The largest of these real estate companies multiplied their assets fourfold since their first major acquisitions in 2015. Axiare left the continuous market and Hispania will soon follow as the sector undergoes a period of concentration.

The success of the socimi regulatory regime since its launch in 2013 is reflected in the gigantic portfolio of assets that these real estate companies have amassed in the last few years. The four largest listed companies have already accumulated portfolios of properties worth nearly 30 billion euros in three or four years of operation, according to the companies’ financial reports for the first quarter of 2018.

The development of a regulatory regime for these listed real estate investment companies was helmed by the then Minister of Finance Cristóbal Montoro, as these companies were exempted from paying corporate taxes in exchange for obligations such as having to distribute at least 80% of their dividends (which is taxed) and a listing on the stock exchange, guaranteeing transparency, among other requirements. The regulatory regime followed the example of REITs (Real Estate Investment Trust), which have a long history in the US and Europe.

These companies are focused on the property business, and they lease their properties, which are principally offices, shopping centres and commercial premises, hotels, rental homes and logistics warehouses.

The launch of the regulatory regime coincided with the recovery in international confidence in Spain (after the sovereign debt crisis and doubts about its financial system) as some foreign firms (mainly investment funds and later institutional capital such as insurers) that returned to the market, betting on a recovery in the reactivation of the Spanish real estate market. Moreover, socimis have been one of the principal channels for investing these international flows of capital in this type of asset.

At Least €15 Billion More on the MAB

Spain’s Alternative Stock Market. The MAB found a way to grow through the socimis. 59 of these real estate companies have already listed on the market, often as purely tax vehicles, with no major movements in their limited free float and which also do not carry out large purchases. Among them, three big ones stand out: GMP (owned by the Montoro Alemán family and Singapore’s sovereign wealth fund, GIC), Uro Property (with Santander’s banking offices) and General de Galerias Comerciales (owned by the executive Tomás Olivo). At the end of last year, there were 44 of these companies in the MAB, with a value of 12.221 billion euros (+60% y-o-y), according to data from Armabex, a registered advisor.

Testa Residencial. Among the 15 socimis that joined the MAB in the last months, Testa, which is owned by Santander, BBVA, Acciona and Merlin, stands out. Testa debuted at the end of July with €2.275 billion in rental housing. Along with other companies that launched on the market this year, there are now 59 firms with at least €15 billion in property. Initially, Testa had planned to debut on the continuous market, but market doubts in June led the company to opt for its plan B. The company still plans on a move to the continuous market in the future.

Records for investments in this type of property were broken in 2015, 2016 and 2017. In the past year, 13.99 billion euros were allocated to acquisitions, according to the real estate consultancy JLL, with international funds and socimis as the main players.

The growth of these companies over the last three years has been spectacular. In the first semester of this year, when the socimis published updated property valuations, the big four had €27.336 million in their portfolios (up 3% compared to the end of 2017). The four include Merlin Properties, Colonial, Hispania and Lar España. Taking the first quarter of 2015 as a baseline, when the largest of these companies were already active and began to make their large purchases, these same companies had a total of €6.691 billion. That is a fourfold increase in three years.

If one takes into account that Colonial had not yet become socimi that year (the developer changed status in 2017), the jump is even greater since, at the time, Axiare (absorbed a few months ago by the Catalan company) is one of the top four, with only €465 million in its portfolio. At that point, Merlin, Hispania, Axiare and Lar España had total assets of €4.2 billion, 6.5 times less than at the present date.

The success of these companies has led them to be targets of large corporate operations in the sector in recent months, in a period of concentration that experts believe will continue for the time being.

The largest then, as now, is Merlin (listed on the Ibex-35), which has Ismael Clemente as its CEO. The socimi already owns properties worth €11.755 billion, mainly offices and shopping centres and commercial premises, although with increasing investments in the thriving logistics warehouse sector. The company was launched after convincing investors, mainly Americans, to acquire the so-called Árbol (Tree) portfolio and its 800 BBVA banking branches.

The socimi debuted on the stock exchange in 2014 and grew rapidly with the acquisition of Testa from Sacyr in 2015 (€1.8 billion cost) and the integration of Metrovacesa’s tertiary assets (buildings valued at €1.67 billion) in 2016. At this point, Santander became its largest shareholder, with 22.6% of the capital. The rest is highly diluted, with large international funds as the most common investors. Its flagship buildings include the Torre Agbar, where Facebook will open an office (through the CCC outsourcing company) to monitor and control harmful content on the social network.

Merlin is closely followed by Colonial (Ibex 35), which has assets valued at €11.19 billion, compared to €2.185 billion in 2015. The historic real estate company began operations in Barcelona in 1946 and decided to become a socimi last year for the tax benefits. It has made major strides through its investments, including its recent takeover of Axiare, for which it paid €1.7 billion, giving Madrid a greater weight in its portfolio. The portfolio, mainly offices (91%), includes properties controlled by its French subsidiary SFL, with buildings in Paris (33% of the total value). The core of Colonial’s shareholders includes the Mexican investor Carlos Fernández González (18.3% of the capital), the Qatar Investment Authority (10.6%), the Colombian group Santo Domingo (7.3%) and the perfume family Puig (5.1%).

The other major socimi that has been the protagonist of a recent corporate deal is Hispania, listed since 2014, which was recently taken over by the giant American fund Blackstone. In fact, Blackstone has controlled 90.5% of the socimi since the end of July and is expected to abandon the socimi tax regime in the coming weeks. The company has €2.185 billion in real estate, 66% of which corresponds to hotels. The US fund plans to use Hispania’s assets to create a large hotel platform after having also acquired the HI Partners from Sabadell for €630 million.

After the acquisitions of Hispania and Axiare, the only large company that will remain on the continuous market is Lar España, which is managed externally by Grupo Lar, with the Pimco fund as its main shareholder (19.6%). It was the first socimi to make the jump to the stock market and has assets of €1.58 billion, of which 82% are shopping centres, following its strategy of focusing on the retail sector. With that in mind, the company announced the sale of its logistics park to Blackstone for €120 million at the end of July.