A unique approach. Spanish
Residential Property Opportunities.

Unique real estate
niche strategy.

SRPO is pursuing a unique investment strategy of recurrently acquiring, repossessing and reselling residential properties in well populated Spanish regions. The properties may be subject to adverse possession, which is resolved by reaching an amicable settlement with the occupant.

Key investment
Highlights

Target Net
Return

Low double digits. Over time the fund may use limited leverage (max LTV of 40%) enhancing potential returns.

Proven
strategy

For the last 10 years, over 90% of historical property portfolios were eventually sold at a profit that was in line with or above the Fund’s target return.

High-demand
area’s

The fund will exclusively focus on well populated area’s which have sufficient transaction volume i.e. no rural area’s.

High barriers
to entry

This is a niche strategy which is difficult to copy, banks are only willing to sell large portfolios to a legitimate buyer.

Ethical & socially responsible

All parties are sensitive to reputational risk and the fund operates in a fully regulated and controlled environment

Strong buffer against capital losses

After accounting for all costs and taxes, overall real estate prices would have to decline by more than 20% to make a loss.

Unique proprietary technology

Each property is appraised by a proprietary big data valuation software, which tracks key features and metrics.

Limited correlation to financial markets

Our alternative investment strategy focusses on existing residential real estate (no development)

Investment
approach.

The Fund is able to cherry-pick residential assets offered by Spanish financial institutions looking to clean up their balance sheet, lower their risk weighted assets and improve their capital ratios. More stringent supranational regulations are pushing banks to offload risk-assets (such as foreclosed real estate or REOs) more quickly. The COVID crisis has led once again to an increase in non-performing loans (NPLs) and real estate owned properties (REOs).

Frequently Asked Questions

Orion Constellation – SRPO Sub-Fund (“the Fund”) is a Luxemburg-based RAIF (Reserved Alternative Investment Fund) which was set-up in Q4 of 2020. The Fund (and all underlying Sub-Funds) is fully authorized within the scope of the EU AIFMD (Alternative Investment Fund Managers Directive) through its AIF manager IRE AIFM HUB. The AIFM (“Alternative Investment Fund Manager”) is directly approved and regulated by the CSSF, the financial regulator of Luxemburg. The full-scope AIFM status assures that the Fund’s appraisals, NAV calculation, risk and portfolio management are reviewed and verified by a regulated external party. In addition the AIFM has to approve every investment, that the General Partner (GP) aims to make, and ensures that all investments are in line with the investment objective as described in the PPM. The Fund accounts are held at an authorized custodian bank, Banque du Luxembourg and the GP has appointed a regulated fund administrator and transfer agent, Alcyon SA. In addition the GP has appointed Wilton Investment Services BV as Investment (sub-)Advisor to the Fund. WIS is regulated by the AFM and FSMA. WIS is compensated by the GP as part of the management fees and shall not directly charge the Fund. The Fund, respectively the General Partner, and the AIFM shall not be bound to act by any advice or recommendation given by any Investment Advisor. Please refer to PPM for more details.
No, the Fund only offers capitalization share class(es). Most properties do not generate rental income, hence there is no periodic, predictable cash flow that would a dividend suitable. The Fund aims to maximize value and returns by buying, fixing, selling and then re-investing the proceeds as soon as practically possible into new portfolios of occupied residential properties
At the moment, the SRPO Fund does not use leverage. In the future, the SRPO Fund may seek to maximize returns for its shareholders through prudent use of leverage. The leverage incurred by the Fund shall not exceed 50% of the gross asset value of the Fund.
The Fund is intended for well-informed or professional investors only (see PPM). The legal minimum investment may differ depending on national private placement laws but is €125,000 for person(s) investing from Luxemburg and €250,000 for person(s) investing from Belgium. The Fund is specifically marketed to (ultra) high net worth individuals, family offices and (life) insurance companies.
In case of occupied properties, the occupant(s) of the property could be offered compensation if they voluntarily agree to vacate the property today rather than go through a stressful legal procedure and risk being legally evicted by law enforcement. Most illegal occupants understand their rights well but also realise at this stage it is a matter of time before the owner obtains a court-approved eviction order. Most prefer to avoid prosecution and contact with law enforcement. Some just want to remain anonymous and already leave once they are visited and identified The strategy is a win-win strategy for all involved parties. Banks and institutional funds are happy to offload occupied assets sooner without risking their reputation, occupants accept to get an alternative legitimate domicile (by either renting or buying with mortgage) and the SRPO fund becomes the owner of a vacant asset which it can sell at market price now. This way the occupant also avoids civil or criminal prosecution. It should be noted that many occupants are people who have jobs but are exploiting a slow judicial system and a property repossession law that is full of loopholes, especially for institutional owners. In many cases, occupants may have paid someone else who gained unlawful access to the property and who changed the locks, so there is no risk for them whatsoever, not even in the first 48 hours, to be charged with any crime.
In these cases the judicial process is continued leading to a court-approved eviction process. In rare cases where that does not work or the judicial process is expected to be exceptionally lengthy, the asset will be sold in an occupied state. It is only a matter of time before the property is finally repossessed.
Banks face pressure to clear their balance sheet of assets (such as real estate) that are not core to their business model and that carry a much higher risk-weight than (mortgage) loans and thus require them to attract more equity capital.

