Property investors wait for lower Spanish market
* Investors see office property value at 7.5 pct yields
* Further Spanish writedowns expected
By Claire Milhench
LONDON, April 7 (Reuters) - Property investors are nibbling at the discounted Spanish property market, but prices need to fall further to attract some of the biggest spenders, a panel of investors told a distressed real estate conference on Tuesday.
"We are still trying to invest in Spain," confirmed Simon Blaxland, chief executive of the Exmoor Group, speaking at IMN's European Distressed Real Estate Symposium in London.
"If we could get some good quality offices in Madrid, with sustainable rents at two-thirds of the peak, and buy at a 7.5 percent capital rate, we could hit our return targets, but prices are not down to those levels yet," he said.
According to index compiler Investment Property Databank, investment in Spanish commercial real estate returned minus 2.8 percent over 2008, compared with a 12.9 percent return in 2007.
Blaxland said Spanish retail property was probably the highest risk sector in Europe, due to a decline in consumer spending and the massive over-building of shopping malls, which has boosted tenants' ability to negotiate better lease terms.
Despite these caveats, Van Stults, managing director of Orion Capital Managers, said his firm had just opened an office in Madrid as part of a strategy to snare distressed real estate across Europe.
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At the height of the boom, some Spanish property deals were structured with 90 percent leverage, leaving many lenders dangerously exposed to plummeting values.
Blaxland said the Spanish banks had yet to accept the need for much deeper property writedowns.
However, the disappearance of sterling-denominated buyers from Spain following the euro's appreciation against the pound should hit home this summer, he predicted, which might encourage some pricing reality.
"Privately, I'm sure the banks know they need to take more writedowns, but they can't take all that immediately, so they might provision for it over two to three years," he said. "That will be the level at which we can buy, but it's depressing that we have to wait that long."
The panellists also said they remained wary of Central and Eastern Europe (CEE), where Van Stults said Orion had ruled out investing for now. "That still has a way to fall. Secondary markets like Central and Eastern Europe are still in denial over pricing," he said.
Christian Schulte Eistrup, managing director of Corestates Capital, said he feared some investors had overlooked legal and currency risks in the region because of rising demand, but some cities like Moscow would be attractive in the future because of a shortage of commercial space.
"Retail has been played quite a bit, but there is still not a lot of office space," he pointed out.
(Additional reporting by Sinead Cruise, editing by Will Waterman)
((claire.milhench@thomsonreuters.com; +44 (0)20 7542 3571; Reuters Messaging: claire.milhench.thomsonreuters.com@reuters.net))
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