Blackstone Becomes Biggest Hotel & Property Owner in Spain

The PE firm as global landlord.

By Don Quijones, Spain, UK, & Mexico, editor at WOLF STREET.

Private equity firm Blackstone, the undisputed king of property funds, continues to bet big on global real estate. In the last week it raised $9.4 billion for Asian real estate. It was also given the green light to acquire Spain’s biggest real estate investment fund (REIT), Hispania, for €1.9 billion. The move, after its prior acquisitions, will cement its position as Spain’s biggest hotel owner and fully private landlord.

Hispania’s 46 hotels, added to Blackstone’s other hotels, will turn the PE firm into Spain’s largest hotelier with almost 17,000 rooms, far ahead of Meliá (almost 11,000), H10 (more than 10,000) and Hoteles Globales (just over 9,000).

It took Blackstone just three moves to become market leader. First, it acquired the hotel group HI Partners from struggling Spanish lender Banco Sabadell for €630 million in October 2017. Then, a month ago, it bought 29.5% of the hotel chain NH Hoteles, which is currently in the hands of the Chinese conglomerate HNA. Now, by raising its stake in Hispania from 16.75% to 100%, it will take up a dominant position in one of the world’s biggest tourist markets.

With this deal, it will also expand its residential property empire in Spain. Blackstone has over 100,000 real estate assets controlled via dozens of companies. Those assets include a huge portfolio of impaired real estate assets, including defaulted mortgages and real estate-owned assets (REOs).

Blackstone also owns 1,800 social housing units, which it acquired from Madrid City Hall in a controversial deal brokered by the son of former Spanish prime minister José Marí0a Aznar and former Madrid mayor Ana Botella. Blackstone paid €202 million for the apartments in 2013; they are now estimated to be worth €660 million — a 227% return in just five year! Since its purchase of the properties, Blackstone has hiked rents on the flats by 49%. Those who can’t pay have been evicted.

Blackstone also played a starring role in one of the world’s biggest real estate operations of 2017, in which it payed €5.1 billion for the defaulted loans Banco Santander inherited from its shotgun-acquisition of Banco Popular.

By the end of 2017, the total value of its property assets under management had surged almost 29% to €184 billion.

The transformation of private equity groups like Blackstone into global landlords occurred for a number of reasons. First, after the financial crisis they were one of the few large market participants with enough cash on hand to invest in foreclosed homes, of which there was a massive glut all over the world. Central banks and financial regulators gave a big helping hand by driving the cost of borrowing, especially for well-connected Wall Street funds, to heretofore unimaginable depths, as well as by passing regulations that made it easier for the funds to issue rent-backed securities.

Before the financial crisis, real estate investment trusts (REITs) — funds that own, operate or finance income-producing real estate — didn’t even exist in Spain. The government had to alter national laws and regulations to make them legally possible, which it duly did in 2012. Since then, in the absence of domestic retail appetite for property — most young Spaniards have neither the funds nor job security to buy property — REITs (or Socimis as they’re known in Spanish) have become a prime source of demand.

And with average rents in Spain soaring by 25% since 2014, and by over 50% in Barcelona and the Balearic Islands, these investments have offered lucrative returns. Which in turn has helped entice more big players into the market. In 2017 alone global private equity funds purchased some €60 billion of real estate assets from Spanish banks — almost three times the total outlay in 2016.

But those soaring rents appear to be reaching their upper limits. Prices in the most upmarket barrios of Barcelona and Madrid have already begun dropping. According to the Spanish Savings Banks Foundation (FUNCAS), the same funds that piled into the market last year are beginning to worry that Spain’s rental real estate boom may be running out of steam, given that many Spanish families, scratching a living on poorly paid, zero-security jobs, are incapable of paying today’s high prices.

Increasingly, young people are choosing to stay at home, one recent study shows. Many tenants that can’t pay their rent have already been evicted from their fund-owned apartments. The latest report from the General Council of the Judiciary (CGPJ) shows that during 2017, over 35,000 families and individuals were evicted due to non-payment of rent.

