Ismael Clemente has steered Merlin into the top 10 REITs in Europe. He tells Karl Tomusk what’s next for Spain’s biggest property company. Portrait by Denis Doyle
Europe’s real estate market gained a new elite player this autumn. Merlin, the Spanish commercial property company, became the eighth-biggest REIT in Europe after its merger with Metrovacesa’s €3.1bn (£2.6bn) property portfolio was approved by shareholders on 15 September.
With a €9.3bn GAV, Merlin now has Spain’s biggest office, high street and logistics portfolio. Its shopping centre portfolio is second only to European property giant Unibail-Rodamco.
For Ismael Clemente, chief executive of Merlin, this is the latest in a two-year spree of massive deals.
The company had a €1.3bn IPO in June 2014 – the biggest Spain had seen in three years. It went on to complete the acquisition of a portfolio of 880 bank branches for €739.5m one month later – the country’s biggest property transaction of the year. Months after that, it became the biggest property company in the country after buying Testa for €1.8bn.
Now it has cracked the top 10 in Europe.
But being the biggest does not seem to interest Clemente. For a man leading a company whose headlines scream superlatives, he does not race to boast about big numbers. When asked, listing Merlin’s portfolio accomplishments comes across as a formality, a side effect rather than the goal of running a successful business.
Rather, Clemente has a disarming contentment with quiet solitude. Recounting weekends with his wife Mary and six children in his childhood home in Extremadura – a rural area in western Spain he describes as “the equivalent of Iowa in the US, the middle of nowhere” – he unleashes a stream of thoughts on the beauty of nature, far away from Madrid where he works.
He says: “If during the weekends I had to stay with people and go to social events like football or tennis where lots of people congregate and you have to cheer up everyone and say hello, that would be too complicated for me.”
Ask him about the estate he owns in Extremadura, though, and he will list all the possible things to do away from the cities and the crowds. Feeding his hens and pigs, fixing fences and inspecting trees for infection all make the list. Sometimes Clemente will drive his Land Rover up and down the hills on his own just to take in the surroundings.
So what pushes a man so content with the quiet life to take on a world of offices and shopping centres and build Spain’s biggest REIT?
Personal touch
Despite his aversion to weekend crowds, Clemente is a people person. Real estate is “very human”, he says.
He has been with his three-strong management team, which includes Miguel Ollero and former managing partner of Brookfield Property Group David Brush, for two decades. The team came together when Clemente quit his legal career and joined The Bankers Trust in 1996 as a property analyst. It was with him through his time as a managing director of Deutsche Bank’s real estate management business RREEF. And they stayed together when the financial crisis hit and Deutsche Bank sold its Spanish assets. They started asset manager Magic Real Estate in 2012 because, as Clemente says, they were “jobless and had nothing to lose”. Two years later, they launched Merlin.
“The team we have built over the years is fantastic, so I have a lot of fun in my daily work,” he says. “If you go every day to work with a smile, sometimes that’s equally important – or more important – than money. I like what real estate has given to me.”
That is why Clemente is suspicious of those who obsess solely over headline-making figures. With a degree in economics and business administration, he does have an affinity for numbers, but that is not enough.
He loved his job as a lawyer and he says he would probably love working anywhere – “I would be happy selling cars, frankly” – and it seems to come down, once again, to his fondness for people. “If you focus on super-duper transactions, big M&A, and you want to look like a Wall Street guy, normally your company, operationally, becomes shit,” he says.
Those headlines Merlin pumps out have marked the start of what matters most to Clemente right now: real estate with a personal touch.
“I think we’re going to enter a phase now in which we are going to be consolidating what we own rather than buying new things, doing those little things that go completely unnoticed for the big European or global investors.
“Those are the real things that move the needle in terms of profitability of a company. If you do your small things well, profitability shines.”
Clemente describes “playing Tetris” with his shopping centre tenants. When the financial crisis left centres half empty, managers would take on whoever they could, leading to disorganised spaces that made little sense to buyers.
To Clemente, that was an opportunity to redistribute tenants once occupancy picked up again. Take an empty space; move all the sports shops, previously scattered around next to children’s clothes and electronics, into the empty space; fill the spaces they left next to the clothes or electronics shops with new tenants selling those same things. Customers are happy: footfall increases.
Smooth sailing
Clemente spins elaborate, detailed parables about the virtues of getting to know your tenants. In a shopping centre, he says, internal managers are the heroes, the insiders who help it run more smoothly.
“If you have your own manager at a shopping centre, he might go to McDonald’s to have a Big Mac,” says Clemente. “The girl next to him is an employee of the Zara shop. The Zara employee tells the guy that she’s witnessing very little activity in her shop and that her boss told her they’re going to close it.
“Now the shopping centre owner can start negotiations with H&M. So when Zara closes, the void time is limited. It closes and H&M opens the next month. That was important information and if you had a third-party manager, you would lose.”
Merlin is now in the communal Big Mac phase of this metaphor.
Clemente says that since the merger with Metrovacesa, Merlin has shifted its focus entirely to finding value-add potential in its commercial portfolio. One of his major goals is to renovate the buildings and have 90% of them certified for sustainability by the end of 2018. Meanwhile, Merlin and Metrovacesa’s combined €619m of residential assets will be deconsolidated as a separate company in order to focus entirely on commercial property.
With the company firmly taking command of Iberian real estate, the super-duper transactions and the big M&A, the man from Extremadura can finally put the headline-grabbers aside, target the oft-missed needle movers, and make his industry a little more tranquil, a little more human.
