THE OPPORTUNISTIC INVESTORS ARE BACK

The financial crisis, the decline in property values, increased supply and the deterioration of the market traders are the dominant topics of discussion in the investment markets in Europe and of course Spanish. However, it is a consensus that there is no market or sector that has managed to avoid a significant correction in investment activity.

The tightening of credit conditions is one factor that is affecting investment.

Since this actually started in the summer of 2007, the capital has declined and the global risk assessment in real estate products has increased. This has reduced the loan to value ratio and financial institutions require margins of 150 to 250 basis points above the Euribor 12 months.

Although currently the Euribor credit stress is relaxing, during most of 2008, the index touched historic highs which further complicated operations.

Although these factors are common across Europe, the characteristics of Spain have created more uncertainty for investors. The crisis of the brick and declining growth expectations is what else did increase the uncertainty and distrust in the Spanish economy. In late years began to confirm the bearish trend in consumption and employment which only has increased the perception of risk in real estate products.

The increase in composition but in the real estate should not have direct effect in the retail sector, where they serve to lower further the confidence of investors.

Retail investment has fallen during 2008, although not as much as expected. On the one hand the decrease in the number of operations has fallen by more than half, from 42 to 20 operations in the year. For another, although there has been a decrease in the volume of securities investment in retail has only fallen 10% over the previous year, reaching 1641 M €, which contrasts with the reduction of 54% registered European level.

This relatively high level of investment, taking into account the difficult 2008, was produced by two major operations during the year, which accounted for almost half the investment figure. On the one hand Metrovacesa sold two shopping centers to Unibail-Rodamco, the machine in Barcelona and Habaneras in Torrevieja, Alicante, for a total of 424 M €. Furthermore Eroski in a sale transaction-and-Leaseback sold a portfolio of 12 hypermarkets to Topland for 361 M €.

This latest operation comes out-and-Leaseback confirms the market trend in this direction as a way for operators to achieve greater liquidity, which meant a 30 per cent of the total volume.

Other operations closed in excess of EUR 100 million included the purchase by Metrovacesa project at the mall Vilamarín Sacresa, 2009 opening, within an internal operation of companies and the sale of 41.5 percent for the participation of British Land in New Condomina Henderson, whose operation was conceived in 2007.

Shopping centers continue to garner most of the volume of sales, 56% of the total, although this figure has been lower than other years affected by the high proportion of 22% of the operation of hypermarkets Eroski.

The variety of product on the market rose steadily during 2008. Much quality product has come on the market a few years ago which would have been difficult to be eligible. Similarly, most of the product has been offered to the market from the hands very quickly, but without much result, the general feeling is that it has "burned" a lot of product.

The increase in supply has been produced by the prevailing lack of liquidity in the market, experienced more intensely among those owners heavily exposed to the housing sector.

Another reason for this increase has been the decline in the value of real estate and general business with a high degree of leverage, which has led to pressure the banks to force situations. This could be the case Riofisa, whose portfolio was offered to the market without success yet.

During 2008 the decline in retail value of the product has been widespread, mainly by an aggressive set of performance that has continued during the first quarter of 2009. Played from the roof in early 2007 in terms of initial net yields reaching retail 4,5-4,75 percent or less for singles and medium shopping malls, has become that investors valued products in a prime profitability from 6,25-6,5 percent.

The low number of transactions prevented from reaching a consensus on the price of real estate, which suggests that the land market is still ahead and the values will fall even more. The price limits that are putting more investors and operators in general, the offers are rejected.

A moving performance by 200-225 basis points, as has happened in the market, is equivalent to a change in asset value between 20 and 30 per cent depending on whether a prime or secondary product.

In this way, investors are still with the vision of "at least 6 months worth" which is producing many products that look but with few expectations laoperación close.

Another situation that is happening in retail, igualque to other property markets, is the increase of real estate owned by banks after running debts to promoters. Thus, although these entities are creating real estate management company specifically geared to housing, the truth is that in the case of shopping centers is often easier to outsource their sales and management since it is a very specialized market.

In general, the attention of investors is focusing on prime real estate in major cities. Basically feel alarmed by falling sales and wary of the sustainability of some projects.

Therefore, we try to avoid the risk as much as possible so that focus on properties with secure income and long term.

The large volume of transactions are paid a higher discount than before because it is more difficult to obtain large sums of capital.

The relative price is a key trend as the market continues to adjust prices. Investors become more opportunistic, looking for properties where the price has changed more. In this sense many investors are directing their efforts in United Kingdom where it appears that prices have fallen more by its potential. This is the falling prices in the rest of Europe and Spain along with Ireland expected the following countries will be able to attract investment because they are falling with greater force.

The funding will narrow during 2009, which will complicate the operations of large volume. This restriction will increase even more in the promotion of projects and the purchase of land, which must have a high level of marketing power to get it.

