in Spain. We have worked for a wide
range of developer customers and on a very
varied assortment of residential property types.
These are significant and long-term credentials,
and with this backing I would like to take another
step forward and discuss the development
model which we have all been using in recent
years for residential real estate projects.
Methodological tradition
It is only very recently that issues such as suitable
layout of different property types in a project,
analysis of the target market and reasons
for buying have been taken into account
Personally I am still surprised by the lack of
methodological tradition in the sector. It is only
in the last few years that people have started
looking at issues as relevant as suitable layout
of property types in a project, thorough analysis
of the target market and reasons for buying, and
the choice of the right tools to attract that target
market to the product.
The same is true of planned presentations,
differentiation strategies with respect to the
competition, brand and point-of-sale image,
preparation and co-ordination of marketing
teams, administrative management, and housing
delivery and after-sales services.
These are strategies which have little tradition,
but from now on each of them will be crucial to
ensure the success of any development, in the
same way that it will be essential to have teams
which are specialised and experienced in the
analysis and projection of all these factors.
The fuel of added value
That’s all quite a long time ago now, but not as
long as might be suggested by how many things
have changed since then. Only twelve years ago,
marketing and professional management of developments was seen at best as an extravagance,
and at worst as a waste of time and money.
Retrograde and slightly irresponsible strategies
76 | Trends 06
It is obvious that factors such as land, building
quality and financing make it possible to assemble
the parts required for the residential development
engine to start. It should also be borne in mind,
however, that no engine, no matter how powerful
it may be, can run without fuel. And the only
possible petrol for the sector is adequate analysis
of products, marketing strategies and selling that
provides added value. These are aspects which
developers will need to take care of if they want to
inject fuel into their developments and minimise
the risk inherent in any real estate project.
Yet even more thinking needs to be done about
the various players, and in particular developers,
so that we can all play a more active and responsible role in the development of the residential
real estate sector.
Ours is a free market that is driven by supply
and demand. However, this general principle
does not mean that we sector professionals
have not been concerned in recent years that we
were getting into a dangerous situation. If you
will allow me the comparison, it is as if we had
all been biting the hand that fed us.
building specifications report, especially in
the case of particular products and particular
sites, and going back to using current values
and margins in spreadsheets. As happens at
the end of Ramón María del Valle-Inclán’s play
Divine Words, in our sector we have reached
the point where you can only say, “He that is
without sin among you, let him cast the first
stone”. The great thing about this market is
that it is going to give us a second chance.
A chance for common sense, professionalism
and efficiency. We’ll come to the party. ■
New principles
Over the course of recent years we have witnessed, without really complaining too much
about it, exponential increases in land prices, in
the per square metre price of a new house and
in the final sales price of housing. We have all
been well aware that this acceleration was pretty
senseless, because it is really very doubtful
whether houses can actually be sold at six thousand euros per square metre in every district in
Madrid.
However, there have been cases in which land
has in fact been bought at nigh on impossible
prices. It is often said in the sector that spreadsheets can bear anything, but in these examples,
profitability demands right from the start that the
final price of the housing should be between ten
and thirty per cent above the maximum price in
that area and at that time. The players in any
market have some implicit responsibility, and
what they need to do between them is to set out
some minimum principles of conduct and basic,
transparent and uniform criteria for their market.
There are many possible initiatives in this
respect. Staggering out developments that
come onto the market, not bidding for land
at unrealistic prices, rational analysis of demand, screening projects based on their target market, assigning qualitative value to the
DOMESTIC MARKET | 77
Domestic market
Retail and sustainability
In our view the United Kingdom market is
the benchmark for the European shopping
centres sector. With a total gross lettable area
of approximately 14 million square metres and a
transactions volume that in 2006 stood at more
than 3 billion euros, the British market is a highly
professionalised sector with historical liquidity
which for many years accounted for around half
of the total volume of transactions in Europe.
Outside the United Kingdom, the remarkable
difference of scale between European countries in
the development of the shopping centres market
is becoming less marked. The Spanish market
is a clear example of this, and is converging
with the British market. Stock in Spain currently
stands at more than 10.5 million square metres
of gross lettable area and may well go over 13
million square metres in 2008, while the volume of
transactions for 2006 is expected to come to more
than 2 billion euros.
In other words, in 2006 asset rotation forecasts
in the shopping centre investment markets in
the United Kingdom and in Spain would be at
fairly similar ratios of 214 euros and 190 euros
per square metre of stock respectively.
This becomes even more significant if we look
at figures for the previous five years, when the
liquidity ratio in Spain averaged approximately
125 euros per square metre and year. Put another
way, between 1999 and 2004 5 billion euros
were invested in Spain in shopping centres, thus
putting it top of the European shopping centres
transactions table if you exclude the United
Kingdom. The figures for 2006 simply confirm
the solidity of this long-standing trend.
The trend also shows that shopping centres
have become a star investment product in the
real estate firmament. Yet past growth has been
so great that doubts are starting to emerge as to
its future sustainability.
My intention in this article is to analyse the main
factors to be found in this market, suggest how it
is going to develop in the medium term, and set
out the general trend for the next five years.
1) Product supply: quantity and quality
Greater competition, up to the point of saturation in some geographical areas, has caused
the quality of shopping centre development in
Spain to reach very high standards, up there
with the best in Europe. Architectural design,
layout and accesses are factors that take up a lot
of developers’ resources and in turn are crucial
In 2006 asset rotation forecasts in the
shopping centres in the United Kingdom
and in Spain would be at fairly similar ratios
The extraordinary performance
of the retail market in recent years
is starting to raise the first
doubts as to its future.
Enrique Martínez Laguna,
Managing Director of Retail & Asset Management
CB Richard Ellis Spain
78 | Trends 06
DOMESTIC MARKET | 79
Domestic market
2003
2004
2005
2006
Source: CB Richard Ellis.
when it comes to differentiating new shopping
centres from their rivals.
At the same time the supply of new shopping
centres has stabilised in quantitative terms since
2000 at an annual average of around 650,000
square metres, while in the five years prior to
that the average had failed to get above 400,000
square metres per year.
2) Corporate operations
The quality of
shopping centre
development in
Spain reaches very
high standards
80 | Trends 06
Internationally the retail and distribution sector
is very active in terms of corporate operations
in which private equity firms have been taking
the leading role. Major retailers such as Toys
‘R’ Us, Ahold and Cortefiel have changed their
shareholders or are in the process of doing so,
as is the case with Fnac.
Corporate operations have been virtually monopolised by private equity firms (Permira, CVC;
KKR, etcetera). Retail has become a new and
attractive source of real estate supply for the
3) Consolidation of retail as
an institutional product
Retail product, particularly shopping centres,
is no longer an investment area for specialists
but instead has become an institutional asset
class that is a must-have in the portfolios of the
main international investment managers. They
are under pressure to place their funds and are
obliged to find new real estate products that can
be professionally managed and provide stable
rents.