Nevertheless, the Financial Times pointed out that the sheer scale of private equity firms’ recent fundraising, coupled with rising property values, is fueling concerns that unsustainable pricing bubbles have formed in some real estate markets. There are certainly plenty of candidates. If some of those bubbles go “pop” in synchronized fashion, even (or especially) the global king of property could have big problems on its hands. By Don Quijones.

“With Amelia, we graduate into automating the knowledge worker, the customer service agent.” Read…  Humans Need Not Apply: AI to Take Over Customer Service Jobs 
 

Would you like to be notified via email when WOLF STREET publishes a new article? Sign up here.

 

  26 comments for “Blackstone Becomes Biggest Hotel & Property Owner in Spain

  1. lenz
    Jun 14, 2018 at 8:37 pm

    Wolf, if they got such good deals when scooping up all that real estate it would take a massive downturn for them to feel the pain.

    Whats the % of home ownership in Spain? If its historically as low as in the states, no one will cry a river if Blackstone were to lose out if prices normalised.

    • MC01
      Jun 15, 2018 at 2:40 am

      The latest data from Spain put home ownership rate at 77.8%, down (but not much) from the 2007 all time high of 80.6%.
      By comparison the home ownership rate in France is 64.9% and 64.2% in the US. In Germany, a nation where home ownership is not as culturally ingrained as in other places, the rate is 51.7%. In Switzerland is a “minuscule” 42.5%.

      Apart from The Netherlands, which are a parallel universe (great singers though), the present trend in Europe is towards lower and lower home ownership rates. The mechanics behind it are rather complicated but the main drivers are all demographics: starting from my generation (those born in the second half of the 70’s) home ownership has started to become less and less socially and financially attractive despite tremendous external pressures, especially in countries like Italy and Spain whose economies absolutely depend on the real estate industry.
      Younger people want not just to be free to move around for both financial and professional reasons but also have little appetite for longer and larger mortgages, the kind European banks have tried to make “palatable” to prop up an industry that doesn’t want to adapt.
      Just look at Italian real estate speculators still building detatched houses by the truckload in places where there are hundreds of similar houses waiting for a buyer or Spanish sellers thinking their, let’s be charitable here, Franco-era hovels in a rapidly depopulating small towns are a treasure of the greatest rarity.

      Blackstone is like the Andean condor: it follows the smaller vultures to a carcass, chase them away through sheer size and then starts gorging before returning to its mountain abode, unmolested.
      As disgusting as it is, Blackstone is just a symptom, not the cause of Spain’s real estate woes.

      • Gershon
        Jun 15, 2018 at 8:49 am

        Allow me to point out that you don’t “own” your home until the last mortgage payment is made. How many Spaniards (or other homeowners) own their homes free and clear? My guess is, not many.

        • MC01
          Jun 15, 2018 at 9:28 am

          I cannot help you with exact mortgage terms because the situation is so varied (and many foreign buyers pay cash), but you may find interesting that according to the most up to date data I could find (31/3/2018) mortgage approvals in Spain have been steadily slipping since May last year and now stand at 26,350/month. This is in spite of all the old tricks employed again by banks to prop up the real estate sector, including the infamous 100% mortgage.
          Why? Two very simple reasons. One, buyers are starting to feel houses are overpriced, especially outside big cities. And two, Spain’s population has actually started to decline in 2016.

          Just by comparison at the height of Housing Bubble MkI Spanish banks approved 129,128 mortgages per month. And remember most foreign buyers either paid cash or had different lines of credit than mortgages with Spanish banks.

          This is the reason why countries like Spain are so desperate to use any method to reinflate Housing Bubble MkI, no matter how unsustainable it was.

        • Matt P
          Jun 16, 2018 at 3:14 pm

          And you actually never own your home because if you stop paying property taxes on it, they will take it away.

  2. Álvaro
    Jun 15, 2018 at 1:10 am

    I’m Spanish and I can tell you almost nobody in this country has ever heard of such company, let alone know the details about it.