 

  • The Fund’s partners are the largest occupied real estate institutional specialists active in this niche in Spain and employs well over 250 Full Time Equivalent employees including trained negotiators who personally visit all the assets, real estate appraisal experts and specialised lawyers.
  • Proprietary appraisal software and database: including over 20 million properties with relevant parameters such as asking/selling price, surface, floor, elevator, location, etc. This enables the fund to analyse and bid on hundreds of occupied assets every week. The more assets the Fund and local Asset Manager can accurately bid on, the more likely some bids will be successful.
  • Exclusive sourcing: The Fund’s advisors have over the years become trusted counterparties for banks, who are only willing to sell to reputable & ethical counterparties they know.
  • Strict buying & selling discipline: Once an asset is up for sale, all activity (web, visits) is monitored and we only accept offers for repossessed assets that are higher than our internal market appraisal.
The Fund could potentially consider other EU countries, but the Spanish market is currently the most interesting one due to combination of factors. Spanish banks (and investment funds) still have plenty of (occupied) real estate on their balance sheets which they are looking to liquidate as soon as practically possible. The Spanish legal system is constructed such that it protects property rights, but it can very long time to enforce them. Furthermore, the strategy and our local partners have a good track record in Spain (>6 years). Overall, the Spanish real estate market is in much better shape today than it was when the crisis of 2008 hit. Fundamentals today are more solid and there is much less leverage in the system. Spanish banks have been more cautious, they now lend mortgages for up to 80 per cent of a property’s value — as opposed to more than 100 per cent before the last crash — and they scrutinise the finances of applicants who work in vulnerable sectors, like tourism, more closely. Spanish property developers also have less debt and built only about 60,000 new units a year between 2013 and 2021, compared to over 600,000 annually from 2004 to 2008 — reducing the risk of a supply glut. House prices have substantially rebounded from 2014 up until 2022, Spanish housing prices (existing & new homes) have been steadily increasing at annual rates of 3-6% (6.2% in 2021). The Fund focuses mainly on flats. Spain has one of the highest percentages of flat residents in Europe, according to Eurostat. Almost two-thirds of the population live in flats, the highest rate for any EU nation apart from Latvia. In Italy, the proportion is around half, and in France it’s just over a third. In the UK, flat dwellers only make up 15% of the population. Some 65% of homes for sale in Spain are flats, according to Fernando Encinar of Spanish property site Idealista, compared to just 25% on UK site Rightmove. Spain has one of the highest home ownership ratios of Europe. According to Eurostat figures, 75% of Spaniards owned their own home in 2021, compared to 64% of French and British people and 50% of Germans.

The Fund aims to work exclusively with local partners that upholds very high compliance and ethical standards. The local partners adheres to a very strict and well documented approach when repossessing occupied residential assets. The repossession manual, translated to English, is available upon request. The Fund will only work with advisors who are trained and experienced negotiators that approach and deal with occupants in ways that are respectful and non-threatening. 

