INTERVIEW: Blue sky thinking

The emerging success story of a Spanish firm that has won the admiration and backing from global blue-chip investors.

Number 30 Calle Serrano in downtown Madrid is not the most obvious address in Europe at which to find a leading European real estate fund manager.

But then again, Grupo Azora is not an ordinary company.

Founded in 2003 during Spain’s residential housing boom, Azora started life doing something the rest were not even daring to contemplate.

Instead of joining the glut of developers of homes for sale, it launched Lazora as a residential for rent real estate investment vehicle, front-running what has become one of the most sought-after investment themes in real estate.

The founders went about buying up blocks of apartments from developers and entered into agreements with the public administrations in order to release public land to develop rental housing and offer them as affordable units.

The contrarian approach was an unpredictable yet major success. The company came through the brutal Spanish housing crash that engulfed Spain at the same time as the Global Financial Crisis of 2008 relatively intact. It likes to say it was the only real estate manager in Spain that did not lose investors’ money in that period (or since).

As the country’s first multi-family rental housing platform, over the next 15 years it assembled the largest purpose-built portfolio with around 7,000 units. In 2018, an €870 mln recapitalisation of Lazora that saw fresh investors, CBRE Global Investors Partners (CBRE GIP), Nationale-Nederlanden, and Madison International Realty come in, crystallised a 1.4x net equity return. Not bad considering the 40% peak-to-trough collapse in house prices in Spain during the GFC. 

Azora’s DNA
Javier Rodriguez-Heredia, who joined Azora in 2007 and is in charge of Azora’s ‘Living’ assets, says: ‘Rented residential is part of Azora’s DNA, being the very first asset class we invested in back in 2004.

‘This makes Azora one of the most experienced managers in European rented residential. We built our own commercialisation and property management platform alongside it. The breadth of our experience goes from buying operating assets, completing large refurbishments, entering into forward purchases as well as full developments, and encompassing the full breadth of rented residential asset types, all the way from free housing, to concessions and regulated housing.’

As it kept its management of Lazora, it is today not only a pioneer but currently manages the largest purpose-built rented residential portfolio in Spain with more than 14,000 homes.
Azora has several other claims to fame under its belt, which makes it surprising it is not yet a household name in every corner of European property.

It created the largest private student housing platform in Continental Europe (RESA), with around 9,000 beds, which it sold to AXA Investment Managers and CBRE GIP in 2017. It is also the company that created Hispania, which went on to become the largest owner of hotels in Spain with more than 13,000 keys in 46 assets. Importantly, it pioneered institutional investment in the leisure hotel segment, especially in sun and beach resorts in Europe, a theme it continues to believe strongly in.

Azora took Hispania public onto the Madrid Stock Exchange in 2014. The IPO as a blind pool REIT (or Socimi) raised €550 mln (including €184 mln from Soros Fund Management and Paulson & Co and with APG Asset Management and Cohen & Steers also participating as cornerstone investors in the vehicle). Two subsequent capital increases followed, more than doubling the amount of equity raised. As a ‘cash box’, Hispania enjoyed a blistering rally as it assembled a €2.9 bn portfolio of hotel, office and rented residential assets, at a time when everyone wanted a piece of Spain’s economic recovery.

The eventual takeover by Blackstone in 2018 made a 19% net IRR for Hispania’s investors despite the cash drag implied from the capital being raised from the first day, and gave the partners of Azora a very significant share in profits in the process.

Hispania IPO 
As the original brains and entrepreneurial spirit behind the group, Azora co-founders Concha Osácar and Fernando Gumuzio remain very much involved. They were previously at Spain’s largest bank, Banco Santander, where they were respectively head of real estate asset management and general manager of asset management, private banking and insurance. At Santander, Osácar ran the first and largest institutional real estate fund in Spain.

However, day-to-day responsibilities at Azora are shared between seven senior partners so it is very much a team effort, says Cristina García-Peri, the senior partner who heads corporate development and strategy.

García-Peri was formerly an equity derivatives and equity capital markets boss at JP Morgan and Merrill Lynch, running corporate derivatives for EMEA for more than 12 years from London, before joining Azora in 2011.

She explains how Azora can say it has worked with many international investment groups and achieved many things over the years.
Its roll call of investors and investment partners during the company’s lifespan include the likes of APG, Cohen & Steers, Paulson & Co, Goldman Sachs, Soros Fund Management, Sareb (Spain’s bad bank), Fidelity, BlackRock, AXA Investment Managers, BMO, and Wellington. There are more besides, including most of the heavyweight Spanish investors, such as Mutua Madrileña and Fonditel.