    • Cynic
      Jun 15, 2018 at 2:58 am

      Then they aren’t paying attention to Madrid? I thought the acquistion of public rental properties by speculators – and subsequent evictions – there was fairly notorious?

      On the whole, and not just in Spain, I suggest that when the real economy is moribund, people tend to get over-excited about real estate – all those 0’s lined up fuse their brains.

  3. Steve clayton
    Jun 15, 2018 at 1:25 am

    In the UK when you hear the name Blackstone it reminds me of the Southern Cross care home disaster when it went bankrupt after being saddled with too much debt. Not just Spain as all the Italian banks are selling off loans etc to private equity companies also.

  4. peter
    Jun 15, 2018 at 5:47 am

    The caring face of capitalism! When will governments determin that housing is a basic human right, not a luxury? Oh they won’t all the time lobbyists paid by the likes of Blackstone pay them. Silly me for caring; just ignore I said anything.

    • MD
      Jun 15, 2018 at 9:03 am

      You sound like a socialist Peter – you need to remember that these days we only do socialism when it benefits wealthy individuals and corporations – it’s fine then. No problem with handouts and leg-ups for those groups, no siree! If it however threatens to benefit the ‘hoi polloi’ then it’s an evil curse which will turn your country into Venezuela, a wasteland in which no business will ever want to invest – and if you believe otherwise, you’re “naive”.

    • Gershon
      Jun 15, 2018 at 9:14 am

      Housing (shelter) is a basic need, not a basic right. As long as the sheeple in this country keep electing Wall Street water carriers of the Republicrat duopoly, they are signaling that they are A-OK with the financialization of everything, and the Fed’s debasement of the currency, which is causing the cost of living to soar and the quality of life to deteriorate.

      You reap what you vote, sheeple.

  5. Gershon
    Jun 15, 2018 at 8:43 am

    Blackstone was one of the financial vultures that snapped up billions in distressed properties using FedBux printed up and lavished on Wall Street financial firms by Bernanke and Yellen.

    Hopefully Spanish nationalists will run this rapacious outfit out of their country.

  6. kitten lopez
    Jun 15, 2018 at 9:04 am

    i’ve been nauseous since last night. where are all the comments on this??? i’ve been having panic attacks about this that make those childhood “vastness of the universe” nighttime thoughts cute again.

    Don Quijones:

    ARE THERE ANY COLLECTIVE REACTIONS AGAINST THIS? IS IT A RELATIVE SECRET OVER THERE???

    i’m shocked because i wondered if the u.s. would ever even do minor protections for citizens against foreigners buying up our houses, but they’ll only double down on it now that blackstone is going oversees, too.

    heck, Spain changed LAWS to sell out their own…

    this is only the BEGINNING. i’m finally getting this but not really. i’m in horrified awe of the epic expanse of the scope of this globalized problem where we’re all supposed to be generations of renters or homeless.

    i used to think, “well at least the states haven’t been completely colonized by forgeign REITS” … YET.

    whoever said it’s only a matter of time before they’re buying/selling blocks of ownership in properties it’s like a matter of DAYS…

    i wish people would post more on Don’s stories because it’s not “elsewhere” anymore.

    • Gershon
      Jun 15, 2018 at 11:05 am

      i’ve been nauseous since last night. where are all the comments on this??? i’ve been having panic attacks about this that make those childhood “vastness of the universe” nighttime thoughts cute again.

      Kitten, you need to focus on the very few things that are under your control, and let the rest go. You could drive yourself crazy worrying about circumstances beyond your control or imagined outcomes, but such worry is wasted and fruitless in times like these.

      Love your family and friends, treat people with respect, dignity, and compassion, and live your life with integrity and decency. Confront evil, pursue justice, and love mercy. In times like these, where fraud, deceit, and corruption have become universal, that’s the best you can do. Remember, it’s light the darkness most fears.