Asset allocation in the European real estate
sector is at the root of this trend. Pension funds
and investment funds have seen how the asset
Just as in our analysis of supply, 2000 may well
turn out to be a turning point in the demand for
investment in this type of asset.
Up until then, development activity had been
virtually restricted to self-supply of the domestic
market, dominated as it was by large international
firms with an extensive presence in Spain and a
clear long-term property commitment. Obvious
examples of this would be the pioneering distribution companies in the sector (Alcampo and
Carrefour), specialist investors like Rodamco
and Klépierre and international funds which
vertically integrate their development business,
such as Sonae and ING.
But the position has changed over the last five
years, with new players in the sector who have
created an imbalance between supply and demand, which in turn has led to an increase in
developer activity.
This is a different profile of investor, with no
developer vocation but one which seeks to
generate added value through asset rotation in
a medium-term timeframe. International investors accounted for 76% of the total investment
in Spanish shopping centres in 2005, and in the
first half of 2006 that figure was up to 98%. It is
American, Irish, British and Canadian investors
who have blazed this trail.
Investment by nationality – 2006 up to September
Purchases
Sales
Switzerland
2002
30%
20%
10%
0%
-10%
-20%
Germany
2001
Spain
2000
4) Investment demand
Shopping centres
are increasingly
taking centre stage
in the leading
Spanish real estate
firms by investment
volume and income
stability
Portugal
0
France
25%
Italy
50%
Holland
75%
Ireland
100%
Thus high liquidity is the result of the constant
entry of new investors. Quinlan Private (Ireland), Resolution (United Kingdom), UKA
and IGIPT (Australia) are just some examples
of new investors who have arrived in recent
months.
At the same time Spanish investors have upped
the pace of their sales, equivalent to net negative investment of 868 million euros, compared
with 520 million euros net negative investment
in the whole of 2005. This increase reflects
the greater eagerness among owners when it
comes to making capital gains.
In many cases international capital is channelled
through an investment vehicle, and in some
cases operations are completed in conjunction
with a domestic operator who retains a minority
holding. As a result it is inevitable that yields
should continue to fall given demand pressure.
At the end of last September, prime yields were
at five per cent for shopping centres.
Canada
Officess/Industrial
was becoming overweighted, and as a result the
need to identify investment opportunities at an
even greater rate became more pressing.
Another factor that is helping to strengthen retail
asset investment demand in Spain is the strong
trend in the domestic real estate sector to move
into property leasing, thus complementing its
development business.
Shopping centres are increasingly taking centre
stage in the leading Spanish real estate firms
by investment volume and income stability.
This is becoming even more marked due to the
corporate movements that nowadays define the
sector, with companies seeking greater size,
increased diversification and sufficient internationalisation capacity.
United Kingdom
Shopping Centres
institutional investor market as these funds often
implement a real estate disinvestment strategy
right from the initial management phases in new
companies.
The sale and leaseback concept entails a
highly significant freeing-up of resources for
an enterprise’s core business. It is also a major
tool for financing large acquisition operations
by venture capital, which has identified the favourable arbitrage between the value of the real
estate and the value of the purchased company.
At the same time it is also possible to obtain
the substantial premium which the real estate
market assigns to operations as important as
the ones involving these portfolios.
It is a highly profitable equation: using the quality
and risk of the trader’s lease covenant to optimise
value enhancement of the real estate component of retail, valued at multiples close to twenty
as a function of the operation volume premium,
as opposed to the valuation of the company’s
shares, bought at multiples of between twelve
and thirteen times the gross operating margin or
EBITDA. Several major European retailers have
the same potential to draw new product onto
the real estate investment market without having
to resort to venture capital. These players can
take the lead in corporate real estate operations
whose goal is to concentrate resources in core
business and therefore replace ownership by
leasing.
USA
Investment in the real estate sector in Spain – 2006 up to September
-30%
-40%
Source: CB Richard Ellis.
DOMESTIC MARKET | 81
Mercado nacional
5) Trade globalisation
One of the main risks identified in the retail
market is the narrowness of occupancy demand
from retail in Spain. There is the risk of not being
able to achieve required differentiation between
shopping centres and of making it harder for
developers to create fresh supply.
Economic globalisation is nowadays a given in
the distribution and retail sector. It is a growing
High liquidity is the result of the
constant entry of new investors
trend and means that the leading companies
need to have a consistent presence throughout
the European Union.
Shopping centre tenants will tend to become
increasingly similar all over Europe, thus making
the shopping centre sector into perhaps the
most globalised in the real estate market.
There will be fewer and fewer barriers to the
entry of developer know-how in the production
of new supply, a factor which sets it apart from
other real estate subsectors such as offices
and residential in which those looking for floor
space make their decisions from a more local
point of view.
As a result, if both leasing demand and investment demand are increasingly global, the only
local part of the retail market is town planning.
Here the local developer becomes a strategic
component in the future development of the
sector, a situation that has already generated
many alliances between local and international
players in the Spanish market.
If we take the reality of retail globalisation into
account, the result in our local occupiers market
can only improve and gain in breadth and options
for choice for both developers and especially
consumers, who are the final end users of the
value generation chain.
The entry of new international firms into the
Spanish retail market is highly visible in both
high streets and shopping centres. These new
operators see Spain as a mature and stable
market, which makes it into a required strategic
location for the leading European retailers and it
is even starting to become one for American and
Asian firms as well.
6) Private consumer spending
This is the last factor in our analysis, and also the
main one: the engine and the key to predicting
sector behaviour in the medium term. Between
2000 and 2005, Spain was top of the first fifteen
European Union member states in terms of
consumer spending: its year-on-year growth
of 4.5% was only surpassed by the economies
of Eastern Europe countries where it rose by
more than 8%. Countries in Spain’s immediate
environment, such as France, Holland and Italy,
stood at below 2% in the same period.
Forecasts up to 2010 for growth in consumer
spending in the most mature European Union
economies are at around 3% for countries such
as Spain, Ireland and the United Kingdom, while
it is not expected to top 2% in Holland, France,
Italy and Germany.
As a result, even if the growth rate in Spain
fell by almost 1.5% over the next five years, its
economy would still be one of the most attractive among the mature countries of the Union for
new specialist retail offerings.
82 | Trends 06
Shopping centre tenants will tend to become
increasingly similar all over Europe
In conclusion, and going back to the doubts
expressed at the beginning of this article as
to the sustainability of retail, my own view is
as follows: it seems clear that what the clients
need in mature markets such as the Spanish
one is better analysis and more know-how
when taking decisions. Even so, the factors
mentioned above, the combination of supply and
demand, show that Spain has reached a level
of professionalism in this sector which makes
it possible to predict a very stable future over
the next five years. This is further backed up by
some healthy consumer spending figures and
the ever-growing entry of new retailers, which
will ensure the production of new supply at a
rate of more than half a million square metres
per year, sustained by an investment demand
that will guarantee the beneficial liquidity of
the market. ■
DOMESTIC MARKET | 83
Domestic market
Hotels, the luxury investment
Recent months have confirmed
that the recovery of the Spanish
tourist sector is now a fact.
