Spain’s largest bank is taking advantage of changes in the law with a plan for its domestic fund to invest abroad. It is also setting up a €500m fund to target both western and eastern Europe
Spain’s number one bank, Grupo Santander, is set to expand across Europe with a €500m fund targeting both mature and emerging markets. The Santander Real Estate International Fund, domiciled in Ireland, is a €500m fund with €250m of equity. It plans to target offices, leisure and shopping centres in France, Germany and the UK, and will later look at Poland, Romania and other eastern European markets.
Carlos Zamora, Santander Real Estate’s deputy general manager, says: “We are searching for our first properties in Europe. This will be the first fund of its kind, but we hope to launch more funds in the near future. In our first fund we want to be conservative; we don’t want too much risk.”
Grupo Santander, which has €962bn of assets, €780bn in Europe, buys property through investment vehicle Santander Banif Inmobiliaria (not to be confused with Banif, its private banking arm), which has €3.8bn of assets. In 10 years, it has expanded its €17m fund to become the country’s biggest, with a 51% market share in Spain. For the past 12 months it has returned 7.6%, against the national average of 5.38%.
Well ahead of competitors
Comfortably established as Spain’s largest property fund, it remains well ahead of its competitors; BBVA, Spain’s second biggest fund, has a 28% market share and manages just under €2bn of assets.
Santander Banif, which manages a 1.95m m² portfolio, has until now invested exclusively in Spain. Its assets are divided into 59% housing, 22% offices, 17% retail, 1% industrial and 1% hospitals. The fund invested €825m in 2005 and €1.5bn over the past three years. Half its assets are in Madrid, with only 8% in Barcelona.
In Spain, property funds were originally created to aid the provision of affordable housing. For this reason, a tax cut from 35% to 1% was made available for funds that invested 50% of their capital in housing, student accommodation or in nursing homes.
Last November, the rules governing Spain’s funds were reformed, the most important change being that funds can now invest 15% of their cash in vehicles whose main assets are properties for rent. This will enable Santander to buy properties outside of Spain through investment vehicles, instead of having to invest directly.
As well as allowing funds to invest abroad more easily, the reforms are designed to allow property funds to develop residential property (which can account for up to 20% of their assets), while keeping taxation of these funds at 1%.
Following the law change, Santander Banif is also starting to look for investments outside of Spain, separate to the activities of the new Real Estate International Fund. Zamora says he is interested in major European cities and is seeking deals in Paris, London and Berlin.
But the company plans to remain as active in its home market as it has been previously and has €300m to spend on domestic investment. The fund invests all over the country but is very selective; for instance, it stays well clear of Madrid’s central business district, preferring to invest in non-prime areas. “We are trying to look for emblematic buildings and are being very selective in Spain,” says Zamora. “We try to diversify and invest in places where property could have a long run in terms of valuation growth. We prefer Madrid, Barcelona and Valencia.”
Landmark Madrid acquisition
One of Santander Banif’s most notable acquisitions in the past few months was Edificio Espana, a landmark, 28-storey art deco building in the centre of Madrid, which it bought from Metrovacesa for around €400m last June. The fund intends to refurbish the former office building as a hotel and flats.
Another substantial Madrid acquisition was the Plenilunio, Spain’s largest shopping centre, which it bought for €275m.
However, Santander Banif also sold much of its central Madrid property last year, to raise finance for a €700m business park development in Boadilla del Monte — a district 15km west of central Madrid, not known as an office location. This park is now the bank’s main headquarters, with 6,500 Banco Santander employees working there.
www. gruposantander.es
