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Alternative Investments: When plan B becomes plan A.

Our market evolves and adapts to changing times. In this sense, we are experiencing a sophistication going from real estate to "Real Estate". Specialization is the order of the day and the real estate expert of yesteryear has become a specialist in micro-markets or micro-segments (specialists in proptech, retail high street, medium-sized parks, logistics, specialists in micro-areas).

This specialization is also not alien to the investment universe, which is increasingly seeking to focus on business segments in which to achieve the desired returns. In a highly competitive market like the one we live in where demand far exceeds supply, asset yields have been compressed to practically all-time lows. We are seeing office operations below 4%, logistics below 6%, or high street or residential retail 3%.

Investors have to look for other investment options that give them the returns they seek.

This is making investors have to look for other investment options that give them the returns they seek, and this involves investing in less common segments: so-called alternative investments. In this type of assets, returns above 6% can be achieved with a reasonable assumption of risk.

Within this type of assets we can find a wide variety, such as student residences, residences for the elderly, hospitals, gas stations, storage rooms, parking lots, etc. In Europe, led by the UK and Germany, this type of investment exceeded 16% of the total volume transacted in 2016, and although Spain is not yet a mature market, it will already reach 2.000 million euros by 2017.

Many of these operations, in addition to the real estate component, have an operating component very similar to the operation of hotels, which must be analyzed in great detail to determine their potential and solvency.

The most active segment is that of student residences, which in Spain has yet to be consolidated.

The most active segment is that of student residences, which in Spain has yet to be consolidated. The park of residences, of around 90.000 beds, tends to be mostly obsolete and little adapted to the needs of today (high quality, individual rooms, private bathrooms, common services, etc). Likewise, it is mostly managed by universities, religious or private entities, which means that professionalization is still to come. On the other hand we have 1,5 million university students, of which approximately 25% study outside their hometown. Some investment funds such as Corestate with the purchase of the Colegio Mayor Hispano Mexicano, AXA with the purchase of RESA, The Student Hotel with the purchase of Melon District in Barcelona or GSA with the purchase of the Nexo residences from Oaktree have focused on this type of asset. These funds have detected an opportunity in this market since there have not yet been major concentration processes, there being a great dispersion, unlike other countries such as the UK and Germany where a few operators dominate the market.

The health sector has also experienced a moment of effervescence. On the one hand, hospitals have undergone a process of concentration where four large groups control more than half of the private market. It is common to see corporate operations carried out by venture capital or other market players that, once the purchases are perfected, propose the sale of the real estate part to focus their resources on the operation. On the other hand, nursing homes for the elderly are another very active segment, as the aging of the population is increasing the demand for these types of services. A good example of these operations is the case of Healthcare Activos, which has bought several residences for the elderly, supported by Oaktree, having invested more than 40 million euros.

Other alternative assets such as gas stations, storage rooms or parking spaces are also being analyzed by various investors who are seeking returns above 7% in some cases. This year we have seen several gas station sales operations such as AXA or selfstorage with Bluebox and OhMyBox.

In a highly competitive market where an open mind is required, alternative investments are a clearly booming option that will be talked about in the near rather than distant future. Alternative investments have come to stay and will be increasingly prominent, becoming plan A for many investors.


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