Mark Clifford,
Managing Director of Valuation Advisory
CB Richard Ellis Spain
According to the latest annual data available
when this article was being written, which is from
2005, hotel occupancy rates were up by half a
percentage point over the previous year even
though hotel supply was also up by 4.65% in
terms of beds. The 314 openings of new hotels
meant an increase of 6.11% over 2004; the first
assessments of figures for 2006 suggest that
things are continuing in much the same way,
thus consolidating the trend.
As for the main Spanish cities, new hotels
were opened in 2005 in Madrid (17.87%),
Barcelona (12.77%), Valencia (12.84%) and
Seville (8.76%) in continuation of the exponential growth we have been witnessing since
2000. In all these cities occupancy rates were
up even when allowance is made for the substantial increase in beds.
By hotel categories, two-star establishments
have increased their presence spectacularly,
84 | Trends 06
percentage point between 2004 and 2005, with
average occupancy standing at 48.37% in both
years.
Investment
The positive outlook suggested by this data
about the Spanish hotel market have led to
enormous interest in investing in hotel assets
in Spain. At the beginning of 2006, the Hotel
Palace and the Hotel Arts, flagship luxury hotels
in Madrid and Barcelona, were sold for Spanish
record prices (385 and 417 million euros respectively), which means that each room is worth virtually 900,000 euros in both cases. Both hotels
have been acquired by the same investment
fund conglomerate made up of GIC (Jasmine
Hotels), Host Hotels & Resorts and Stichting
Pensionfonds ABP. GIC is a venture capital fund
that handles Singapore’s foreign reserves; Host
Hotels & Resorts is the world’s biggest fund
specialising in hotels (it has a stake in chains
such as Ritz-Carlton, Hyatt and Hilton) and
is backed by American pension funds; finally
Stichting Pensionfonds ABP is a pension fund
for Dutch Government civil servants. These two
massive operations have required temporary
partnerships between these investment groups
in order to undertake investment on this scale
(802 million euros in total) and to diversify the
risk burden.
Keeping their distance with the figures that
are invested in other sectors, venture capital
companies and their funds have focussed their
In Barcelona, the number of five-star
hotels grew by 85.7%
mainly on the outskirts of the big cities due to
the boom in the “Hotel Express” concept whose
success continues to be driven by the development of business and convention tourism. The
fact that they were up by 30.6% in Madrid and
27.91% in Barcelona is significant.
Nevertheless the real stars of the year in this
respect were five-star hotels with a substantial
nationwide increase in establishments; by the
end of 2005, the number of hotels in this category had grown by 20% over the previous year.
Moreover the number of five-star hotels in
Spain’s two main cities, Madrid and Barcelona,
rose by more than the national average with
growth rates of 25% and 85.7% respectively.
Tourist demand for premium quality accommodation also increased, as can be seen by the fact
that in spite of the remarkable rise in supply,
occupancy levels in five-star establishments
throughout Spain did not vary by a single
DOMESTIC MARKET | 85
Domestic market
sights on hotels and are starting to aim at their
first large scale operations. Good operating
forecasts added to steady and secure growth in
the sector mean that investment in hotel assets
is very well regarded in comparison with other
types of real estate.
Venture capital firms
The most important private capital fund in the
world is the American Carlyle Group, based in
Washington D.C. and which operates with a
portfolio of approximately 27.3 billion euros. A
close eye has always been kept on this fund
due to its multimillion dollar investments in the
armaments sector in United States and the links
between many of its directors and US politics.
Venture capital firms have fixed
their sights on hotels and are starting to aim
at their first large-scale operations
86 | Trends 06
The group handles more than five hundred
corporations and properties around the world.
In Spain they have recently bought, in association with BSCH’s Vista Capital fund, Iberostar’s
travel division, which includes tour operator
Iberojet, Viva Tours, Turavia and Solplan, as well
as Iberojet cruise lines, the airline Iberworld and
the Viajes Iberia travel agency network.
Another of the most significant venture capital
entities in terms of portfolio volume (25 billion
euros) is the likewise American Blackstone
Group. This group is enormously interested in
the hotel industry, and recently acquired a portfolio of nine hotels in Germany from the French
Accor chain.
The modus operandi of this type of entity in the
hotel sector is generally based on the acquisition of individual assets or stakes in hotel chains
as a vehicle for investing in the latter’s specific
assets. In 2003 Permira, one of the most important European funds by resource volume at
22 billion euros, acquired an important stake in
TLLC Group Holdings Limited which enabled
it to take control of the Travelodge and Little
Chef hotel chains in the group. In 2006, Permira
decided to disinvest in TLLC, selling its shareholding to Dubai International Capital, another
venture capital entity, and buying the Principal
Hotels chain from the Royal Bank of Scotland at
a cost of 450 million euros.
Sales between venture capital companies as an
outlet for their investment in holdings in companies, as in the previous case, are increasingly
common. When private equity firms first started
out, takeovers were the preferred way of transferring the assets of an investment once the financial efficiency of the asset had been improved
and a successful future business plan created,
but now they are not so frequent. Total disinvestment by venture capital entities in Spain reached
777.4 billion euros in the first nine months of
2005, with sale to the original stockholders being
the most usual form (31.3% of the total). Sales
to third-parties accounted for 30.9% of transactions, followed by sales to other venture capital
companies at 24.8%, which was the method
that increased most in a process favoured by the
number and diversity of funds currently operating
in Spain.
Venture capital firms often act in pools and always in a highly leveraged way. There are cases
where they set up a joint venture and incorporate
a temporary company, as happened with aAIM
and R20 which in 2006 bought the Menzies
Hotels chain, made up of four-star hotels in the
United Kingdom and operating under the brand
name Piccadilly Hotels.
The management of the hotel is usually delegated
to renowned chains which at times are associated
with these private equity firms, or the latter simply look for the ideal operator for each location
and target market. An example of this type of
joint venture between hotel chains and venture
capital funds is the one that took place between
the Orient Express chain and the Spanish fund
Omega, with the acquisition of 50% of the centrally-located and luxurious Hotel Ritz in Madrid.
The Orient Express chain at present manages
the hotel.
Hence venture capital companies are magnifying
the gap between ownership and management, a
trend that began some time ago.
investing in hotel properties and taking advantage of the fact that the chains themselves are
currently tending to shuck off their ownership
function and disinvest in their properties while
retaining only the running of the hotel for a stipulated period.
