Hill International: “We have to simplify urban regulation to bring in more international investment”
Jeffrey Sújar is the Vice-president and general director at Hill International for Western Europe, a US-based company that’s been in Spain since late-20th century, advising on the sale-purchase of Real Estate assets and managing projects for all kinds of clients, from investment funds to socimis, and developers. Hispania, Neinor, Solvia, Altamira, the new owner of the Ritz Hotel in Madrid and Distrito Castellana Norte are just some names from their clients’ portfolio.
Mr. Sújar studied engineering and counting 20 years of experience in the Real Estate market, he tells us in this interview what’s the pulse of the market. He says the Spanish real estate sector is still attractive to foreign investors, although he considers necessary to simplify and accelerate urban paperwork to bring in more international capital.
In his opinion, homes will be one of the star products in the next few years, thanks to the growing demand for rents from new generations and the touristic apartments’ pull. He also sees the hotel sector as attractive and the famed alternative assets, such as student dorms, in which large investors are finding juicy yields.
1. What is Hill and what does it do?
This year we turn 20 in Spain. Our parent company is American and listed in New York, we are present in 30 countries, and we are about 3,500 employees.
Our business model is based in providing professional services pf “project management” for third parties, normally investors and Real estate developers. We’re project managers during all the process: design, construction, delivery and even later management.
Our work combines projects direct management with advising in sale-purchase operations. When an investment fund or a socimi want to acquire an asset, we perform a due diligence, the technical work to advise either seller or buyer.
2. Who are our clients in Spain?
We work with both private and institutional clients. Our clients are normally investment funds, socimis, and Real estate developers (REDs), although sometimes we also work for banks, who provide the debt in projects. We’re working and have worked in the past with socimis like Hispania, REDs like Neinor Homes, Servicers like Altamira, Anida or Solvia, Hotel firms like Mandarin Group and firms like Distrito Castellana Norte.
In which sectors are you currently working?
In this moment we’re particularly active. We’re continually advising in dozens of operations, always with an international fund behind. We have all kinds of projects, from land purchase from REDs, to hotel purchases, shopping centers, office spaces, logistics, and we’re working in many repositioning projects to, for instance, turn an office into a hotel or a housing property into a store.
4. What are Hill’s current main projects?
The flagship project right now is the restoration of the Ritz Hotel in Madrid. It will close to become a Mandarin Oriental; the development of a shopping center in Benidorm; we’re also immersed in some residential developments with Neinor Homes and Q21, and an ‘eco-resort’ in Malaga.
Another interesting project is the first design outlet in Spain from McArthurGlen, the largest Real estate developer and outlet Manager in Europe, also to establish in Malaga. Lastly, we can highlight the Distrito Castellana Norte project, in which we’ve been working for a few years For that corporation we take on the whole development, cost study, budgets associated to the infrastructure works and land development.
5. What do you think of the neverending “Operation Chamartin”?
The former municipal government was about to approve it but didn’t, and the new administration introduced changes that slowed it down. In some moments it was a step back that led to rethink many of the hypothesis that affect directly the yield of the project.
But I don’t think we need legislation changes to pull the project forward, but rather what type of project to City Hall want. In my opinion it’s a key project for Madrid. To be able to set itself as a key city in Europe, the capital needs projects such as this one, with this size and investment volume. As a matter of fact, many international investors are waiting for this project to be approved to come to Spain, and I think the Administration should understand that to enable it.
6. So, do we need to get better to bring in more foreign investment?
The Spanish urban regulation in Spain is complex and slow. I think the Foreign investor takes a lot to understand what are the processes to obtain an urban approval, a partial plan, a re-plotting, inscribing a plot in the land registry, obtaining works license…
It’s a complex scenario, unregulated in its timing. I mean, there is no legal obligation for the administration to approve a license in a given time, or responsibility from the administration if there are delays from causes outside to the investor. That does enough to stop investments. In the end, time is money and yield is a key issue. If there’s no stable framework, this will make many investors think twice before jumping into a project that requires any urban paperwork.
Any political decision that gives the impression of lack of stability of uncertainty is not good. What investors are looking in any country is judicial security and stability, they don’t like surprises.
7. Even then, Spain is still an attractive market…
No doubt. Attractive in price, because cities like Madrid or Barcelona still have a track in price, against other cities of similar profile in Europe, but that’s not all.
The sector’s concentration is also interesting, as well as the possibility of the possibility of becoming a listed company. If we add to that mix that Spain is a country with high political stability, within the European Union and the Euro as currency, it makes it a very interesting destination for international investment.
8. What type for investors are most active, right now?
Beyond the traditional investment funds, we’re seeing more exotic capital coming from Asia and the Middle East, seeking the Spanish attractiveness.
What properties are in the investors’ focus?
When the sector woke up in 2014, office spaces and prime shopping centers with good tenants were the most sought assets and where most investments went. The second wing happened in assets in more secondary areas, but right now the hottest sector is hotels. There’s many projects ongoing, both in city as in the coast.
We also see the interest in alternative assets, such as student dorms and nursing homes, as they offer high yields as well as homes to rent. I think the most immediate future is with the homes for rent and tourist accommodations.
10. Why so?
In the case of homes to rent, the key is in the lack of opportunity from the youth to access to a home via a Mortgage. Also, right now they don’t like to settle down in a place, as they have a different lookout on life, that is why I think it’s an interesting alternative for the few next years.
Until not long ago, the offer was very fragmented, in the hands of private owners, but in the last years we’ve seen an investor interest in grouping this kind of offer and professionalize it, to add value to rent and encourage people’s mobility.
In case of touristic accommodations, I think we’re seeing a stop due to the lack of regulation, but once this is regulated, it will mean a great investment opportunity.
11. What’s the difference between now and the bubble?
Although the current market is pretty hot, the main difference with the former cycle is the origin of the capital. Before they were REDs and national investors, with a traditional business, but now we see a dominance of foreign investors, mainly investment funds.
Also, now there are several options to enter the market: direct asset purchase and indirect, like through socimis. I think the figure of the real estate investment firms (socimis) is very positive and brings us closer to other European markets. Being able to put Real estate product in the stock exchange has been a success and has put a lot of dynamism in the sector.
Lastly, investors have now a more financial profile, while the client is more and more segmented and specialized: they know what they want. In the previous cycle, nevertheless, Real estate developers were more general.
12. What do you expect from the market this year?
We see a potential consolidation in the sector, in the future. Many of the funds that came to Spain have a business model based on going public, like AEDAS Homes and Neinor Homes, and that is what generates a space of opportunity and consolidation. The tendency in the future probably goes via consolidation and doing larger groups, especially in the residential sector. Same as in other European markets.
As to operations, this year we’ll see deinvestments from some socimis because, by their own settings, they are very active vehicles both in purchase and sell of assets, as they have to recycle their portfolios. That is why they’ve turned in one of the good pieces of news of this cycle.
Also, we’ll see more banking finance to REDs, although with very different conditions to the boom, and more land management. At the scarcity of development land, each time there will be more REDs managing land in earlier stages.
Another clear tendency is the bet on alternative assets, like student dorms and nursing homes, thanks to the yields and more featuring of the residential market, even for rent.
Source: Idealista . Translation by Miguel Vinuesa Magnet.
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