Man On Fire: Your Wall Street Slumlord Arrives in Europe - Goldman and Other Financial Firms Launch “Buy to Rent” in Spain

30 Aug 2014

Your Wall Street Slumlord Arrives in Europe - Goldman and Other Financial Firms Launch “Buy to Rent” in Spain

By Michael Krieger: I was early in reporting on the trend of financial firms entering the U.S. residential real estate market with “all-cash” bids for tens of thousands of homes with the intention of turning former homeowners into permanent sources of rental income. The first of many pieces I published on the topic was in January 2013, titled: America Meet Your New Slumlord: Wall Street.
Now that the financial oligarchs have had their way with the U.S. property market, to the point that average citizens can’t even afford to own a home (Zillow recently showed that 1 in 3 homes are unaffordable), it appears they have turned their sights overseas. What better market for bailed-out bankers to feast on than Spain, with its 50%+ youth unemployment rate and a continued depressed real estate market. We learn from Bloomberg that:

Marcelino Calvo Sanchez and his wife, Maria Luisa, had never heard of Goldman Sachs Group Inc. until last year, when the global investment bank bought the four-building housing estate where they live in Vallecas, on the southern outskirts of Madrid. Marcelino, a 71-year-old retired truck driver, isn’t impressed by his new landlord.

Goldman Sachs picked up the 289-unit complex in August 2013 as part of its purchase of 3,000 low-income apartments from the regional government of Madrid for 201 million euros ($269 million). With the sale, some subsidies for tenants disappeared, and, according to Sanchez, a small problem with squatters has become a larger one.

That’s exactly right, Bloomberg Markets will report in its October issue. Though the housing estate looks like one of the last places in the world smart-money Goldman Sachs bankers would bet on — glass doors are shattered, broken mailboxes hang open, and graffiti mars the courtyard walls — this is where Goldman has touched down in the Spanish real estate market. Blackstone Group LP, the world’s largest alternative-asset manager, bought a similar low-income-housing portfolio from the city of Madrid in July 2013 for 125 million euros.

These bets on Spain marked a turning point in investor sentiment. The country, for five long years a toxic no-go zone for foreign investors, is now at the top of the list for private-equity firms, hedge funds and sovereign wealth funds hunting for cheap assets in Europe.

“Spain now is a tale of two cities,” says Ismael Clemente, chairman and chief executive officer of Merlin Properties SA, which raised 1.25 billion euros in June in the largest initial public offering in Spain in three years.

I sometimes wonder when I hear people characterize the economy as a “tale of two cities,” if they even appreciate the fact that the book itself was written about the violent overthrow that was the French Revolution, itself sparked by extreme inequality and poverty.

Clemente, 44, is sitting in the art deco lobby of Madrid’s five-star Villa Magna hotel, which these days is crawling with investors and bankers chasing juicy deals. A 14-year veteran of Deutsche Bank AG, Clemente says the opportunities are enormous as Spain emerges from the depths of recession and banks continue to unload real estate assets.

Merlin’s IPO capped a dizzying six months of Spanish real estate deals. In January, the New York–based private-equity firm Apollo Global Management LLC bought the real estate unit of Banco Santander SA, Spain’s biggest bank by assets, for 664 million euros. In March, the Madrid-based REIT Hispania Activos Inmobiliarios SA raised 500 million euros from investors, including George Soros’s Quantum Strategic Partners LP and John Paulson’s Paulson & Co. In June, Texas-based private-equity firm Lone Star Funds and JPMorgan Chase & Co.bought a 4.4 billion euro portfolio of Spanish and Portuguese commercial property loans from Commerzbank AG of Frankfurt.

In the U.S., Auten was a managing director at Waypoint Real Estate Group, an Oakland, California-based investment firm that buys up foreclosed homes across the U.S. Auten says a lot of investors are looking at Spain, a country of 46 million, as if it’s a carbon copy of the U.S. market, where investors such as Blackstone and Waypoint have scooped up hundreds of millions of dollars’ worth of homes and rented them out.