The adjustment in the price of land is already starting to notice, however there is still a long way to forget that the prices of a few years ago based on speculation of a growing market. The owners are beginning to understand that the correct assessment of its soil, depends on the risk associated with cash flow of the project that aims to develop, which at this time is high.

Despite the adjustments made and there is still a big difference in price expectations between the seller and the buyer. It is anticipated that the assets continue to decline during 2009, although in this case, due to an adjustment to income rather than returns that have already undergone corrections over the past 12 months.

The supermarkets and the sale and Leaseback transactions are analyzed with special interest because it does not generally involve a high volume and also have rental contracts of longer duration, ensuring recurring revenues in a difficult period.

What will happen to the market to stabilize?

        1) The financial sector must come from liquidity problems and mistrust today. For which financial institutions will have to take losses and set a correct value of its assets. The increase in delinquencies not help in this process.

2) The current owners have to bear the loss of value and set a price to the market. In this process, many owners may not put the problems of liquidity and financial pressure, which provides a high level of composition.

3) The consumer should return to growth of channels, which will not happen until they touch the ground and revive the economy.

Despite doubts about the value, the characteristics of retail assets in Spain remain a sound investment and an even better investment option than other markets and sectors, which receives and reviews of annuity contracts and long well structured.

Investment opportunities for retail in Spain will be exploited by those who can differentiate the characteristics between a project and also have a medium to long term prospects as from 2011 is still strong.

 

Spanish Real State 27/03/2009

CURRENT SITUATION

In January 2009, the industry of shopping centers had 14,281,000 square meters of SBA, over 613 shopping centers. On the whole, the density is 309 square meters per 1,000 inhabitants, a fact that allows us to buy with other European countries, where Spain took the ninth place, behind countries like United Kingdom, Holland or Portugal.

The area of shopping centers in Spain and is in its maturity, helped by a great economic boom and business expansion over the past 8 years: easy availability of credit and good economic expectations.

Although the current economic situation and their expectations are radically changing the business model of promoting a commercial center, is the large number of significant projects have already started their development, for several years, and provide forward. Until late 2011, were found about 0.9 million square feet of safe projects, nearly 1.9 million square feet of probable and projects which together amount to an increase of 20 percent of SBA existing leading the total 17 million square meters.

If you also add projects as possible would be to nearly 19 million square meters, which would mean a 33 percent increase in SBA Spain. However, most of the estimates in the report does not take into account these surfaces to be very unlikely in the current context.

Thus, considering only projects safe and likely staged the Communities that until 2011 the largest increases are 70% with Extremadura, Galicia, Andalucia and Cantabria.

Volume of surface area over which the provinces have plans are Madrid, Cadiz, Seville, Barcelona, Valencia, Alicante and Corunna.

Among the major projects pending for 3 years are lospróximos Park Jerez in Jerez de la Frontera, with over 150,000 square meters, Lighthouse Bay Altarea, Puerto Real, Cadiz, with 50,000 square meters, Faro Guadiana of Unibail-Rodamco in badajoz with 56,000 square meters, Parque Marítimo Jinamar of Erosmer Iberica, in Telde, Las Palmas, with more than 100,000 square meters, Torrecárdenas Bogaris of Almeria, with 68,500 square meters, or the beaches of 85,000 square meters with Auchan in Orihuela, Alicante.

As to the format until 2011, is found that 1 out of 4 projects will be a fleet of medium. In this typology remains the medium and small schools. It emphasizes the smallest number of very large projects.

In general, the projects planned through 2011 do not offer anything new concept. However stresses the Mall provided by ING in Torrejón de Ardoz 33000 square meters devoting full at home and decoration. The shopping center and entertainment Splau in Cornella de Llobregat, who dares with a great range of leisure activities which the operator highlights the city children, similar to the concept Micrópolix recently opened in Alegra, San Sebastian de los Reyes. Continue upgrades as a means to reposition the latter stages of development as a strategy, however compared to recent years, will be fewer such projects, but is expected to become a more important long term.

Whenever new projects are less, which is interpreted as the first signs of moderation. The commercial availability of slots is smaller and the emphasis of the promoters of projects to develop stronger than the competition begins to decline, mainly due to falling demand by some locomotives and operators begin to analyze the impact of cannibalization their own shops.

However, there are two factors that strongly affect these forecasts.

First, the operators' demand is dropping at the same rate as retail sales and consumer confidence. Obviously this is more complicated than ever before, the marketing of projects. Developers unable to reach their expectations of income nor their estimated time.

Secondly, credit constraints are affecting all projects that have not closed the financing in advance. Also further limits the possibilities of expansion of the operators.

