Savills Global Placement
Location: Madrid, Spain
Dates: May to September 2013
Name: Alex Melligan
Job Title: Graduate Surveyor
Graduate Scheme: Surveying, London
Start Date: September 2013
Alex was a first year graduate when he undertook a 4 month rotation in our Valuation team in the Madrid office. Alex is doing the Commercial pathway and is doing a part time Masters whilst working at Savills. Alex speaks Spanish and was able to use his language skills during his placement.
Alex's blog is below, so have a read to find out what Alex did and to find out more about the Spanish property market.
With the submission early in the week of the draft report for the scheme I made reference to in my second post, this week I was able to turn my attention to the PERF II shopping centre portfolio.
Having visited the centres the week before, it was now possible to begin the valuation process. The team in Spain uses a purpose-built valuation model run through Excel for the valuation of shopping centres. Simply-put, the model produces a Discounted Cash Flow based on information input into a template. The model, which is quite complex, but, fortunately, rather easy to use allows for consideration of stepped rents, fixed rental uplifts, discounts, service charge, bad debts, and other factors affecting value throughout the cash flow period. Also, because the model is run through Excel, it is possible to see how it works which allows for a greater degree of transparency and understanding of how the values it produces are calculated. Again, this is particularly useful in the context of a shopping centre with dozens of tenants.
Using this model, I have been helping to run the valuation by inputting the data from the tenancy schedule of the Travesia Shopping Centre in Vigo, Galicia, in northern Spain, whilst other members of the team have been carrying out the same exercise for the other centres making up the fund. This has been a good opportunity to familiarise myself with the model and learn a little more about how it works, whilst also getting a feel for the tenancy position of the centre before writing the report in coming weeks.
In addition, this week I have been producing retail market commentary to attach to PERF reports to contextualise the valuations. It will also go some way to explaining to the client any changes in value on the previous valuation, which was carried out in December last year. This has been a good opportunity to learn more about the Spanish retail market and get to know Gema de la Fuente, who produces the Spanish office's research publications, whilst also providing support to the internal teams.
This week also saw a group of more than 100 masters students from the University of Reading arrive in Madrid for their annual European field trip. Throughout the week they were given a series of talks on Spain's property market by a variety of high-profile speakers from real estate companies operating in Spain. Whilst Gema and Alejandro Sanchez-Marco (from Capital Markets) gave a formal presentation on behalf of Savills Spain, I was also invited to give a short presentation. Deciding to leave the market chat to those that are more than a little bit more well-versed in such matters than I am, I instead gave them talk about life as a graduate on rotation in Spain. Hopefully I was able to underline the fact that the industry presents opportunities beyond London and the UK, whilst also giving them a view of the Spanish market from an outsider's point of view.
Finally, this week saw a colleague from valuation, Laura Martínez, leave the team, joining a prominent Spanish asset management firm. Before coming to Spain, I spent several weeks working with Laura whilst she was on secondment in the European Valuation team in London and it is sad to hear her go, but I wish her the best of luck in her new role. On the bright side, her departure was accompanied by adespedidawhich was a great opportunity to continue to get to know the team over a gin and tonic or two.
After only two weeks in Madrid, this week I was given the chance to reconnect with my former team, European Valuation, assisting on inspections of two shopping centres located in Benidorm and Barcelona, which comprise Pradera's Pan-European Retail Fund (PERF).
Savills Spain has valued the fund, which includes the above mentioned assets, as well as a further centre in Vigo, since 2008 and annual inspections allow the valuers to get a feel for the centres' performance. Not only that but the inspections give an opportunity to meet the property managers in person in order to understand the centres' performance since the previous valuations were carried out, as well as to get an insight into the current tenancy positions and any plans for the centres going forward. Given that the previous valuations were carried out at the end of last year and the Spanish market has continued to show signs of improvement since then, this is a particularly important part of the update valuation.
Like the vast majority of Spain's real estate industry, retail was hit hard during the downturn, as vacancy rates in shopping centres soared, rental levels fell, and yields were pushed out. In spite of this, the La Marina Shopping Centre in Benidorm has performed comparatively well; footfall and sales rates have fallen in recent years, but the rate at which these have been falling has levelled out, and annual footfall at the Benidrom asset remained at c.4.0m during 2013. This is driven primarily by the fact that the centre operates with an effective monopoly, being the only shopping centre of its kind within a 30 minute drive, meaning that the substantial local catchment (which increases significantly with the influx of tourists during the summer months) is unlikely to go elsewhere. The gallery is also intelligently arranged (considering it was previously two adjacent factory buildings that have since been joined to create the centre). The top floor features a south-facing terrace and a series of restaurants catering to the needs of local shoppers looking to make the most of the Costa Blanca sunshine.
