Being Portugal a more Value Add play when compared to more mature markets, the rise of Interest Rates plays a smaller role in the strategies of players who are looking into growing or consolidating their footprint in the market, as explains Igor Borrego to Iberian Property in this interview.
- What’s your perspective on the current status of the M&A market in general and particularly in Portugal?
So, starting with some good news: we’re seeing M&A activity picking up. This is somehow a general trend but also particularly in the real estate sector the feeling is the same. In Portugal, this is happening mostly in companies with a “bed” related activity, namely hotels, residential and flex-living. We’ve seen recently the acquisitions of Amazing Evolution and Details, Amazonia Hotels being bought by Real Hotels, Arrow buying the Dom Pedro hotels, Nexity being bought by Orion and a lot of things happening in the Agricultural spectrum. So, these recent and large scale transactions have been setting the tone.
- How do you evaluate the impacts of interest rates growth in the M&A market?
It had a significant impact in slowing down the activity, especially after the spring of 2022. The market went into a stall and since then a lot of investors were on a “wait and see” mood, others were dealing with their own problems and few of them were actually looking out and trying to find those very attractive opportunities. Now it looks like the clouds in the horizon are slowly going away and even though the rates might take longer to come down than expected, there’s some positive momentum stepping into the conversations. Nevertheless, being Portugal a more Value Add play when compared to more mature markets, the rise of Interest Rates plays a smaller role in the strategies of players who are looking into growing or consolidating their footprint in the market, mainly because the upside over-compensates the cost of debt and the eventual over-leverage of some players might result in good opportunities to buy.
- How do you see the equity raising environment?
Raising discretionary capital has always been and continues to be quite difficult. This is a general trend not only in Portugal, but here it’s even more difficult. But we’re seeing an increase in appetite for Joint Ventures and Partnerships with experienced market players in sectors such as Hotels, Flex Living, Logistics and Residential. We believe this will continue to be the trend. Specially for Value-Add plays where Indirect Investments are more suited.
- What are the threats for Portugal ?
Portugal is still a small market in the context of the broader continental Europe and UK and somehow we might be victims of our own success. We’re experiencing good fundamentals at a macro-economic level and also in some specific sectors like Tourism and Leisure, Logistics or even in the office occupancy, which is much better when compared to other geographies. This has sustained the prices but has reduced the liquidity of the market. Money has no boundaries and some investors have mentioned similar opportunities in other geographies in which they are more familiarized. This geographies are now strong competitors to Lisbon, Porto, Algarve and other regions we might suggest them. Most of the times we’re comparing assets in Lisbon with assets in secondary cities of more consolidated countries, but nevertheless, we’re not selling Portugal anymore, we’re trying to sell a more favorable risk adjusted return.
- Where do you see the opportunities for the next 24 months?
The country fundamentals are very good. Portuguese bonds are trading below the Spanish ones, reflecting a public debt that is already below 100% of the GDP and a government budget that recorded an historic surplus last year. Under this good umbrella and since the country is lagging behind more mature markets, we expect a significant investment to be allocated in the alternative sectors and several Joint Ventures to be setup in the next 12 to 24 months. Flex Living, Student Accommodation, Self-Storage, Senior Living and Senior Care are hot topics…there will be many opportunities with players that are starting their platforms and others that are consolidating their footprint. Of course Hotels and Prime Residential will also remain at the top as some of the most attractive investments and will continue to play an important role.