      • kitten lopez
        Jun 16, 2018 at 10:39 am

        thank you for this because YES this “light” thing is SO HARD to maintain belief in when i made the mistake of reading an atlantic article about “influencers” having tantrums because they cannot have free hotels in bathing suit photos when all this is happening.

        “sheeple” would be one thing to get used to, but i’m having panic attacks about the mindset out there and i feel like boogeymen are EVERYWHERE now. i feel like i’m in an airplane going down while the pilots are doing coke in the bathroom and the passengers are frantically posting selfies on facebook before impact.

        yesterday i went to the gym and worked out til i had to crawl home. that re-focuses me. you’re RIGHT. you’re RIGHT… it’s a mantra at this point.

        but the LIGHT…thank you. yes. i get it. if it were EASY we’d already be in the Light….

  7. Boiled Coffee
    Jun 15, 2018 at 11:44 am

    We just start to call this what it is, resurgent feudalism where the special rights that once were held by dukes, earls and barons are now held by corporations.

  8. Kiers
    Jun 15, 2018 at 7:50 pm

    Hey wolf,

    one question: Does Blackstone pay tax in SPAIN? anyone?

    • Don Quijones
      Jun 16, 2018 at 8:17 am

      Kiers,

      I’m not sure about its other investments in Spain, but for its purchase of Hispania Blackstone created an investment vehicle that is registered in the Cayman Islands. As such, it’s safe to assume it won’t be paying any taxes in Spain on any of the income it generates from those assets. But that doesn’t seem to bother Spain’s government or market regulators.

      • Kiers
        Jun 16, 2018 at 5:21 pm

        That’s interesting, because the same Spain has been busting the b@lls of some world famous soccer players on taxes.

    • John Henderson
      Jun 17, 2018 at 3:52 pm

      I can’t be sure but did they buy the tax losses as well.

  9. govinda
    Jun 15, 2018 at 7:51 pm

    I wonder if they use some of the property they control to conduct human trafficking?

    Seems like thats a “thing” for the elites and a cash cow. Does Soros own a bit of blackstone?

  10. R Davis
    Jun 15, 2018 at 11:59 pm

    “Blackstone also owns”
    : – OUTRIGHT ??
    :- REAL MONEY ??
    :- Or newly printed money from fairy land ??
    :- Owning hotels is one thing –
    The hospitality business is a very expensive business to run.

    The Brag:
    “We at Blackstone have cornered the market, we own several thousand hotels throughout …bla, bla, bla, …

    But I know the hospitality industry & first off it is fickle, the more hotel in an area the less profit per hotel.
    TOURISM is not as big , or as lucrative as it is cracked up to be – where is the money to keep all these hotels running, going to come from ??

    Oh, oh, wait a moment – I am missing the point – YOU OWN THE HOTEL – right – it can just sit there & rot for all you care – “WE OWN IT & it is VALUABLE real estate just sitting there looking pretty”.

    It is WASTE you mean – if it is not bringing in money – earning its keep it is wasted space ONLY.

    • R Davis
      Jun 16, 2018 at 12:02 am

      Assets Must Earn Their Keep to Have Value:
      If Blackstones hotels are not earning their keep they are equal to the abandoned Malls of the USA.
      Only newer.

    • Gershon
      Jun 16, 2018 at 8:36 am

      When the Fed and middle class taxpayers have your back, you can do no wrong. Which is why all these corporate sociopaths can speculate with wild abandon, knowing any and all losses will be transferred to the public ledgers while the Fed lavishes more trillions in conjured-out-of-thin-air funny money on its favored grifters.

      Isn’t crony capitalism grand?

  11. R Davis
    Jun 16, 2018 at 12:09 am

    I did not know how to pronounce your name.
    Don Quijones
    Qui – as in here in Italian – Jones – Don here Jones
    in fact it is Don Quihones.
    Still a brilliant name to have.

  12. Jun 16, 2018 at 9:38 am

    Glad you like it, RD. The guttural “j”is always a hard sound to master in Spanish, since it doesn’t exist in many other languages. But once you master it, you can have great fun with it.

Comments are closed.