This is where sale & management back operations come in, which are proving capable of
generating mutual benefits. The chains can
free up capital by selling their real estate assets
and set it aside for new expansion projects,
getting high margins from the sale of the real
estate itself while ensuring they continue to have
a place in it via a management contract. For
the venture capital firm it means an investment
in which, thanks to the experience of the chain,
the risk of entry in the business is diluted without
decreasing future profits. Sale & management
back has replaced the previously common sale
& leaseback, in which the chain sold the property
but continued operating in it through a lease
contract with the new owner.
As we have seen, a lot of private equity funds
are interested in investing in the Spanish hotel
Venture capital in Spain
In Spain the first venture capital companies
started out somewhat timidly in the 1970s. After
entry into the European Union, a period of growth
was set in motion and their turnover figures began to become exceptional towards the end of
the 1990s thanks to the use of new information
technology. In 1999 the Venture Capital Entities
Regulation Act marked the consolidation of
these firms in Spain’s economy.
The gradual flexibilisation of the limits on what
financial companies can do has meant that over
the last ten years there have been numerous
investments in hotel assets carried out by
companies, for instance banks and insurance
companies, that have little or nothing to do with
the sector.
This trend is still going strong today in Spain
thanks to the venture capital funds. They are
Sales between venture
capital firms are becomingly
increasingly common
DOMESTIC MARKET | 87
Domestic market
Sale & management back
operations are proving capable
of generating mutual benefits
the venture capital entities Dinamia and Nmás1,
which hold 30% of the chain’s current equity.
Thanks to the combination of sector knowledge
and financial experience, the project was carried
out satisfactorily.
Venture capital in Europe
market, and especially in upmarket hotel properties. One of the funds that is gearing up for more
business in Spain is the Irish private equity fund
Inchydoney Partnership, which in June 2006
acquired the five-star Dolce Sitges Hotel from
Dolce International and Med Group, the halfand-half owners of the property. Management of
the hotel still belongs to Dolce, and Inchidoney
is to contribute its financial experience to ensure that the project is successful. This alliance
will continue on into the future in order to put
in place the group’s European expansion plan
which focuses on five-star hotels.
Yet investment is not just coming in from outside Spain, as specialised funds with Spanish
capital are being set up which aim to invest
both at home and abroad. Recently the biggest
fund specialising in hotel investment in Europe
has been created, made up entirely of Spanish
capital. Losan Hotels World, with 75% leverage
and funds totalling 900 million euros, consists
of Losan Inversiones and Ahorro Corporación
and it is set to embark upon the acquisition of
four- and five-star hotels in Europe. The nine
hotels that Losan previously owned, including
70% of the newly inaugurated NH Kensington in
London, have been added to the fund’s portfolio. The establishments purchased by the fund
are to be run by the hotel chains NH Hoteles,
Hesperia, Husa and Hotusa, which were already
Losan partners.
Frequently chains already have trained hotel
management staff in place but lack sufficient
capital. It is here that co-operation between
these two types of entities favours the creation
of synergies. This is the case, for example, of
the High Tech chain, founded by five former senior executives from Tryp after the latter merged
with Meliá in 2001. They needed funding from
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In the rest of Europe, private equity firms are being
very active in the hotel sector. They carried out 41%
of hotel transactions in Europe in 2005, most of
which were for luxury or five-star properties. This
wave has not taken long to build up, as 2000
saw the first operations by these entities in the
sector when they accounted for just 1% of hotel
transactions in Europe.
Private equity firms operate in a variety of ways.
Many of them are generalists and seek out business opportunities in which they need the help
of sector specialists (hotel chains in this case),
whereas others, generally the smaller ones,
work exclusively in the hotel sector or have funds
assigned solely for investment in this type of
asset and can count on their own consultancy
and management resources.
One of the funds specialising exclusively in
the acquisition and asset management of hotel properties is Cedar Capital Partners, which
bought the celebrated Hotel Savoy in London
during 2005 and most recently the Mandarin
Hotel in Prague in October 2006; both are fivestar hotels. Another specialist entity, Westbridge
Hospitality Fund, paid the Intercontinental chain
325 million euros for 24 hotels scattered around
Europe in 2005.
The Irish venture capital firm Quinlan Private is
more generalist, but it is still active in the hotel
sector. In 2004 it acquired the Savoy Hotel Group
for 1.12 billion euros. Subsequently it hived off
the Savoy Hotel in London (which, as noted
above, ended up with Cedar Capital Partners)
and in 2005 set up the luxury hotels company
Maybourne Hotel Group.
As we have seen, venture capital entities are
playing a big role in the European hotel market,
and it seems fair to say that most operations
carried out in the sector in the future will be
performed by this type of company due to the
high volumes of resources that they handle and
the growth that is expected of them.
Nevertheless, there are two obstacles that they
will have to overcome if they want continue with
their colossal progress. Firstly they may be severely hit by interest rate rises due to the high
leverage they use to carry out their operations.
Secondly the authorities are starting to monitor
them very closely due to the significant increase
in their power and influence in the economy; this
will undoubtedly force them to increase their
operational transparency. ■
A lot of private equity funds are
interested in investing in the Spanish
hotel market
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Grow and diversify
Local real estate developers are facing
the new challenge of diversification. Their goal
is to move from the domestic to the international
market with all possible guarantees.
Yolanda Lozano,
Director of New Residential Construction
CB Richard Ellis Spain
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A new era has begun in the real estate development sector. Developers who have been
in this business long enough have learned that
double-digit profit margins do not last more than
a decade, as has occurred in this cycle. They
never last so long unless measures are taken
before it is too late.
Territorial diversification is an alternative, as long
as the strategy is defined within the residential
area and product diversification is not carried
out at the same time. Another possibility is expansion, whether domestic or international and
not necessarily in that order.
Residential real estate development companies
know that demand eventually dries up and that
it is a good idea to anticipate this process and
have other options planned and operational. It
is on this basis that many local developers have
been able to expand their plan of action to other
areas in Spain. And indeed some have opted
to go straight into developments abroad, especially in other European countries and almost
always in Eastern Europe due to the boom their
economies experienced after joining the European Union.
Domestic growth has not turned out to be so
eye-catching, perhaps because it is the implicit
result of business development itself. As volume
increases, it becomes necessary to expand into
other geographical areas. It is just a question
of time.
Property objectives have tended to be
centred in France and there is also significant
investment in Poland, Morocco, Romania,
Portugal, Hungary and Germany
last few years the sector has developed high
levels of liquidity.
Thus, now is the time to seek out destinations
which allow for continued growth, diversification
of investor risk and maintenance of the bottom
line, especially in the case of publicly listed
companies.
The preferred objectives have tended to concentrate on France, although there is already
significant investment in Poland, Morocco,
Romania, Portugal, Hungary and Germany,
and to a lesser extent in Mexico, the Dominican
Republic, Brazil and even the United States
and China.
In all cases they have involved bold commitments and have also turned out to be safe,
which provides healthy doses of credibility
and soundness for financing strategies.
