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2017 / iberian.propery // 21
ISSUE: TOP IBERIAN Investors //dossier
Spain started recovering from its real estate crisis in 2013,
driving attention and foreign capital to the country non-stop
for the past four years. With more competition looking for
the same type of returns, the first challenge for investors is
to target a specific and lucrative niche to compete in, and
become the best at it. Suchwas the casewith Neinor Homes,
currently benefiting from a first mover competitive advantage;
this status was achieved by a bold and calculated move by
Lone Star in 2015, acquiring a real estate developer with 30
years of history from Kutxabank. This transaction marked
the first acquisition in a sector that at the time had little or
no activity, with few remaining local.
The second challenge is to set a clear, value-creating
strategy. Since the acquisition, the management team
transformed Neinor and imprinted it with the institutional-
isation that is characteristic of the Private Equity industry.
This transformation included:
• Focus on the company’s three pillars: institutionalisation,
product and client
• Very clear and simple strategy: a multi-family residential
developer, targeting middle-class buyers with housing
units of ca. EUR 300k
• Hiring top talent: from ca. 80 employees at acquisition to
over 200 employees as at Q1 2017, led by an experienced
management teamwith top financial expertise and a track
record of more than 35.000 units built.
• De-risking at each step of the value chain, and adding
flexibility to the residential development business model
based on externalisation
• Acquisition of fully permitted high quality land in the best
locations with strong immediate demand
Throughout the past two years, this consistency created
a very strong company that is transforming the residential
development sector. The latest step in this transformation has
been the flotation of Neinor Homes shares (ticker-symbol:
HOME) on March 29th 2017, marking the biggest flotation
by a European developer and the first Spanish developer
to go public in the past 10 years.
Success attracts competition, and that is the third chal-
lenge: investors need to be ready for an increasingly com-
petitive and sophisticated environment. The success of
Neinor Homes and the transformation of the development
industry led other private equity backed players to follow
the same steps and start competing in the same attractive
market. Competition is healthy andwelcome, given the past
mistakes that led to a bubble in the industry, as well as the
fragmentation and low starting point of the housing market
that calls for consolidation.
The current competitive environment is such that local play-
ers, cooperatives and construction companies will continue
to build and deliver a certain number of units in specific re-
gions. While the national players, led by Neinor Homes, and
including the rest of the private equity backed developers,
will consolidate the market and impose much welcome
discipline and transparency at every step of the value chain.
Two final points on competition and room for consolidation:
the first is that Neinor is ready to compete by stepping up
innovation and the focus on the three pillars. Second, ac-
cording to CBRE, the yearly demand for new build units in
Spain until 2025 is around 180,000 units. Starting from a low
level of ca. 64,000 housing starts in 2016, Neinor Homes’
run rate target of 3,500-4,000 units per year represents a
conservative market share of 2%.
How difficult is it to develop a pan-Iberian strategy?
In a global market, volume and size do matter and therefore
a pan-Iberian strategy needs to be considered. The Portu-
guese market presents many similarities to the Spanish one
and therefore could contributewith very profitable synergies
to Neinor Homes. Nevertheless, we must bear in mind that
there are also differences to consider.
Regulations are not the same, the country – especially re-
covery of the financial system – is at an earlier point of the
cycle and macro fundamentals are not as strong as in Spain.
Furthermore, residential development has a very important
local component and everymarket must be studied thorough-
ly before making any decision. Even in Spain, submarkets in
the same autonomic region can behave equally in terms of
product demand, absorption and market dynamics.
Thus, as a leading residential developer, Neinor Homes will
always study strategic opportunities that are accretive to
shareholders and to the company’s business plan; if any of
these opportunities meet all conditions, then a pan-Iberian
strategy could be considered in the medium run.
Juan Velayos
Neinor Homes
CEO