All this is mixed with the high price for that in general most developers bought their land, that price is not commensurate with the expectations of declining business. Therefore, developers who bought too high a price to have a serious problem, which is expected to trigger any of the following situations:

       1. The projects under construction, you will most likely open with delays and with a percentage of localesvacíos higher than anticipated in previous years. The level of income would also be lower. In many cases, the value at the opening of the center would be less than the cost of their development.

2. No construction has started, if you do not have the funding, we need to have a high percentage of local market for it. If it does not try to keep rents at high levels, you may wish to develop the project later, when the market normalizes.

3. The developer has a purchase option with any provision of output. In this case, try to renegotiate the high price of land and if no agreement is reached, it would without hesitation.

Although it has been taken into account in the data analyzed, it is likely the result of these factors lead to further delays in opening the forecasts of most projects.

Thus, reaching a little further, it is anticipated that new projects will not appear until they forget the land prices in recent years and it is understood that the value thereof is estimated in terms of expectations that can generate income, taking into account the risk attached to this.

Limited possibilities to grow by many developers, the management of schools is growing in importance. In many cases this leads to possible extensions or renewals of centers of its surface.

In this situation, the Bolkestein directive seems to be happening a second level of importance, but at the end of 2009, all regions must have completed their adaptation to their respective trade laws. Although it is still unclear how each community will adapt its laws, should be opened many doors almost closed.

It is anticipated that the greatest changes are in Catalonia, the Balearic Islands and Castilla y Leon, as they are now more restrictive and also with the densities of commercial lowest in Spain. However these changes will be in new projects with projected opening from 2 to 5 years from 2010.



IMPACT OF SALES ON THE BEHAVIOR OF RETAILERS

During 2008, sales have fallen overall in all commercial activities, as shown by the INE. Therefore, the low, the tightening of financing in general and weak expectations for the future are dramatically slowing the expansion of operators in the Malls in the local streets.

This situation also occurs in other countries of Europe, in United Kingdom where it has fallen more demand, followed by Spain, Ireland and Portugal.

Operators are beginning to better manage its stores today, while minimizing their costs and in some cases closing the worst of their local portfolios. Its expansion is also being more selective and set in centers and consolidated projects with greater potential. Thus, secondary projects are being felt the most this fall.

Some traders exploited the situation to expand and will do so only in a position to actually win them, exerting great pressure on the promoters.

In the case of medium farms, the main demand has moderated and generally operators seeking opportunities in the parks side fleeing the high prices of the former. Furthermore operators medium larger still active and trying to take this situation to increase their market share.

As for the most active operators is H & M, Sport Zone, Men Mango, Orange or Primark. Others are just starting its expansion into the Spanish market as White Men, Marwa, or G-Star Worte.

Also new brands are emerging, mainly specialized in Fashion and Beauty, as Uterqüe the group Inditex, Mango and Touch accessories specialist, Avanti, brand C & A, or Fashionkids and 08 Imaginarium new concept, dedicated to children's sector.

Operators aimed at the adjusted prices, supermarkets and discount outlet stores have generally improved their performance in the last year, before a consumer-oriented savings.

In this sense we have created new entrants oriented clothes off as Koodza, teaches second Decathlon or cocktail Children. In this line, is also growing fast food, as reflected in the increase of 7% in profit during 2008 was McDonalds.

A detail is quite significant change in the demand for hypermarkets, which are much more selective and not begin to be interested in almost any location, and are reducing the size of their surfaces. This is caused by the widespread declines in sales of products unrelated to food, which are also those with a higher profit margin.

It is expected to be further purchases of channels, such as that occurred during 2008, Boulanger by the Portuguese Sonae to expand its brand Worte.

EFFECT ON THE RENTAL INCOME

During 2008 it began to notice a change in the level of incomes in secondary schools and parks, as in most of the per - leasing development project, which was accentuated with the passage of months. The best schools and parks have remained stable levels.

After experiencing its peak during 2007 and half of 2008, prime rents have fallen about 8% in one year.

Thus, given the declining sales and the large number of projects yet to be developed, is expected to continue declining revenues this year, which will be noted especially in the parks of medium, which new projects are also the most numerous.

Since late 2008, the situation is complicated in those malls where sales have fallen more. Renegotiations increases in income to avoid raising rates too much unemployment, which in general are rising. These discounts are hard to measure, although it is more usual to analyze case by case basis and negotiate a rebate of income for one year.

The owners also are trying to assist operators through better cost management, cleaning, security, marketing, etc.. as much as possible to reduce the burdens common that operators have to pay monthly.

This situation is also happening in the rest of Europe, reaching the highest levels in some of the emerging countries of central and east.

However, the most difficult situations are occurring in new projects where it seems that all the suffering that the operators are forced to suffer big discounts to sell, are moving to the promoters. So the negotiations for the leases are being increasingly tightened, resulting in reductions in income, increases in contributions from the developer to work on the operator, improving output contracts, extension of periods of lack of income or bonuses, and even in some cases, income is a variable without a guaranteed minimum income