Helping Sareb
In the protracted clear-up operation in Spain following the GFC, Azora played its part as a go-to partner for Sareb. In 2018, Sareb needed someone to help manage Témpore Properties, a residential-for-rent Socimi with 2,200 units, ahead of its monetisation plan. In 2019, a 75% stake was sold to the real estate group of US private equity firm TPG for around €329 mln, with Sareb retaining 24%.

Before managing that Socimi, Azora had already won the trust of Sareb. In 2013, Azora teamed up with US credit specialist Fortress to gain control of Realia, Sareb’s single largest exposure, through the purchase of €437 mln of Realia debt, followed by the launch of a tender offer for the whole of Realia. It was the first time Azora had branched out into real estate debt, but it did so successfully with its new American heavyweight partner. Azora and Fortress were ultimately outbid in their tender offer for Realia by Mexican multi-billionaire Carlos Slim but still managed to make a 20%+ unlevered return on their investment in Realia’s debt.

Along its pathway to success, Azora was also chosen by the Netherlands’ pension fund management giant APG to manage its Spanish rented-residential REIT, Vivenio. And, the company even became a turnaround player by rescuing hotel group Carey Value Added in 2011. Carey owned 14 hotels, all of which were outside of Spain but was pre-bankrupted amid a fraud.

The portfolio included two hotels in London, four in Brussels, two in Paris, Berlin, Cologne, Venice, New York, and Washington DC. Azora inherited a big mess involving €390 mln of outstanding debt and 14 court proceedings in five jurisdictions, but it recapitalised the company, sold some of the larger assets for 15% above appraisal values and repositioned others. Litigation was dealt with, Azora recovered a significant amount of money back, and overall it made a 2.6x equity return for the new investors.

Azora still manages legacy assets in the UK, Switzerland, and the US. More recently, its international colours have been flown again. In July this year the company announced it had secured initial commitments of €680 mln for a pan-European leisure hospitality fund, which had an initial target of €600 mln but which has now moved its hard cap to €750 mln on the back of the strong support received.

Equity commitments to the vehicle, Azora European Hotel & Lodging, were actually signed during the Covid-19 crisis in what could have been the death knell for hotel investors as the travel industry shut down. Yet cornerstone investors including APG, two of the largest sovereign wealth funds from outside Europe and a global institutional investor backed it to the hilt, albeit with some adjustments to the strategy.

Pan-European push
García-Peri says: ‘We feel that with the fundraise of our European leisure hospitality vehicle, we have continued to raise Azora’s international profile. We tick many of the boxes that investors are looking for: we invest in highly operational asset classes, we have a value-add focus, we are investing more and more across Europe, and our areas of expertise are the broad “Living” space encompassing rented residential, senior housing and student housing, hospitality and last-mile logistics, as well as offices.’

Looking back, she says the listing of Hispania in 2014 was pivotal. It turned Azora from a local player into an international one, shifting gears from what was a purely private and largely domestic manager to, all of a sudden, running a public property company at a moment in time when Spanish real estate was at the top of foreign investors’ buy-list.  

As a listed money-spinner, Hispania went on to assemble a hotel portfolio that included 46 hotels with a gross asset value of €2 bn. It also created an office portfolio of around €600 mln. In some cases, Hispania cleverly gained control of land in Spain to manufacture into core office assets. For example, in 2015, it optioned land for 12 months to gain full licensing for a 33,000 m2 greenfield development called Helios. It was happy to negotiate a land price in 2016 at what it says were 2015 prices. Overall, the firm estimates Hispania sourced 65% of its deals in non-competitive processes which ultimately helped it achieve its high returns. 

Incidentally, the Helios office development was ultimately let to ING Bank. The Dutch bank was looking for a central Madrid HQ to consolidate its various office locations in the city. The office was sold by Hispania under Blackstone’s ownership to South Korea’s Kiwoom Securities and Inmark Asset Management for around €180 mln in February this year. To put that into context, the overall cost of land acquisition and construction amounted to little over €100 mln, making Helios a very profitable development for Hispania.

Creative and hands-on
Derek Jacobson, co-CIO of New York-headquartered Madison International Realty, is among highly respected real estate professionals who know Azora well. ‘It is a creative thinker, both operationally and in capital markets,’ he says.

In September 2018, Madison joined with CBRE GIP and Nationale-Nederlanden in an €870 mln partnership to recapitalise Azora’s residential-for-rent platform. Earlier in 2018, Azora had a decision to make: liquidate the portfolio or do something else. Instead of selling the assets from under the feet of thousands of Spanish families, Azora sought a way to keep the management and grow the business with new partners. Half of the new equity went into buying out the initial investors and the other €400 mln was used for a capital injection.

