Spanish midcaps Colonial and Realia trend real state market upwards

Inmobiliaria Colonial has been and still is one the most relevant Spanish real state companies. Wise and cautiously managed for two generations, since it was created in 1946 to its highest point in 2006, then it bold and wildly managed, like almost all Spain’s companies in that industry, after the take over bid by one of the groups stemmed from the property boom, Inmocanal. The new adventurer Colonial multiplied its debt to the unbearable, acquired toxic assets and fell down.  Now it is embarked on a complex financial and shareholder reorganisation, led by a new management team including people who was in pre-crisis Colonial.

Furhermore, the construction company has a singular pretender: Juan Miguel Villar Mir, one of the most successful Spanish businessman in last thirty years, who has built up an outstanding company group (it comprises industry sector, construction…) by buying risky and bad managed companies on the verge of bankruptcy and making them  profitable. With an average of one operation yearly, Grupo Villar Mir’s has grown dramatically since 1985 in terms of size and goals.

Colonial has lights and shades; lights come from good quality real state assets for hire in Madrid, Barcelona and Paris. The shades lay on a burdening debt and bad assets, both building land and ongoing works, which are joined in a “bad bank”-like subsidiary company. Colonial needs to carry out disinvestments, as well as restructure its debt and obtain new funds.

The sale of Colonial’s French subsidiary 20% stake, Société Foncière Lyonnaise (SFL), has already started and is expected to generate gains amounting €300-400 million. Also the company’s General Shareholder Meeting has approved a € 1,000 million capital increase on Tuesday. “Colonial will reduce debt and regain normal conditions and assets rotation. Villar Mir is to take 30% of this capital increase, which will enable to reinforce company’s balance sheet and approach positive property sector’s change of cycle,” Bankinter analysts said on Wednesday.

This does not mean the end of crisis for Colonial since its debt reorganisation with Canadian Brookfield is still pending, and consequently opening an alternative to Villar Mir.

For the Spanish group, to consolidate  Colonial and its current property  assets would mean creating one of the most important real state companies in Europe. For Canadian, it is a question of getting off the investment lightly. The fact that a Spain’s company pushes to grow or  invest on Spain’s assets points out to opportunities and possibilities, to a change of trend.

This last same argument would serve to justify – and celebrate if finally confirmed- Amancio Ortega’s real state company interest in Realia. This midcap construction firm was another victim of Spanish housing market collapse. Ortega, founder and owner of textile giant Inditex, the richest Spanish businessman and world’s third according to Forbes’ list, has recently reinforced its property company Pontegadea by the acquisition of relevant buildings in Madrid, Barcelona, Valencia, New York and London.

Realia is searching for investors to substitute Bankia and FCC, which are its reference shareholders, in order to repay its debt. In particular, Realia currently manages a property portfolio of 600,000 square metres, 95% in use. It holds office buildings in Spain and France via its Paris subsidiary SIIC, and relevant shopping centres in Madrid and Santiago de Compostela. Ortega’s firm Pontegadea would also take one of Kio Towers, a symbol building for the city of Madrid.

Ortega’s eventual interest in Realia recovered company’s stock market prices to €1 per share level, which lost just one year ago, with a 20% growth.