Carlton to invest billions in Spanish property

Carlton Group Inc.’s clients have earmarked 7.5 billion euros ($10 billion) to buy real estate in Spain and Portugal over the next 12 to 18 months as risks diminish and prices adjust to what buyers expect to pay.

“A combination of reforms in Spain, stabilization of sovereign debt yields and reduction of risk perception for Europe as a whole has made investment in Iberia far more attractive,” Javier Beltran, head of Spain and Portugal for the U.S.-based real estate investment bank, said in an interview.

Investors are growing more optimistic after the European Central Bank pledged to do “whatever it takes” to keep the common currency from splintering, which helped cut Spain’s borrowing costs. The premium investors demand to lend to Portugal rather than Germany for a decade declined to 4.8 percentage points from 6.4 points in July.

Carlton, which opened offices in Spain in June, is currently commissioned to sell three hotels in Spain and Portugal, an office building in Madrid and a shopping mall in the south of Spain, Beltran said. He declined to name the seller or the properties.

The sellers are mainly Spanish banks, family offices and companies disposing of assets to cut debt, Beltran said. Buyers are real estate funds, rich individuals from Europe, the U.S., Canada, Latin America and the Middle East.

“It’s impossible to give a generic figure as to how much real estate prices have adjusted in Spain since the 2007 peak,” he said. “It depends on asset class, quality of asset and location.”
Values Drop

Spanish office prices have fallen by 30 percent to 55 percent since 2007 and shopping malls have lost 30 percent to 60 percent of their value, Beltran said. Hotel prices are also down 30 percent to 60 percent and home prices have fallen 35 percent to 70 percent. The steepest decline has been in land, with a 90 percent drop in some cases.

Total investment in commercial property in Spain was 1.81 billion euros last year, down from 3.26 billion euros in 2011, according to a Jan. 15 report by Deloitte & Touche LLP.

The Carlton Group’s Iberian unit, which works with assets priced from 40 million euros to 800 million euros, expects a “slight” recovery in the hotel industry by the third or fourth quarter, followed by offices, Beltran said. “Prices and occupancy rates of shopping malls and homes will come later,” he added, “The key to price recovery is employment, but we don’t expect to see an improvement in that until 2014.”

The European Commission signaled this week that it may recommend easing Spain’s budget goals for the fourth time in a year as unemployment in the euro region’s fourth-largest economy rose to a record 26 percent at the end of Prime Minister Mariano Rajoy’s first year in power.


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