Global property investment funds see Spain as ripe for bargain acquisitions

Orion Capital Managers is one of several property investors on the acquisition trail looking to recession ravaged Spain to find cut price deals in the real estate market. It has about €650 million from its property and debt fund to invest.

The opportunistic Orion European Real Estate Fund III, which closed fundraising in October 2009, has €1.3 billion in committed capital from more than 70 investors, of which nearly half is already invested across Western Europe.

Managing Director Van Stults told Reuters that the closed ended fund, which has a targeted net internal rate of return of 15% plus and a maximum leverage of 75%, was looking for office and retail investments in Spain, the UK, and France.

He said investor demand for property investment in Spain was rising as there was now, after several years of recession and falling capital values, more clarity on could would work as an investment, and what would not.

‘It makes it easier and easier to see the survivors versus those that are going to have real problems,’ Stults said, noting the fund had a minimum eight year life.

Orion is among several global property investors circling Spain for cut price prime office and retail properties, betting the nation's struggling economy is at or near its nadir and a rebound will boost real estate returns by 2013.

Henderson Global Investors, Cerberus Capital, European property giant Unibail-Rodamco, and Black Rock have been reported to be looking for deals in Spain.

In May, the Orion fund, which opened an office at Madrid in 2009, bought a 50% stake of the Puerto Venecia shopping centre development in Zaragoza, northern Spain, in partnership with British Land.
Investment Property Databank data showed Spanish commercial property total returns for 2010 hit 4.9%, from 2009's negative return of 9.3%. It comprised a 1.2% fall in capital values and a 6.2% gain in income returns.

Orion's other Spanish assets include a stake in property company Immobiliaria Colonial and the Plenilunio mall in Madrid.

There would be more deal activity over the next two years, Stults said, but warned against betting too heavily on the battered economy just yet, saying investing in Spain remained tough, especially for those with little experience on the ground.

‘Rents are soft and there is a tremendous consolidation away from secondary and into prime and quality property,’ he added.

Spain's economy is expected to grow 0.7% in 2011 and by 1.4% in 2012, a Reuters poll showed.