05 August, 2016

By VIVA Team

Bain Capital’s sizeable outlay is yet another positive sign for the health of the Spanish property market.

The enduring attraction of investing in Spanish property shows no sign of abating following the news this week that US private equity firm Bain Capital has purchased a loan and real estate portfolio in the country for €1.1 billion from three Spanish banks…

During the post-recession lean years, many Spanish banks stepped in to take ownership of thousands of distressed properties. In the years that have followed, most banks have sought to sell these assets wherever they could, often at discounted prices and usually to private investors looking for a bargain deal.

But this latest move by Bain Capital is yet another sure sign of the attraction of Spanish real estate among foreign investors. As ever in such high-value dealings, exact details are closely guarded, but news agency Reuters did report that, of the €1.1 billion sum, around €220 million worth of residential and commercial property was bought by the firm from one Spanish bank.

The remaining €926 million outlay went towards the purchase of bad loans at face value from Banco Sabadell and Cajamar. It is believed that these were mainly loans made by the banks to small property firms that were in various stages of bankruptcy. These firms are backed by real estate assets, said Bain, which suggests that the company has calculated the value of these properties and decided to take on the debts in the hope of recovering their outlay as property prices continue to recover.

With historically low interest rates in Spain, such investments make sense for those firms with the means to shoulder such burdens. After 2008’s recession, prices in most sectors of the real estate industry slumped by around 40%, and while prices are rising, in many regions property is still relatively undervalued.

Rental yields for commercial and residential property, for example, reached 6.1% in the second quarter of the year in Spain, which is around five-times the return on a typical 10-year, government-backed bond. This makes property ownership an attractive bet, right across the spectrum of investment clout.

“We see potential to make new investments in the Iberian peninsula, especially in the real estate and non-performing loan markets,” said Fabio Longo, a managing director for Bain Capital Credit.