LPs driving financing in Spain ahead of banks

Spanish real estate market insights at Europe GRI 2023 identify financing and capital allocation as main challenges

November 7, 2023Real Estate
Written by Helen Richards

Europe GRI 2023 gathered leading real estate players from across the globe to discuss strategies and outlooks for European markets. Participants at the ‘Capital into Spain - Enthusiastic LPs or stuck in repricing limbo?’ panel presented an overarching optimism for the Spanish real estate market, however several notable trends and challenges were brought to attention.

It was first pointed out that capital flows into Spain have slowed, particularly from investors in the US who are perhaps favouring the UK market at present. This shift in preference, however, may create opportunities for investors with strong local expertise.

The country boasts high-quality real estate assets, and skilled managers can extract value and deliver promising returns. Furthermore, the market has shown favourable risk and returns in the past 12 months, making it an attractive proposition.

Financing & Capital Allocation

It was agreed that the two main challenges in the market at present are financing and capital allocation. Some investment funds face deadlines for capital deployment, but conditions for fundraising appear less favourable than in 2022.

Spain has a unique financing market, characterised by rigidity, with just 5-6 banks dictating lending conditions and favouring lower LTVs since 2011. This rigidity persisted even during the prosperous years of 2014 to 2020. 

Relationship banking has taken centre stage, with long-term sponsors being favoured, thus making the financing framework even more rigid, particularly for new players. This brought claims from some meeting attendees that lack of appetite from banks for certain retail deals was due to improper analysis.

Considering this, it was even suggested that LPs are now the key financing drivers in Spain, ahead of banks.

Another central question during discussions was how to deploy equity. High financing costs and limited availability led some participants to consider whether full-equity investments are more attractive. However, others argued that the potential profit margins may be too slim to justify such a strategy.

The overarching sentiment among discussion participants was optimism. (Image: GRI Club)

Asset classes

Retail remains an interesting asset class to watch in the near future, with post-COVID sales showing signs of recovery. The question was if this would continue and for how long. After all, the retail market is characterised by volatility and uncertainty.

Madrid's residential market outperforms that of Paris, with strong KPIs. A question looming over this sector is whether banks will continue to provide financing for build-to-suit (BTS) developments.

Student housing is considered a resilient and anti-cyclical asset class, rebounding since the COVID-19 pandemic. This resurgence has been attributed to "dynamic pricing", primarily reflecting upward adjustments in rental rates.


The meeting concluded with a brief discussion on development projects and particular emphasis on the current high construction costs. It was noted that limited land supply is not contributing significantly to pricing, rather the cost of construction appears to be the primary driver of pricing issues for development.

All key takeaways from Europe GRI 2023 are published on the GRI Hub. Join GRI Club Europe to gain exclusive access to events and club meetings, accessing invaluable insights first-hand.

The Spain discussion will continue at Ley de Vivienda Club Meeting on November 15 in Madrid. Read more and register here now.