Varde to en­ter home­build­ing in Spain as econ­omy pros­pers

Irish Independent - Business Week - - COMMERCIAL PROPERTY - Maria Tadeo, Sharon Smyth and Macarena Munoz

US buy­out firm Varde Part­ners LP is poised to cre­ate a €2.2bn Span­ish home builder in a bet on the na­tion’s eco­nomic re­cov­ery.

The in­vest­ment firm’s res­i­den­tial prop­erty de­vel­oper, Via Celere, agreed to ac­quire the de­vel­op­ment land owned by Aelca, an­other Varde unit in the coun­try, the com­pany said in a state­ment last Mon­day.

Varde will hold 75pc of Via Celere and re­tain full con­trol of Aelca. Bloomberg news re­ported the deal last week.

“Via Celere is re­ally well po­si­tioned in the mar­ket as it will not need to buy land to ful­fil its short-term tar­gets,” Hec­tor Ser­rat, a direc­tor at Varde, said in an emailed state­ment.

“That means it can fo­cus solely on build­ing homes and de­liv­er­ing high-qual­ity devel­op­ments to its clients.”

US pri­vate eq­uity firms are ratch­et­ing up bets that Spain can ex­tend a five-year eco­nomic re­cov­ery. That marks a turn­around from a decade ago, when a credit-fu­elled real es­tate bub­ble burst, caus­ing the lo­cal hous­ing mar­ket to im­plode and plung­ing Spain into its worst eco­nomic cri­sis of modern his­tory.

Via Celere al­ready has about 1.5 mil­lion square me­tres of land for build­ing across Spain. The Aelca pur­chase would roughly dou­ble that, putting the com­bined com­pany in a po­si­tion to de­liver about 2,000 new homes in 2019 and po­ten­tially 5,000 units by 2021,

Varde was once widely ex­pected to carry out an ini­tial pub­lic of­fer­ing this year for Via Celere, with the sale be­ing led by Credit Suisse Group AG and JPMor­gan Chase & Co. But for the time be­ing, the firm is fo­cused more on build­ing a track record of de­liv­er­ing units.

Ri­val de­vel­op­ers have seen their share prices de­cline af­ter fail­ing to de­liver on homes even as in­vestors be­come more se­lec­tive. Shares in de­vel­oper Neinor Homes have fallen 14pc since the start of the year af­ter li­cens­ing de­lays meant it couldn’t de­liver as many homes.

Varde’s ex­ec­u­tives re­main con­fi­dent in their tar­gets for units, given that its land mostly based in Madrid, Barcelona and the Span­ish coast, where ap­petite for homes is stronger.

The Span­ish econ­omy has grown for 19 con­sec­u­tive quar­ters as unem­ploy­ment falls. In its lat­est fore­cast, the Bank of Spain said it pre­dicts the econ­omy will con­tinue its ex­pan­sion un­in­ter­rupted un­til 2020, al­beit as a slower pace.

Spain’s im­proved prospects have drawn wave of deals led by pri­vate eq­uity firms in­clud­ing Blackstone Group LP, one of the world’s largest, which re­cently bought a stake in Testa Res­i­den­cial Socimi SA in a deal valu­ing the land­lord group at €1.9bn. Testa, which fo­cusses on the real hous­ing in­dus­try, has a port­fo­lio of more than 10,000 prop­er­ties mostly lo­cated in big cities and larger re­gions across Spain.

But while Varde pre­pares to bet big on Spain’s eco­nomic re­cov­ery, some of the coun­try’s own prop­erty com­pa­nies are look­ing in­creas­ingly guilty of over­con­fi­dence.

Prop­erty man­ager Azora Al­tus SA pulled its €455m pub­lic of­fer­ing last Wed­nes­day evening. It’s the lat­est blow to an in­dus­try that has al­ready seen de­vel­oper Metrovacesa SA’s bank own­ers lower their of­fer price be­fore a Fe­bru­ary share sale and a de­cline at Neinor Homes SA af­ter it warned of de­lays for per­mits for its build­ing projects.

“Some of the busi­ness plans look over-ag­gres­sive,” said Thor Vega, an an­a­lyst at Gescon­sult in Madrid.

Prices and rents for homes in Span­ish cities are surg­ing as the govern­ment pre­dicts an eco­nomic ex­pan­sion will con­tinue to de­liver growth of at least 2.3pc through 2021.

The boom is caus­ing unem­ploy­ment to fall sharply and mak­ing fam­i­lies more con­fi­dent about com­mit­ting to ma­jor in­vest­ments such as the pur­chase of a house.

Even so, in­vestors are prov­ing harder to con­vince of the mer­its of share of­fer­ings by Span­ish real es­tate firms com­ing to the mar­ket.

Azora was plan­ning to sell 47 mil­lion shares at about €9.62 each and use the pro­ceeds to fund more ac­qui­si­tions of prop­er­ties and op­er­at­ing plat­forms. Shares of the com­pany, which in­vests in ho­tels and rental homes and of­fices and man­ages port­fo­lios for in­vestors, were due to start trad­ing on Fri­day.

Azora said it had pulled the sale be­cause of un­cer­tainty sur­round­ing the fu­ture of His­pania Ac­tivos In­mo­bil­iar­ios SOCIMI SA, the tar­get of a bid by Blackstone Group LP. Azora man­ages prop­erty for His­pania.

Span­ish prop­erty de­vel­oper Metrovacesa shares are 7pc down since they started trad­ing last Fe­bru­ary. Its owner banks in­clud­ing Banco San­tander SA and Banco Bil­bao Viz­caya Ar­gen­taria SA were forced to lower the price range to as low as €16.50 from an orig­i­nal tar­get of up to €19.50 and re­duce the num­ber of shares af­ter in­vestors shunned the orig­i­nal of­fer.

Neinor has lost 10pc since the start of the year af­ter li­cens­ing de­lays meant it couldn’t de­liver as many prop­er­ties as it had promised for 2018 and 2019.

Blackstone last month an­nounced a €1.9bn bid for Madrid-based land­lord His­pania, whose in­vestors in­clude Soros Fund Man­age­ment LLC and Paul­son & Co. The bid came in at a dis­count and His­pania has said it would seek al­ter­na­tives to Blackstone’s bid to max­i­mize its value.

His­pania shares are up 14pc since the start of the year, while Mer­lin Prop­er­ties Socimi has risen 15pc.

“The real es­tate sec­tor is strong over­all but there are still doubts,” Ni­co­las Lopez, head of re­search at Mer­ca­dos y Ges­tion de Valores said by phone.

Re­cov­ery: Prices and rents for homes in Span­ish cities, in­clud­ing the cap­i­tal Madrid (left), are surg­ing as the govern­ment pre­dicts eco­nomic ex­pan­sion will con­tinue through 2021

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