Rapid international planning
Moving into other European markets has
sparked off more interest. It has been favoured
by the introduction of the single currency, by
the development of European mechanisms
and by the expansion of the European Union. In
specific cases, European status is secondary
and going abroad is determined by geographical proximity. Whatever the case may be, the
majority of Spanish real estate companies that
are significantly large and want to achieve
continuity already have plans for international
expansion, which in some cases have been
started up surprisingly quickly.
The process can be explained by the fact that
profit margins in the Spanish residential sector are tending to stabilise around the general
growth of the economy and also because in the
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Developer
International expansion
Lubasa
Poland
Portugal, Marocco, Poland, Hungary, France, Mexico
Fadesa
Grupo Prasa
Grupo Sando
Parquesol
Vallehermoso
Hercesa
Agofer
Restaura
Grupo Lar
Nozar
Acciona Inmobiliaria
Grupo Pinar
Grupo Riera
Grupo Sánchez
Grupo Mall
Portugal, Poland, Romania, Marocco
Poland
Portugal, Poland, France
Portugal
Portugal, Poland, Romania
Poland
Germany, Poland, France, Portugal
Mexico, Portugal, Romania, Hungary
Portugal
Poland
Portugal
Portugal, Poland
Brazil
Mexico, Panama
Some developers
have opted to go
to other European
countries, almost
always in Eastern
Europe
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It is inevitable that these markets will bring with
them greater legal and institutional risk, although
they still offer substantial advantages both in
terms of prices, which in the case of land purchases can turn out to be very competitive, as
well as labour costs and the potential for price
rises in the housing sector.
In addition to these factors there is also the
predicted economic growth of these countries
and the sustained increase in residential tourism
which has led to a situation of excess demand vis-à-vis a currently very limited supply.
In short, there are not many keys to coming
through internationalisation with flying colours,
and each of them is crucial.
Ample knowledge of the legislation of the destination country and acting accordingly is a minor
cost compared with the advantages derived from
internationalisation. This is especially so since it
reduces dependence on a residential market as
mature as the Spanish one. And the more you
anticipate possible changes, the easier it will be
to get ahead of your competitors and achieve the
best possible results in your planned destination.
Starting two or three years ago, a large part of
the international expansion of our customers
has been concentrated in Poland, although in
recent months many other destinations have
also been chosen as can be seen from the table
on this page.
When it comes to carrying out development
projects and specific investments, it is always a
good idea to know about the particular features
of each region. You really do need to have the
professional advice, experience and the support
of companies such as CB Richard Ellis, which
has detailed knowledge of each of the links in
the domestic real estate chain in each case.
For example, in Poland homes tend to be sold
long before building has been completed,
and do not include construction finishes. That
is to say, the basic installations are included,
but not the final indoor, carpentry, kitchen and
bathroom finishes. Obviously you can choose
to have all the finishes included, although the
majority of Spanish developers already build in
this way.
As for investment types, up until now most
projects have included purchasing plots on
which to build residential and tourist complexes,
or the purchase of complete apartment blocks.
Both initiatives are usually well received by
governments and local authorities.
In addition to the above, gaining a foothold in
these emerging economies will prove advantageous for those whose medium-term forecasts
include new second home developments for
new demand groups. The traditional European
buyers on the Spanish coast (Britons, Germans,
the Irish and the Dutch and so on) will become
less important in forthcoming years compared
with these new segments who have growing
purchasing power.
Experience and maturity added to sustained
growth are the reasons behind these migrations
of Spanish residential real estate capital – coming
to a great extent from local developers – towards
economies that are less developed but have
When it comes to carrying out development
projects and specific investments,
it is always a good idea to know about
the particular features of each region
greater potential in the next phase of the cycle.
At the end of the day, the dynamic which these
emerging economies are now entering is extremely reminiscent of what took place quite
some time ago in countries such as Spain,
Portugal and Ireland.
Maximising possible alternatives, minimising risk,
keeping one step ahead of change, looking for
and finding the best solutions to the changing
strategies of our customers: these have been
and will continue to be what drives us regardless
of what the country in question may be. ■
Models for internationalisation
There are several general approaches to internationalisation depending on the strategic
objectives of different companies, the added
value that can be provided in the destination
country and, of course, the risk that they are
willing to take on. With this as background, the
most common ways of acquiring real estate are
as follows.
• Buyouts or majority shareholdings in local
businesses, which require significant financial
outlay but bring with them the advantage of
controlling a national partner.
• The acquisition of real estate for its subsequent
reclassification and/or refurbishment, whether
the idea is to keep it as an asset or not.
• Alliances and agreements with national partners who are capable of providing in-depth
market knowledge and good relationships
with the various authorities. In principle, this
would appear to be the least risky option.
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Coming to terms with NAV
Is net asset value, or NAV, a proper
valuation method?
Alberto Álvaro,
Director of Corporate Finance
CB Richard Ellis Spain
In 2006 we saw unusual levels of corporate
activity in real estate. Mergers, acquisitions and
share swaps have become a major factor in the
sector. The sector is highly fragmented and has
growing financial needs. If you add to these
two features the major increase in turnover in
the last few years, then corporate reorganisation
around business nuclei with financial muscle and
market transparency looks like an unstoppable
trend.
Given this state of affairs, here at CB Richard Ellis
we think that this is a good time for a brief analysis of the value of real estate companies, and
in particular the most commonly used valuation
formulae. This analysis should begin with taking
a look at certain myths and commonplaces.
Valuations of companies, whether listed or not,
usually take net asset value as a reference, or
NAV, which implicitly means adopting a liquidation hypothesis for the company. Apart from
94 | Trends 06
whether it is right to value a functioning company using a liquidation hypothesis, what is
true is that in practice in the majority of cases
analysts base their estimations about the price
of a company on this parameter.
The calculation of this net asset value is made
by taking its market value (GAV, Gross Asset Value) and disregarding the financial net
position, basically, financial debt minus cash
flow.
Nonetheless, there is a relatively frequent (and
surprising) trend to assimilate NAV to the value
of the shares or holdings in a company. This
would be correct only in the case of the liquidation of an ideal company in which there were no
assets or liabilities other than those considered,
i.e purely real estate liabilities: cash flow and
financial debt. Additionally, this company would
need to operate in a tax-free environment (which
would be unrealistic).
Homogeneous comparison
NAV is thus not the value of the shares of a
company, but rather like PER, or Ev/ EBITDA,
it is a reference point that allows for relatively
homogenous comparisons between different
real estate companies. This is why their listing,
whether above or below NAV, helps us to determine, from a static point of view, whether they are
“expensive” or “cheap”. Nothing more, nothing
less.
When it comes to analysing a functioning company, the market often takes into account a
premium or discount on NAV. This premium or
discount should reflect the capacity to convert
this capital gains potential into effective cash
flow, as well as the generation of new potential
capital gains that in turn become future cash
flows. Thus there is a wide range of quotations
of real estate firms with respect to their NAVs.
