The Spanish residential and commercial developer has set its sights on international markets to provide half of its sales in the next few years
In June, new Fadesa chief executive Antonio de la Morena said he expected to see the listed Spanish residential and commercial developer take 23% of its profits and 50% of its sales from overseas activities within the next few years.
There are two main reasons for Morena’s confident predictions. Like Metrovacesa and Colonial, Fadesa has benefited from the recent economic boom in Spain. This boom has profited housebuilders such as Fadesa immensely and residential prices have grown by around 15-20% annually every year since 2001, in a market that is 90% owner-occupied.
Fadesa’s share price has risen by 127% since its listing two years ago. Its market capitalisation has also grown, from €1.5bn at the end of 2004 to €3bn today. The company has also just entered the Ibex 35, an index of the top 35 most liquid stocks on the Spanish stock market.
So Fadesa has now accumulated the necessary financial firepower to expand internationally.
As opportunities on home soil dry up and prices become more difficult to justify, Spanish companies are being compelled to look beyond the domestic market. Fadesa is just one of several Spanish players that is expanding its activities abroad: Riofisa, Colonial and, less recently, Metrovacesa, have come to accept the need for a wider investment strategy.
A change in market conditions may hit Fadesa particularly hard. If the residential market begins to cool, and interest rates begin to rise, investors may be cautious about housebuilders.
Furthermore, Fadesa’s massive landbank in Spain may become a problem. Of its 20m m² holdings, 78% is in Spain, which analysts estimate equates to at least 10 years of production.
If Fadesa has to reduce supply – which may happen if interest rates continue to rise – it could rapidly find it is holding too much unproductive and costly land on its balance sheet. It would also have to stop buying land, which is the main contributor to its net asset value (NAV) growth.
Signs of Fadesa’s international expansion are easy to spot. They include the recent news of plans to invest €713m in Paris and an announcement that it is to become the fourth international property investor to enter the Mexican market.
But internal wrangles may affect how Fadesa makes the transition from a local to an international business. Shortly after the company’s year-end results were announced in March, there was a management restructuring. Analysts saw this as a logical move to replace the old school management with a different skill-set, one that is more aligned to conducting business overseas.
Borja de la Cierva, the CEO of global textiles group Inditex, was set to take the reins from Jose Luis, but resigned after one month over “differences of opinion” with the other directors over Fadesa’s business plan. Fadesa then appointed the homegrown Morena as development manager for the group.
While the company was previously run by a single individual, Morena decided to give the management board more power in the decision-making process. This move gave those with more experience of overseas business a greater say.
An executive council has been established with five new general directors, including economist Pablo Rodríguez Losada. He will run the general direction of expansion and oversee the growth of the company outside Spain.
These developments are not Fadesa’s first steps onto the international scene. The company has been active in Portugal since 1999, when it developed 3,000 homes in Moita, on the outskirts of Lisbon. In 2000, it turned its attention to Morocco. In 2004 its international portfolio accounted for 12% of its activity.
Branching out
But in 2005, Fadesa began to branch out further, undertaking what chairman Manuel Jove Capellán called “the year of consolidation of the process”. At the end of last year, 22% of the company’s portfolio was abroad.
Capellán said: “This has been an important year in the history of Fadesa, because of the advances we have made in making our activities more international. Last year was the year when, once we were established in Portugal and Morocco, we stretched our process of expansion to other European countries.”
This year it linked up with Polish property company Prokom Investment, creating the company Fadesa Prokom Polska. Its first project is a 1,900-unit residential scheme in Miasteczo Wilanów in Warsaw, where the company plans to develop more residential schemes.
Fadesa has also made its first moves in Hungary with the development of the Central Passage Budapest, an 8,000m² residential scheme in Budapest. The company now holds around 1.5m m² of land in the city.
Last year the company became one of the main investors in Morocco, after it was awarded the contract to build a 7m m² tourist resort by the government. The scheme will include hotels, residential and golf courses.
It is also developing a 3.4ha mixed-use project known as Tangier City Centre, which will become a new commercial, residential and tourist area.
France is also high on Fadesa’s agenda. Last year, it snapped up 70% of shares in French company Financière Rive Gauche, which has projects in Paris, Lyon and the Rhône Alps in the pipeline. It has also said that it will invest a further €713m in the Paris market.
Plans there include a €500m investment in the development of two office towers in the western district of Levallois, close to La Défense. The development – its first major deal in France – will be undertaken in a joint venture with US investment fund Colony Capital. And Fadesa is also investing €213m to develop a hotel and office scheme in Massy.
“The successes of our first venture in Hungary, the alliance with Prokom Investment in Poland and the acquisition of Financière Rive Gauche have opened the doors to the important projects we envisage in our ambitious plan for the future,” said Capellán. “Our real estate activities are showing a growing ability to provide added value to the company.”
Mexican fiesta
In 2006, the momentum has continued. Fadesa became the fourth international property company to operate in Mexico when it paid €27m to acquire four stretches of land in Nayarit, on the Mexican Pacific Cost in July this year. The company plans to develop a 640-room hotel, a residential scheme and a beach club on the land.
It has also revealed plans to invest €300m in a 174ha residential, retail and leisure scheme in the Palmeral area, near Marrakech, Morocco.
But teething troubles persist. Despite the progress made during 2005, investors were said to be “disappointed” with the year’s results. NAV was €38.2m (a 24% increase on 2004), which was broadly in line with analysts’ expectations but below the €45m some had hoped for. Perhaps this is because Fadesa posted NAV growth of 78% in 2003 and 98% in 2002.
The company argued that its valuer, CB Richard Ellis, had been too conservative with some of the valuations on its international plots, namely its land in Saida in Morocco and Hungary.
But in its report on the results, Merrill Lynch said the valuation made sense in light of Fadesa’s lack of experience in these markets: “It is now proving more difficult [for Fadesa] to grow from a larger base.”
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