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Ismael Clemente, CEO of Merlin Properties and Desayunos ESADE keynote speaker, gave an interesting talk about the company he runs and property investment in Spain.
April 19th. A new talk in the Desayunos ESADE series featuring Ismael Clemente, CEO of Merlin Properties, and Pedro Navarro (MBA 67), executive vice-chairman of the ESADE Foundation board of trustees. Pedro Navarro introduced the topics discussed during the talk and presented Ismael Clemente and Merlin Properties, the largest real estate company listed on the Spanish stock market with a capitalization of some €5,100m. This SOCIMI specialises in buying and managing tertiary assets on the Iberian peninsula, investing mainly in offices, shopping centres and logistics platforms.
Ismael began by explaining that Merlin Properties is a real estate agent in the Anglo-Saxon sense of the word, i.e. nothing to do with being a housing developer. ''We are a real estate company, we generate revenue, we are a vehicle for savings.'' He also explained that Merlin Properties distributes almost all its cash flow amongst its shareholders and invests primarily in offices, business premises, industrial and logistical platforms, in addition to rented housing, shopping centres and hotels. ''We deal in different types of property because Spain is a very small market so we must do a bit of everything,'' explained Clemente. This is difficult for foreign investors to understand, and they are Merlin’s main investors. He also explained that he ''manages the considerable assets belonging to shareholders.''
The SOCIMI phenomenon
SOCIMIs (Spanish acronym of listed property investment company), the Spanish version of REIT (Real Estate Investment Trust), were approved by law in 2009 and modified in 2012. Pedro Navarro considers the contribution of SOCIMIs to be twofold, ''They have professionalised the real estate investment industry whilst enabling small investors to invest in property with less risk.''
Ismael Clemente believes that SOCIMIs have enabled a certain degree of financial stability. Against the backdrop of the tremendous recession experienced by Spain, it was necessary to stabilise prices. ''But who made prices bottom out? Vulture funds – the only ones willing to take the risk. Once prices stopped falling, a stabilization period began and the next goal was to attract institutional capital: the big real estate funds.'' The role of the intermediary responsible for transforming the perception of risk in Spain into something that institutional investors could understand was assumed by a new actor: SOCIMIs. When the 2009 regulations that officially created this figure were relaxed, the first SOCIMI begin to appear and low-cost capital investors begin to invest their money. Opportunity funds which rotate the assets they buy at low prices were gradually expelled from the market and institutional capital began to enter the market.
Overview of their assets
During the talk, Ismael Clemente mentioned the future of two types of property that Merlin Properties deals in: shopping centres and logistics platforms. He pointed out that hard times lie ahead for shopping centres due to online sales. Centres in large cities and those that provide other experiences are the most viable, partly because they complement online shopping and facilitate reverse logistics (product returns).
Logistics centres are enjoying an upsurge thanks to the boom in e-commerce, which requires three times more storage space than physical commerce, because Spain has become an export economy and on account of the growth in the major logistics operators in this country.
Another issue addressed by Pedro Navarro and Ismael Clemente was the international expansion of Merlin Properties. Clemente said that at the present time, the company’s investors were very reluctant and would not allow it. ''In general, Anglo-Saxon investors don’t like anyone experimenting with their money,'' he said. This might be an option in the future but for the time being, they feel there is room to grow in the Spanish market. There is, however, one exception: Portugal, a market that they know well. Lisbon is its third largest market for office space, after Madrid and Barcelona. For foreign investors, there is no difference between them. Lisbon is an hour away from Madrid, exactly the same as Barcelona.
About Ismael Clemente
Ismael Clemente is a real estate professional with more than 20 years’ experience. He has worked in Garrigues, Bankers Trust, REIB, DB Real Estate and RREEF as general manager, and has taken part in all types of property transactions including the sale and leaseback of the Tree portfolio, Europe’s largest real estate transaction in 2009. Clemente holds a degree in Law and Business Administration from ICADE (E-3), teaches the MRE program at the Instituto de Empresa and is a member of the Spanish Council of the Urban Land Institute.
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