The value that the market assigns to real estate
companies is thus not in direct proportion to their
net asset value, but instead the latter becomes
another reference point: it is as important, if not
more so, to take into account the capacity for
sustained generation of results and cash flow.
Value creation capacity
In this respect, it is interesting to see how the
various takeover bids in 2006 had as a common
denominator the existence of a strong premium
with respect to listed value which in all cases
except for Parquesol was 15% or greater. In
particular cases, this premium places the bid well
above NAV wheras in other cases, those which
some companies trade at a significant discount
but then rise closer to this premium.
The existence of this premium is not out of the
ordinary in itself, as in all sectors bidders in a
takeover process usually offer prices above the
listed rate. What does stand out is that both the
amount of the premium as well as the number
of transactions carried out seem to indicate the
existence of an important gap between the visions of the traditional financial investor and of
the real estate entrepreneur who is able to drive
the value creation capacity of these companies.
There is a relatively frequent
(and surprising) trend to assimilate
NAV to the value of the shares or
holdings of a company
Unfortunately, the history of the real estate sector
on the Stock Exchange is relatively lacking, given
that until this financial year the sector for the most
part had shyed away from the stock markets.
However, if we go back to the purchase of Bami
by Metrovacesa, we will see that the price paid at
that time was branded by some analysts as being
pretty crazy. Well, just a few years later the same
company was calmly being quoted at twice that
value when a group of shareholders thought that
the price to be paid for control of the company
was well worth it, making a series of bids of 78, 80
and 90 euros. From that point on, we have seen a
well-publicised upsurge in which speculation and
rumour have driven prices to stratospheric levels.
Premium/ Discounts / NAV
Source: CB Richard Ellis.
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TOB– Premium on list price
30%
28%
25%
20%
20.8%
17.8%
15%
15%
10%
9%
5%
0%
Fadesa
Parquesol
Urbis
Colonial
Metrovacesa
Source: CB Richard Ellis.
The value that the market assigns
to real estate companies is thus not in
direct prportion to their net asset value
Without a crystal ball, only time will tell what the
sustainable level is for the listing of real estate
companies. However, there is an underlying
trend which should be analysed: the 2006 financial year brought about a qualitative change in
the perception of the real estate sector by the
financial community.
Throughout the year we have seen how the
quotation of real estate firms, traditionally with
a discount on NAV, has done an about turn, and
thus real estate firms are currently being quoted
at levels close to their NAV without a premium on
them. This happens because the transformation
of this NAV into a cash flow and its replacement
takes place at the same rate as the strategic
plans laid down by companies. These plans give
analysts and investors a clear view of medium
and long-term evolution and results, avoiding
the stigmas of cyclicity, lack of liquidity and a
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lack of professionalism which are traditionally
attributed to the sector.
What is true is that part of the sector’s performance on the stock market is derived from the
process of business concentration which has
already taken place, and that speculation with
respect to the possibility of new takeover bids
has “heated up” some stock prices. This means
that we are now in a key period which will show
whether this market perception is the result of
current circumstances, or alternatively whether
a method of analysing companies in the sector
based on their capacity to generate value will
become more the norm.
2007 is thus shaping up to be an exciting year,
one in which real estate companies will have to
face the challenge of having a value assigned to
them by the market which is finally a true reflection of a clear strategic line, efficient communication with the market and consistent execution
of the same. ■
Mechanisms to prevent
money laundering
In light of the events which have occurred over
the last few months, an article on the prevention
of money laundering is a must.
Patricia García de Ponga,
Financial Director
CB Richard Ellis Spain
Spain is at present under the microscope to
the extent that from across the Pond the FATF
(the Financial Action Task Force on money laundering) has asked the Spanish Government to
review its system for monitoring financial entities
and to improve coordination between the institutions that carry out inspections.
The FATF is an intergovernmental organisation
which came about as a result of an initiative
adopted at the G-7 summit held in Paris in
1989. It is made up of more than 30 countries
(including Spain) and its specific mission is to
promote strategies and measures to combat
money laundering.
More than fifteen years ago, the FATF laid down
forty recommendations for universal application which make up the framework for the fight
against money laundering and that have served
as the basis for most international legislation. In
2001, as a result of the 9/11 attacks, it expanded
its mission to include the fight against terrorism
and its financing and agreed on the adoption of
eight special recommendations to co-ordinate
international co-operation.
As for prevailing legislation in Spain, in 2003 Act
19/2003 dated 4th July modified the previous
regulations with respect to money laundering
that had been in force for a decade.
The objective of the present regulations is to prevent and impede the use of the financial system
and other sectors to launder money earned from
illegal activities. Even though the term “money
laundering” is commonly associated with tax
fraud, the regulations refer in general to funds
coming from any crime punishable with a prison
term of more than three years, thus including
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other illicit activities that cause significant social
concern such as drug trafficking, terrorism and
organised crime.
While initially the regulations designed to prevent
money laundering were aimed at individuals and
entities in the financial system, one of the modifications in Act 19/2003 specifies that it will also
be applied to other business or professional activities that are particularly prone to being used
for money laundering, such as casinos, auditors,
accountants, notaries, law practices and, of
course, real estate development and agencies,
commissions and brokerage of property sales.
CB Richard Ellis is thus a liable entity under
Spanish legislation for the prevention of money
laundering, insofar as among the variety of
services that it offers is real estate brokerage in
sales of office space, business premises, industrial units, land and residential products.
Given that many of our customers are also liable
entities (real estate and financial firms, among
others), we are aware of the dual importance
of scrupulous compliance with these regulations: not only for corporate reasons but also to
provide our customers with a guarantee that by
taking out our services they are safeguarding
themselves from the risk that their brand name
might become associated with infractions related to such non-compliance.
In fact and independently of the existing regulations in each country in this field, the CB Richard
Ellis group has its own internal regulations for the
detection of money laundering, with requirements
which are in many cases more demanding than
national laws in terms of the identification of suspicious customers and transactions, reporting procedures, information requirements and employee
training.
Money Laundering Prevention Service
The objective of the present regulations is to
prevent and impede the use of the financial
system and other sectors to launder money
earned from illegal activities
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The Money Laundering Prevention Service
(SEPBLAC) is an agency affiliated with the
Bank of Spain, and is functionally dependent
on the Commission for the Prevention of Money
Laundering and Monetary Offences. It has more
than sixty professionals drawn from officers
from the Bank of Spain, the Inland Revenue, the
National Police Force and the Civil Guard.
The Prevention Commission to which SEPBLANC reports is chaired by the Secretary of the
State for the Economy and its members include
representatives from the Police, the Civil Guard,
the Treasury Department and the National
Stock Exchange Commission. Its mission is
to drive activities for the prevention of money
laundering in cooperation with national and
regional law enforcement agencies. Its duties
include submitting proposals for sanctions
for non-compliance with money laundering
prevention regulations to the Spanish Ministry
of the Economy and Treasury.
