INTERVIEW WITH JAVIER BELTRÁN DE MIGUEL,
CEO & FOUNDER OF CG CAPITAL EUROPE, FOR IBERIAN PROPERTY
What is your current outlook for the Iberian market?
We are experiencing challenging times for the Real Estate market and for the economy in general. After two years in which the sector has been strongly affected by Covid-19, 2022 started with an uncertain macroeconomic situation, further intensified by the war in Ukraine. In addition, the last few months have seen a shift in interest rate curves, which were at negative rates for the last six years, leading to a turnaround in capital market conditions and investment decisions. In spite of all this context, the Real Estate sector still managed to outperform expectations, which shows how truly resilient this sector is (also underpinned by its protection against inflation), with the number of transactions in the highest figures since 2007.
Although, as I say, this is an uncertain time, we see it as a great opportunity for those who are able to stay one step ahead and anticipate future market movements. Traditional key levers are becoming even more important in Real Estate: i) precise cash flow valuations at a time of change and slight misalignment between bid and ask; ii) the correct definition of the optimal capital structure for each transaction, especially given the changes in interest rates; and iii) the implementation of formulas to reduce the risk associated with these and other macro and micro factors.
How is the rise of interest rates and inflation going to affect the Real Estate market in Iberia?
As the Real Estate sector is very capital intensive, many of these keys have one common point: raising the optimal financing stack for each transaction. As mentioned above, the rise in interest rates, and especially the volatility we are seeing in the last few weeks in the ‘screen rates’, makes increasingly important to determine the most adequate financing structure considering the investor’s profile and risk tolerance and its expected returns (IRR, Equity Multiple, Cash-on-Cash, Profit).
In this environment, it is essential to analyse all the options offered by the markets and design the optimal capital structure and new formulas to mitigate the associated risks and maximise the returns on investment. Selecting the most appropriate type of lender (banks or alternative lenders) and debt structure depending on the purpose of each transaction, or determining sufficient and appropriate hedging, are some of the levers that will help ensure the solvency and profitability of each Real Estate transaction, through a sustainable credit structure (with appropriate ratios: LTV, DSCR, Debt Yield, Average Life).
Alternative Financing – is it becoming an increasingly popular formula with respect to traditional banking services? How did CG Capital Europe adapt its strategy to the Alternative Financing Formulas?
In this industry, an optimal capital structure is essential to obtain high returns and achieve the business plan. Real Estate has traditionally relied on the banking sector for its financing, which has reached a high level of concentration, with the three big banks accounting for 60% of the Iberian market. This consolidation, alongside other factors, has led to restrictions on certain sources of financing. This context has opened up an opportunity for debt funds and alternative lenders. Thus, alternative financing, partly as a result of its growing professionalization, is expected to reach a share of 35%-40% in 2026, similar to other OECD countries.
As investment competition has increased in recent years, it is necessary to optimise the capital structure in order to maximise returns. It is crucial to analyse market alternatives on a case-by-case basis: depending on the investment profile, the asset class and the risk tolerance of each investor, in some cases the best option will be traditional financing and in others alternative financing. At CG Capital Europe we design and implement for each transaction a bank structure and a debt fund structure, defining the optimal capital structure, maximizing returns and guaranteeing solvency and sustainability of transactions.
What is CG Capital Europe and what is its mission statement?
CG Capital Europe is a reputed, independent Real Estate and Infrastructure Investment Bank focused in Southern Europe, mainly in Iberia, but also active in France, Italy and Switzerland.
CG Capital Europe provides high value-added advice to its institutional and private clients on asset and corporate transactions, structuring and raising optimal financing (equity and debt), as well as investment & asset management services with a clear objective: to achieve optimal results for our clients, investors and lenders, through our high quality, innovative and tailor-made professional services. To this day, we have achieved a track record of €3,900 million of successfully closed transactions (in sales, acquisitions and financings -debt and equity-).
Celebrating your 10th anniversary, what distinguishes you from other players in the industry, and where does CG Capital Europe position in the Real Estate sector?
The increasing sophistication, professionalization and internationalization of the sector requires differential and high value-added professional services for clients.
In CG Capital Europe we are fast movers, obsessed with value creation, innovation, results and attention to detail. Strict confidentiality is also the order of the day when building long-term and trusting relationship with our Clients. This can only be achieved by the tailor-made process we bring for each deal, providing specific advice for each transaction and analysing it from different angles.
At CG Capital Europe we apply the highest standards of quality work and professionalism of investment banking: confidentiality and independence, high value added, in-depth knowledge of corporate finance, innovation and commitment to our clients' success. We have an outstanding relationship with investors, as well as with financial institutions and debt funds around the world, which has led us to achieve an impressive 95% success rate over exclusive mandates in last ten years, placing CG Capital Europe in the top ‘closers’ within Iberian real estate sector.