Looking at the figures over the last months in Spain, we can observe, what in the South is said: “we want but we can´t”. It is perceived a slight increase of almost 3% of household consumption, which emerges timidly though the economic recovery has not reached the Spanish workers wages. The number of residential development transactions has risen by almost 10% over last year, but unemployment and poor demographics slow down the upward market trend.
The average expenditure per tourist has increased by around 2%, although it may be affected by the socio-political situation and its evolution, as well as recent events.
“How do these factors affect the retail sector? In prime or core-plus assets evident increases in attendance and consumer spending hovering around 6%. It is noted a 6.5% recovery from last year in this area.”
After analyzing this data and cutting to the chase, there is investor appetite for Spain and a necessity to invest cash but we also find a generating product problem. Prime assets are over since long time ago, the secondary market is extinct and little remains of the opportunistic one which does not require effort and capital. And what about the debt? Spain has toxic assets worth 200.000 million euro, of which 10.000 million will have been “sanitized”. We are on the right path but, how do we face all that is left to do? Maybe the big funds and financial institutions should evolve towards a more industrial buying approach and do not limit their options, it may be necessary to understand the strategic value, that from a purely financial perspective it is difficult to appreciate… Does it make sense to buy or hire a own servicer and add value in managing to substantial toxic portfolios owned by financial market? We believe it does, that this approach is necessary.
“Does it make sense to buy or hire a own servicer and add value in managing to substantial toxic portfolios owned by financial market? We believe it does, that this approach is necessary.”
And, how do you carry out this approach optimally? How can we take advantage of this market situation? One of the ways is the joint venture, with which our readers will be familiar. A joint venture or partnership, is the action of joining or associating two or more companies to achieve a common project. It is the result of a compromise between two or more companies to perform complementary operations in a certain business sharing efforts, risks and benefits.
When launching a joint venture, it will be necessary to define a clear investment strategy, by establishing the type of asset we are focusing on and the profitability target rank to be achieved. It is also necessary to define the investment period and partner´s equity commitments, setting limits and maximums. And besides, getting adequate external financing, developing a detailed business plan, decreeing the decision-making corporate body and agreeing on the future distribution of profits.
“Payment methods of a joint venture can be structured in many ways: a percentage of the price of properties/assets will correspond to the leasing work of real estate development.”
Payment methods of a joint venture can be structured in many ways: a percentage of the price of properties/assets will correspond to the leasing work of real estate development. Among the fees referred in the Asset Management Agreement reached with the manager, we find the traditional management fee, usually linked to committed capital; the property management fee; the acquisition fee, for each property acquired; the exit fee, which at least should recover the invested equity; the promote fee, which once recovered the equity and the internal rate of return, from the surplus a percentage corresponds to the manager; and the development and management fee.
If we want to increase the real estate portfolio and add value to the acquired assets, it is essential to use a single management model. And the joint venture may be this management model. Of course, using this formula has a cost but, if properly executed, a successful outcome is served. Philip Kotler already warned us: “In the future companies will not compete against each other, but between networks and strategic alliances.” The time is now.