SEPBLAC is thus a focus for centralising information about unusual or suspicions transactions
and the recipient of confidential declarations
made by financial organisations and other liable
entities. Once it has received a communication
from en entity, SEPBLANC analyses it and
submits money laundering cases to the competent authorities
Main obligations and possible
sanctions
As a result of the points discussed above, now it
is not just financial entities that have to fulfil the
requirements of the money laundering prevention
regulations. Other sectors such as real estate will
also have to comply with procedures including
the ones set out below:
• Identification of customers
Liable entities must obtain information
about their customers to find out what their
professional or business activities are. In
this respect, when a business relationship
is struck up we have to ask our customers
for identification in the form of relevant
accreditation do-cumentation such as articles
of incorporation in the case of companies or
national identity documents in the case of
individuals.
• Examination of transactions
We are obliged to carefully examine any
transaction, regardless of its amount, that
might be particularly linked to laundering
money coming from the activities which are
being pursued.
• Conservation of documents
Documents that accredit the performance of
transactions and the identity of the persons
that have performed them or those with whom
a business relationship has been established
must be kept for a minimum of five years.
• Co-operation with SEPBLAC
Any transaction where there are indications of
a possible relationship with money laundering
must be notified to SEPBLAC and the latter
given the information that it needs in order to
carry out its duties.
Act 19/2003 is also applicable
to real estate development, agencies,
commissions and brokerage of
property sales
• Non-execution of transactions
We must not execute any suspicious transaction without having previously notified SEPBLAC. In this respect, the fact that information has been sent to the Executive Service
or that any transaction is being monitored
must not be revealed either to the customer
or to third parties in case it is linked with
money laundering.
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• Procedures and control bodies
Adequate procedures and bodies for internal
control and communication must be set up to
prevent transactions related to money laundering from being performed.
Due to the characteristics of the parties to the action
Persons whose residence is in tax havens or high-risk areas (depending on the means of payment used).
Minors, persons over the age of 70, or with signs of mental disability or indications of a lack of financial
capacity for such acquisitions.
Persons who occupy or who have occupied top political positions, leading posts or similar roles in
generally non-democratic countries, including members of their immediate family.
• Employee training
Appropriate measures need to be adopted
so that our employees are aware of the legal
requirements. To that end we draw up training
plans and courses for employees that teach
them how to detect transactions that could be
related to money laundering and what to do in
such cases.
The CB Richard Ellis group has its own
internal regulations for the detection of
money laundering, with requirements
which are in many cases more
demanding than national laws
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Knowledge about customers
Knowledge about customers is fundamental to
the prevention of money laundering. To that end
you need to set up adequate procedures to raise
awareness of the problem among employees
who deal directly with the public, and also to
introduce forms that include full information
about a customer’s activities and other details.
Persons who have been tried or sentenced for crimes.
Persons with unknown addresses or correspondence addresses only, or with allegedly false data.
Several transactions in which the same intervening party takes part, as well as those carried out by
groups of people who could be interrelated.
Companies whose residence is in tax havens or high-risk areas (depending on the means of payment
used).
Recently constituted artificial persons, when the amount of the transaction is high compared
to their assets.
High-risk transactions in the real estate sector
Both companies which are liable entities and
their managers can be penalised for infractions
under the money laundering prevention
regulations. Punishments run from private or
public reprimands (both for companies and
their mana-gers) to fines, which might be 5%
of the financial resources of the entity, twice the
amount of the penalised transaction or 1.5 million
euros, or temporary suspensions of managers
that could be as great as disqualification for ten
years.
Nonetheless, what would cause the most harm
to a company involved in a money laundering
operation is the damage to its image, its brand
name and its prestige in the market. That is why
meticulously complying with the requirements
of the regulations is something that we need
to do as liable entities and because it provides
our customers with significant protection and
guarantees that the necessary precautions are
being taken to ensure that we do not become
involved in a transaction of this type.
Individuals
Companies whose activities are unrelated to the type of transaction.
Companies whose owners occupy or who have occupied top political positions, leading posts or
similar roles in generally non-democratic countries, including members of their immediate family.
Companies
Not-for-profit entities when the characteristics of the transaction do not match the objectives of the
entity.
Companies who, although registered in Spain, are constituted mainly by foreigners or people who are
not resident in Spain.
Companies with unknown addresses or correspondence addresses only, or with allegedly false data.
Several transactions in which the same intervening party takes part, as well as those carried out by
groups of artificial persons who could be interrelated.
Companies whose only known activity is investment in real estate for the mere
sake of owning it.
Indications or certainty that the intervening parties are not acting on their own behalf, and are
attempting to hide the identity of the real client.
Transactions which are initiated in the name of one person and finally executed in the name of a third
party.
Individuals and
Company
behaviours
Transactions in which the participants do not show much interest in the price or the characteristics of
the assets, or when they show a great deal of interest in carrying them out very quickly for no apparent
reason.
Certain transactions in which the intervening parties are not resident in Spain.
If any of the payments are made by a third party other than one of the intervening parties, and the
delivery is not made by a credit entity registered in Spain.
When they act on behalf of groups of natural or artificial persons who could be related to one another.
Agents
Foreign brokers or ones not resident in Spain.
When they act on behalf of foreign citizens or non-residents of Spain.
(continues)
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High-risk transactions in the real estate sector (from previous page)
Payments made in cash or negotiable instruments in which the identity of the real payer is not known
and that are for a significant amount with respect to the total amount of the operation.
Payments made in instalments within very short periods of time.
Because of the
characteristics of the
method of payment
When there are doubts about the veracity of the documents provided to secure loans.
If an attempt to secure a loan is made with guarantees consisting of cash or if these guarantees are
deposited abroad.
Funds from countries deemed to be tax havens or high-risk territories.
Assumption of debts by the buyer for amounts which are significant with respect to the value of the
asset.
Transactions in which a clause with an earnest money contract is included and where the transaction is
not in the end executed.
Transactions for assets or rights which occur very close in time and which mean a very significant
increase or decrease in the price with respect to the acquisition value.
Because of the
characteristics of the
transaction
Transactions for an amount significantly different (much higher or lower) to the real value of the
transmitted assets.
Transactions related to real estate developments in high-risk municipalities or areas.
Transactions executed through private contracts where there is no intention to record it in a public
deed, or although this intention does exist it is not recorded in a public deed in the end.
Minors, persons over the age of 70, or with signs of mental disability or indications of a lack of financial
capacity for such acquisitions.
Source: Commission for the Prevention of Money Laundering and Monetary Offences
Identifying clients at the
time of establishing a
business relationship with
them is fundamental for
the prevention of money
laundering
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Additionally, the day to day transactions carried
out by a customer with the entity must be known
to determine the degree of coherence of their
activities. The information gathered must be
geared towards finding out about the activity,
the type of transaction that is to be made, the
source of income and any other data that might
be of interest. Gathering this information about
our customers is positive not only in terms of
preventing money laundering but also because
it enables us to offer them the products and
services which are best suited to their needs.
