US buyout firm Varde Partners LP is poised to create a €2.2bn Spanish home builder in a bet on the nation's economic recovery.
The investment firm's residential property developer, Via Celere, agreed to acquire the development land owned by Aelca, another Varde unit in the country, the company said in a statement last Monday.
Varde will hold 75pc of Via Celere and retain full control of Aelca. Bloomberg news reported the deal last week.
"Via Celere is really well positioned in the market as it will not need to buy land to fulfil its short-term targets," Hector Serrat, a director at Varde, said in an emailed statement.
"That means it can focus solely on building homes and delivering high-quality developments to its clients."
US private equity firms are ratcheting up bets that Spain can extend a five-year economic recovery. That marks a turnaround from a decade ago, when a credit-fuelled real estate bubble burst, causing the local housing market to implode and plunging Spain into its worst economic crisis of modern history.
Via Celere already has about 1.5 million square metres of land for building across Spain. The Aelca purchase would roughly double that, putting the combined company in a position to deliver about 2,000 new homes in 2019 and potentially 5,000 units by 2021,
Varde was once widely expected to carry out an initial public offering this year for Via Celere, with the sale being led by Credit Suisse Group AG and JPMorgan Chase & Co. But for the time being, the firm is focused more on building a track record of delivering units.
Rival developers have seen their share prices decline after failing to deliver on homes even as investors become more selective. Shares in developer Neinor Homes have fallen 14pc since the start of the year after licensing delays meant it couldn't deliver as many homes.
Varde's executives remain confident in their targets for units, given that its land mostly based in Madrid, Barcelona and the Spanish coast, where appetite for homes is stronger.
The Spanish economy has grown for 19 consecutive quarters as unemployment falls. In its latest forecast, the Bank of Spain said it predicts the economy will continue its expansion uninterrupted until 2020, albeit as a slower pace.
Spain's improved prospects have drawn wave of deals led by private equity firms including Blackstone Group LP, one of the world's largest, which recently bought a stake in Testa Residencial Socimi SA in a deal valuing the landlord group at €1.9bn. Testa, which focusses on the real housing industry, has a portfolio of more than 10,000 properties mostly located in big cities and larger regions across Spain.
But while Varde prepares to bet big on Spain's economic recovery, some of the country's own property companies are looking increasingly guilty of overconfidence.
Property manager Azora Altus SA pulled its €455m public offering last Wednesday evening. It's the latest blow to an industry that has already seen developer Metrovacesa SA's bank owners lower their offer price before a February share sale and a decline at Neinor Homes SA after it warned of delays for permits for its building projects.
"Some of the business plans look over-aggressive," said Thor Vega, an analyst at Gesconsult in Madrid.
Prices and rents for homes in Spanish cities are surging as the government predicts an economic expansion will continue to deliver growth of at least 2.3pc through 2021.
The boom is causing unemployment to fall sharply and making families more confident about committing to major investments such as the purchase of a house.
Even so, investors are proving harder to convince of the merits of share offerings by Spanish real estate firms coming to the market.
Azora was planning to sell 47 million shares at about €9.62 each and use the proceeds to fund more acquisitions of properties and operating platforms. Shares of the company, which invests in hotels and rental homes and offices and manages portfolios for investors, were due to start trading on Friday.
Azora said it had pulled the sale because of uncertainty surrounding the future of Hispania Activos Inmobiliarios SOCIMI SA, the target of a bid by Blackstone Group LP. Azora manages property for Hispania.
Spanish property developer Metrovacesa shares are 7pc down since they started trading last February. Its owner banks including Banco Santander SA and Banco Bilbao Vizcaya Argentaria SA were forced to lower the price range to as low as €16.50 from an original target of up to €19.50 and reduce the number of shares after investors shunned the original offer.
Neinor has lost 10pc since the start of the year after licensing delays meant it couldn't deliver as many properties as it had promised for 2018 and 2019.
Blackstone last month announced a €1.9bn bid for Madrid-based landlord Hispania, whose investors include Soros Fund Management LLC and Paulson & Co. The bid came in at a discount and Hispania has said it would seek alternatives to Blackstone's bid to maximize its value.
Hispania shares are up 14pc since the start of the year, while Merlin Properties Socimi has risen 15pc.
"The real estate sector is strong overall but there are still doubts," Nicolas Lopez, head of research at Mercados y Gestion de Valores said by phone.