Spain on cusp of largest-ever real estate investment

Talk of a sustained recovery to Spain’s property industry has received a massive boost with this latest announcement

Merlin Properties, a newly created Spanish real estate investment trust, has set its sights on becoming the largest property investment company in Europe after launching a €1.5 billion initial public offering (IPO) flotation on the stock market.

The size of the IPO is the largest share offering in Europe since a €3.1 billion IPO launched by Bankia in 2011. Then, the Spanish required funds to bail out other Spanish lending institutions in the country…

This time, the €1.5 billion is intended to be steered towards investing in Spanish property in a sure sign that confidence has returned in droves to the market. Merlin Properties has already raised more than €600 million in committed funds, and revealed that €740 million of the portfolio would be used to acquire 880 bank branches let to BBVA. Once acquired, Merlin Properties would then own thousands of repossessed properties with the intention of releasing them back on to the market.

According to figures from the International Monetary Fund (IMF), Spanish property prices have fallen by five per cent in the past 12 months, prompting international investors to rush back into the market to snap up real estate that they believe can deliver high yields.

Earlier this year, US tycoons George Soros and John Paulson both invested €500 million in property investment company Hispania as Spain emerged from recession for the first time in more than two years.

This latest flotation delivers further kudos to the growing sense that Spanish property is increasingly seen as a safe and fair-priced bet.

“With Madrid prices down 60 per cent since 2008, many properties offer strong upside potential,” said Bruce Dear, head of London real estate solicitors Eversheds. “Merlin wants to capitalise on this cyclical magic.”

Merlin Properties has been set up by former Deutsche Bank real estate experts, headed by David Brush and Ismael Clemente. The latter has become Merlin’s CEO and Chairman, and said that the IPO launch was a ‘milestone’ for the publicly listed real estate market in Spain.

The company will invest in Spanish shopping centres, offices, industrial and logistics facilities and hotels. Shares are to be priced at €10 each and are expected to start trading on June 30.

It is a high-end, commercially centric deal at this stage, but the trickle-down confidence that is sure to emanate from such activities is bound to be positively felt at residential level before the year is out, according to experts.