The information acquired during the process of
opening the contract, the follow-up conversations and subsequent communications can
help to create an efficient barrier to the carrying
out of criminal activities.
Strict compliance with the policy of knowledge
of the customer means putting the following
rules into practice:
•Obtaining and verifying all of the data that identify customers from the time when a business
relationship is established.
• When customers do not act on their own behalf, gathering information about the identity
of the representatives, proxies and other authorised persons and of the people on whose
behalf they are acting.
• Verifying that the customer’s business or activity does not violate the money laundering
prevention regulations.
High-risk transactions in the real
estate sector
With the goal of guiding companies in the sector about some types of transactions which
have a potential risk of being involved in money
laundering, the Prevention Commission which
SEPBLANC reports to has published a document which sets out some examples in real
estate development, agencies, commissions
and brokerage in property sales.
These examples are types of transactions where
a degree of connection with money laundering
has been noticed due to the nature of the intervening parties, the method of payment or the
transaction itself.
This does not mean that all the transactions
included are necessarily linked to criminal activities. The aim of the Commission is just to provide a number of examples, and it is up to companies to draw up a specific list of transactions
considered to be high risk by each firm, distribute
it to their employees and review it regularly.
to observe a series of procedures and precautions with the goal of helping to detect suspect
transactions.
Up until 2003 these regulations only affected
the financial sector. However, since then other
sectors such as real estate have been included
as liable entities, including not only real estate
development but also real estate purchase
agency services, given that brokers have a large
quantity of information about the transactions
that take place in the market.
Knowledge of the customers with whom we are
starting up business relationships is fundamental for the prevention of money laundering, and it
means that we have to obtain documentation to
identify them and the business activity that they
are carrying out.
One of the main risks for a company that takes
part in a transaction in which their customer
might use funds from criminal activities is loss
of prestige. When an entity becomes associated
with this type of transaction, its brand name is
indisputably damaged. Hence by scrupulously
observing existing regulations, we as liable
entities are not only doing our duty but we are
also ensuring that the necessary precautions
are being taken so that under no circumstances
can our reputation or that of our customers be
tainted by involvement in a transaction of this
type. ■
Scrupulous compliance with the regulations
by real estate agencies provides our clients
with coverage against the risk of the loss
of prestige that would be entailed by taking
part in a suspect transaction
Conclusions
The aim of money laundering prevention regulations is to ensure that certain sectors, such as
finance or real estate, whose features entail a
potential risk of money laundering, are obliged
PIECES | 103
International network of offices
More than 356 offices in 58 countries
GERMANY
Berlin
Frankfurt
Hamburg
Munich
ARGENTINA
Buenos Aires
AUSTRALIA
Adelaide
Braddon
Brisbane
Cairns
Canberra
Chermside
Gold Coast (2)
Ipswich
Melbourne
Milton
Mulgrave
Parramatta
Perth
Sunshine Coast
Sydney (3)
Townsville
Tweed Heads
Underwood
AUSTRIA
Vienna
BELGIUM
Brussels
BOSTWANNA
Gaborone
BRAZIL
Rio de Janeiro
Sao Paulo (2)
BULGARIA
Sofia
CANADA
Calgary
Edmonton
Halifax
Kitchener
London
Montreal
Ottawa
Saint John
Toronto (5)
Vancouver
Windsor
Winnipeg
CHILE
Santiago de Chile
CHINA
Beijing
Chengdu
Guangzhou
Hong Kong
Shanghai (2)
KOREA
Seoul
CROATIA
Zagreb
DENMARK
Aarhus
Copenhagen
Kolding
UNITED ARAB
EMIRATES
Abu Dhabi
Dubai (2)
SLOVAKIA
Bratislava
SPAIN
Barcelona
Madrid
Malaga
Marbella
Palma
de Mallorca
Valencia
Zaragoza
Nice
Orleans
Paris (5)
Rennes
Roven
Saint Denis
Saint-Nazaire
Sophia AntÌpolis
Toulouse
UNITED STATES
Offices (166)
GREECE
Athens
Thessalonica
PHILIPPINES
Manila
FINLAND
Helsinki (Espoo)
FRANCE
Aix en Provence
Angers
Annecy
Aubière
Avignon
Bordeaux
Caen
Chambery
Strasbourg
Grenoble
Le Havre
Le Mans-Laval
Lillie
Lyon
Marseille
Metz
Montlucon
Montpellier
Montreuil
Montrouge
Mulhouse
Nancy
Nantes
Neuilly-sur-Seine
HOLLAND
Amsterdam
Hoofddorp
The Hague
HUNGARY
Budapest
INDIA
Bangalore
Chennai
Hyderabad
Mumbai
New Delhi
Pune
INDONESIA
Jakarta
IRELAND
Dublin
ISRAEL
Tel Aviv
ITALY
Milan
Rome
Turin
JAPAN
Chiba
Fukuoka
Hiroshima
Ikoma
Kagoshima
Kanazawa
Kobe
Kyoto
Matsuyama
Nagoya
Niigata
Okayama
Omiya
Osaka
Sapporo
Sendai
Shinjuku
Shizuoka
Tachikawa
Takamatsu
Tokyo
Yokohama
KENYA
Nairobi
MOROCCO
Casablanca
MEXICO
Mexico City
Monterrey
Queretaro
NORWAY
Oslo
NEW ZEALAND
Auckland
Christchurch
South Auckland
POLAND
Cracow
Poznan
Warsaw
SOUTH AFRICA
Bloemfontein
Cape Town
Durban (2)
Johannesburg (2)
Klerksdorp
Nelspruit
Polokwane
Port Elizabeth
Pretoria
PORTUGAL
Lisbon
Porto
SWEDEN
Stockholm
Gothenburg
UNITED
KINGDOM
Belfast
Birmingham
Bristol
Edinburgh
Glasgow
Jersey
Leeds
Liverpool
London (3)
Manchester
Southampton
SWITZERLAND
Geneva
Zurich
CZECH
REPUBLIC
Prague
UGANDA
Kampala
PANAMA
Panama City
PERU
Lima
ROMANIA
Bucharest
RUSSIA
Moscow
SINGAPORE
Singapore
TAIWAN
Taipei
THAILAND
Bangkok (2)
Phuket
TURKEY
Istanbul
VENEZUELA
Caracas
VIETNAM
Ho Chi Minh (2)
Ha Noi
ZIMBABWE
Bulawayo
Harare
This publication has been carefully prepared for the purpose of providing general information and no responsibility is assumed for any errors or omissions. The opinions and data included
herein refer to the month of December 2006 and are subject to change without prior notice. Any transaction that is made in the market should not be based solely or necessarily on the data
contained in this publication. Nor may they be published whether in whole or in part nor be cited as a source without prior written authorisation from CB Richard Ellis.
Design and production: BPMO Edigrup
www.cbre.es