Merlin Properties, a Spanish real estate investment trust, has today announced plans for a €1.5 billion flotation. If successful this would be Europe’s largest ever property IPO and most certainly indicate the bottom of the Spanish property market?
On the surface it would seem to be the wrong time to be floating a Spanish real estate investment trust but if you take a long-term view, perhaps this is the most opportune moment. The company has already gained committed funds of €600 million and the road show begins today to educate the investors of tomorrow. So, what can you expect from Europe’s largest property IPO and will it be a success?
Merlin has already confirmed plans to acquire 880 bank branches from BBVA with a whole host of other investment opportunities expected in the short, medium and longer term. In many ways this is an opportune moment for Merlin Properties because while there are short to medium term concerns about the Spanish property market, many investors are now looking at relatively cheap entry points into the long-term Spanish real estate sector.
Quote from PropertyForum.com : “Given what look like attractive property prices now I was thinking of buying something like a 2 bed apartment to let to holiday makers. Being a total newbie at this I was hoping some of the wiser experienced ones of you might be able to help me with some of my questions.”
When you also take into account the relatively high yield on real estate investment trusts, together with potential capital gains in the longer term, these could prove to be very interesting pension-fund investments. In many ways Spanish property is becoming relatively cheaper especially when compared to the likes of the UK and Ireland where property prices have pushed ahead dramatically over the last two years.
Short-term concerns in Spain
Despite the fact that there appears to be investor appetite for this new real estate investment trust, the Spanish economy is only expected to grow by 1% during 2014. When you also take into account the fact that youth unemployment is skyhigh, overall employment is more than 25% and public debt levels are not yet under control, is it too soon to look at the Spanish real estate market?
We may look back in 10 years, 20 years, etc and kick ourselves for not grabbing a bit of the European real estate market at rock bottom levels. At this moment in time short-term investors are looking elsewhere, medium-term investors are sitting on the sidelines but more and more we are seeing long-term investors snapping up assets. Armed with a €1.5 billion warchest there is no doubt that Merlin Properties will be in a very strong position to take advantage of long-term potential across many areas of the Spanish real estate market.
Spanish property prices
If you are looking to catch the bottom of a falling market this can be compared to “catching a falling knife” because it is nigh on impossible and you may cut yourself. As a consequence, the 5% reduction in Spanish property prices over the past year perfectly illustrates the difficulties in the short to medium term and the fact that we may not yet be at the bottom of the market. However, the likes of George Soros have increased their long-term exposure to the Spanish real estate market and there is growing interest in the construction sector.
Perhaps one of the major hurdles in the short-term is the deluge of properties left with Spanish banks after their customers reneged on their mortgages. This left Spanish banks with billions of euros worth of unwanted assets and while some have been drip fed into the market, there are still many more assets available at rock bottom prices. Once this overhang of unwanted properties has gone, should we expect a relatively sharp rebound in Spanish real estate prices?