Whilst the outlook remains positive for the La Marina shopping centre (demand for units is reasonable and further renovation works will see the under-performing terrace area converted into a retail gallery), the second centre we inspected, the Llobregat Centre, is facing a challenging period.
Having submitted the report relating to the residential development scheme of the Barcelona office building at the beginning of the week, my second week in Madrid was devoted primarily to working on another mixed-use redevelopment scheme, this time involving a high-profile, listed building.
Savills Spain has been involved in the production of a valuation report to provide to the purchaser in conjunction with the acquisition of the property. As if often the case with work of this description, it is not possible, at this stage, to disclose details of the property involved but the scheme involves the internal reconfiguration and extension of a listed property to provide a combination of a retail gallery, hotel, and apartments. This scheme is to lead the regeneration of a somewhat underutilised area of the city, and has been a fascinating project to be involved in.
Such a complex scheme has required the collaboration of three different teams within the network. This model means that the valuation has been carried out with input from specialists in their field and market, which is key for such a diverse scheme of such a large scale.
Given that in the UK a large proportion of valuation work is carried out using specific software, such as Argus, it was also interesting to compare the UK methodology to that employed by the Spanish team. This development was modelled using a 10-year discounted cash flow, incorporating the inputs of the various teams involved in the valuation, in addition to the data provided by the client to provide a valuation.
Next week I am due to being on inspection to see two shopping centres, located in Benidorm and Barcelona. Having been exposed primarily to residential-led development projects so far, it will be interesting to learn about the market for retail assets in Spain at this moment in time.
This week, whilst many of my fellow graduates rotated to different teams in offices throughout the UK, I began a four-month secondment in Savills' Madrid office. During this period I will be working in the Valuation department and I hope to apply some of the skills I have acquired so far during the graduate rotation programme in a different market. I had previously spent a short spell working for a competitor in Madrid during 2011, when Spain was enduring the depths of its economic crisis, and I was keen to see how the market might have moved on.
On my first day in the office I was given a warm welcome by Fernando Fernández de Ávila, a director in the valuation department, and Dolores Martínez from Human Resources. I was introduced to the Spanish team, which comprises approximately 60 staff working across a variety of sectors including agency, property management, capital markets, and the department in which I am to be working: valuation. The office is based on Madrid's Paseo de la Castellana, an arterial road running from the city centre towards the north which culminates in the Cuatro Torres dvelopment. The city's Central Business District (CBD) is centred around this road and it means that Savills operate out of the heart of this district.
In terms of my role during my first week, I was able to get involved immediately, with the team keen to give me responsibility for my own projects. My first days in the office were devoted primarily to the production of a valuation report for a high-profile residential development in Barcelona. The proposed scheme sees the conversion of a 12-storey vacant office building, formerly the headquarters of a large telecommunications company, to a residential-led, mixed-use development comprising approximately 5,000 sq m ground-floor commercial space, several hundred residential units, and five below ground floors providing parking spaces and storage space. Most of the due diligence had already completed before my arrival and so my role involved the production of the written report and a market commentary analysing the prevalent trends in Barcelona's residential market in order to assess the position the proposed scheme would take in this market and achievable capital values for the units upon completion.
This exercise was a good opportunity to learn about Barcelona's residential market and it was shocking to see just how much it had suffered during the downturn. For example, house prices in some areas of the city, according to official statistics, have fallen by as much as 30% in the years since the height of the market, and prices continue to fall, albeit at a slower rate, in many of the city's districts. Nonetheless, it would appear telling of the renewed interest in the market that such a substantial development as this might take place. This is not an isolated case and large-scale acquisitions and developments appear to be becoming increasingly common in the Spanish market as investors to seek to take advantage of depressed prices, acquiring prime assets with attractive returns for competitive prices.
In summary, the team in Madrid has been very welcoming and my transition into a new team, and indeed, a new market, has been smoothed by the fact that I have been given the opportunity to begin working on my own project straightaway. It is fascinating to see how the market has moved on in Spain over a short period of time and that, even though economic indicators may not necessarily suggest a boom period is on the horizon, confidence definitely appears to be returning to the market. It will be very interesting to see how this develops over the course of my rotation here in Madrid