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Today’s financial leverage is tomorrow’s volatility
24 April 2020 |

The financial support provided by both the Government and International Organisations is welcomed by companies since it allows them to leverage capital and overcome the «dramatic» scenario we are living in. But «this support is not free» and in the future might expose these companies to «greater volatility».

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«When there is capital leverage, it means that in the future there will be greater volatility. And we should be prepared for dramatic changes in KPIs, rents and prices», advanced Pere Viñolas, Colonial’s CEO, to IP within the new segment Iberian Property Investment Talks. For the CEO, one other expected impact under this scenario is «a high premium risk in the asset’s assessment».

Despite these consequences, Pere Vinõlas assures that all this financial support makes sense and that it is «natural response» to this unprecedented moment of crisis generated by the new coronavirus. Without this support, companies «would not know how to react to this crisis», he believes. Nevertheless, he alerts that this additional leverage may cause «some tension in the mid-term and impacts in the coming years». The increase in interest rates and the country’s debts are two examples.

Under this scenario, Colonial’s CEO believes that «the greatest pain will be caused by the economic saturation rather than by the financial saturation». And thus, he remarks that we should pay «more attention to the clients’ economic health and its impact on the rents, and not so much to the companies’ and countries’ financial positions».

Answer to the crisis should be individual

If right now we can determine the impacts on the different real estate segments – such as retail and hotels presenting high volatility, while offices and logistics remain «strong» -, henceforward the differences between segments should become more evident.

For Pere Vinõlas, «the answers will be different according to the individual characteristics of each asset and each company» and, as such, in the future, there «will be greater differentiation between impacts on each segment».

On the future scenario, Colonial’s CEO believes that this situation will reverse and he is convinced that «the recovery will take place, although it will take longer than initially expected».