Because occupied properties are of such sensitive nature and they are sold by national banks who are under strict supervision, it is very important to maintain a good reputation to be an ‘accepted’ buyer in this market. Because most occupants agree to leave voluntarily (often in exchange for compensation) they cannot claim they were ever forced. In the remaining minority of cases standard legal procedures will be pursued. There will absolutely be no use of any force, threats, or any other verbal aggression to convince occupants to vacate.

While risk of fraud can never be 100% avoided, the risk here is minimal as the Fund owns the real estate properties outright via 100% owned SPVs (i.e. Spanish companies). All the properties are verified with the land registry or cadastre by our service provider and purchased via local and registered notaries who make additional verifications. The AIFM (Alternative Investment Fund Manager) makes the final decision to purchase the properties, based on due diligence of the service provider and an independent third-party appraisal. The Fund is the sole owner of the SPVs, set-up and registered with an official notary, and the SPVs are the sole owner of the properties. Purchases deeds and proof of ownership will be held and verified by the Fund’s independent custodian.

The Fund has at its disposal fully equipped teams of experienced appraisal analysts in Madrid as well as an internally developed appraisal software and database.  

Once the relevant data (cadastral references etc) is received in the adequate format, the assets are uploaded in the appraisal tool. The program allows to automatically appraise up to 50.000 assets a day. The appraisal is based on comparable assets from the same neighbourhood.

Once the desktop appraisal is created, the analysis teams exclude from the benchmark all the assets for which valuation quality is substandard. This means that all the assets that do not have enough available comparable assets to produce a comfortable valuation are discarded.

Next the teams review each asset, potentially revising the appraisal up or downwards based on their expertise and knowledge. Moreover, they value elements of the asset that are extraordinary, like views, nearby services, quality of the street, etc. Each asset receives at least 3 valuations from 3 different in-house analysts, in addition to the automated valuation.

In addition, the properties are appraised by an independent third-party appraisal firm immediately before or at the time of purchase.

The AIFM (“Alternative Investment Fund Manager”) values the assets held by the Fund in a 2-step re-valuation process. Please refer to the PPM for the full description of the valuation process. The fair value is based on the appraisal of a local independent third-party appraiser at or around the time of the purchase. The third party appraises the property as if it were vacant. The AIFM next applies discounts to this appraisal based on projected costs for refurbishment, security improvements, repossession and sale, taxes and fees for lawyers, notaries and other service providers. If the AIFM deems the third-party appraisal to be overly optimistic, we may use our more conservative internal valuation as the base appraisal to which we apply discounts.

All investments, including an investment in the Fund are subject to a variety of risks and the potential loss of capital. This is an illiquid investment strategy, properties cannot be readily converted into cash, so investors should be aware that redemptions may take up to one year or longer to fulfill. Past performance is not a guarantee of future performance.

The fund
activity.

The Fund commenced operations at the end of Q2 2021. Q4 2023 has proven to be an exceptionally busy quarter for us. We successfully finalized the acquisition of three new portfolios in the last days of December 2023, comprising respectively 337 assets, 80 assets and 60 assets, totaling a market value of ca. €52 million, which, as always, we bought at a significant discount. Assets worth approximately €15 million from these portfolios have already been transferred to the Fund during Q4. During this quarter, the Fund successfully repossessed 75 assets through amicable agreements with occupants. These repossessed assets will be available for sale in the upcoming quarters. Presently, the Fund holds ownership of a total of 500 repossessed residential properties ready for sale, surpassing our business plan projections. Sales momentum remained consistent this quarter, with 61 residential assets sold in Q4 and another 82 sales agreements signed in November and December 2023, with transfers scheduled for Q1 2024 (excl. garage units).

Outlook

We hold strong confidence in future returns, as we achieve sales at or above target prices in a resilient market. On the supply side, market dynamics that prompted Spanish banks to divest persist today, even more with the current interest rates environment. This quarter, we capitalized on numerous new portfolios entering the market, which will positively impact upcoming quarter performances.

As we enter the Fund’s 4th year, we are pleased that our all-weather strategy has allowed us to generate returns across turbulent cycles. In 2023, we strengthen our teams and continued to scale our network, operations and infrastructure. Thank you to our investors for your trust and partnership during the last year.