The investment continues to be a good one.

Jacobson observes that Spain generally lags other European countries in terms of possessing real estate companies with international investors and outlook. In Spain, Azora is currently neck-and-neck with The Blackstone Group for having the largest residential portfolio for rent. ‘Azora effectively created this asset class. It has been very successful,’ says Jacobson.

Rafaël Torres Villalba, senior portfolio manager of private real estate for Europe at APG, has this to say about the Spanish firm: ‘We appreciate Azora as a great hands-on and active manager. Their deal-sourcing capabilities are remarkable as we have witnessed with their Hispania vehicle. Their vision and view on the hotel/resort sector is spot on. In addition they have shown themselves to be very conscious of proper alignment to their investors.’

Summing up the pinnacle Azora has now reached, García-Peri says: ‘We have the track record, proven by our returns, and the legitimacy stemming from the trust deposited in us throughout the years by a broad group of international and domestic investors. We are adept at building institutional-scale platforms and correctly identifying megatrends which we can invest in across cycles.’

She adds: ‘Gone are the days when we were a domestically focused player and, as we think about the future, we see ourselves leveraging the areas where we have a competitive advantage and further expanding our reach across Europe.’

Certainly, Azora’s investment history is rooted in Spain. However, the company points out it has invested in and managed assets internationally for years. The turnaround of fraud-hit Carey saw it manage 14 hotels in Europe and the US. Its Azora Urban 4 and 5-star hotel portfolio still owns assets such as the NH Kensington hotel in London. It has sold two hotels in Germany, one to Aroundtown and one to Blackstone recently.

In 2007, it also launched a European fund focused on the CEE region for which it acquired offices and which has recently been fully divested.
For its new hospitality fund, Azora has already acquired about €400 mln of hotels, seven on the Spanish coast, two on Ibiza and one in Sicily as well as four city centre locations in Madrid, Lisbon, Brussels and Bilbao.

Operational expertise
Azora differs from many private real estate firms in that it is not an investment house with a generalist pan-European fund. Instead, it has tended towards vehicles which specialise in asset classes. Plus it prefers to build platforms whereby it retains control over the operations, although it is also adept at owning assets which are operated by others.

Rodrigo Cortés is a former Goldman Sachs M&A and equity capital markets banker. He got to know Azora during a 13-year spell at Goldman in London. He helped the company list Hispania and worked on Hispania’s subsequent capital increases. He was impressed enough to joined Azora in Madrid a year ago to help business development and future fund raising plus investor relations.

‘For me, it is the operational expertise that differentiates Azora,’ he says. ‘Operational expertise is going to become increasingly important in our business. It is also a company that has never been afraid to move into asset classes which at that point in time were not plain-vanilla assets that everyone else went into. Once it has conviction, it will go in strongly whether other people see it or not. I think to date Azora has been vindicated in this approach.’

He points out how the company built a student housing portfolio from 2011 onwards which became Europe’s largest outside of the UK. Azora sold it to Greystar and AXA for an approximate 30% IRR. ‘We are very experienced, as Cristina says, at operating the assets under our ownership and also building out the platforms in areas where there may not yet be that much institutional capital, but which eventually becomes interesting to institutional investors,’ he explains.

New chapter 
Following the sale of Hispania to Blackstone, Azora’s assets under management fell from €5.4 bn to €3 bn. ‘The question became: “What do we want to do next? What do we want to invest in?”’ says Garcia-Peri.

The answer was clearly to stick to the mantra of global mega-themes such as travel and living. The thesis for these could even be turbo-charged by the Covid-19 crisis, which has accelerated mega-trends that Azora plays into, in addition to creating new ones.

It is helpful that variable leases and management contracts in specialist areas of real estate are coming to the fore. Azora says it is already used to this in student housing and rented residential and it may even use it for hostels and smart city tourism hotels, which is something it is pushing.

‘Investors such as APG which invest in bricks and mortar but also in operations as with its CitizenM hotel platform understand very well what a manager like us can bring,’ remarks Garcia-Peri. In theory, not only can returns be higher by investing with a manager-operator but it can lead to better risk-adjusted returns than in a normal market.
The Azora approach is always a value-add, operational one where it sees themes and mega-trends that will last more than one cycle and which can effectively be ‘institutionalised’ as new asset classes.

Asked what is in the pipeline, the company cites hospitality, residential, senior living, last-mile logistics, leisure-related assets, and renewable energy.
Hospitality and residential-for-rent are the two biggest platforms and will continue to be so. But interesting things are afoot in the others.

To take just one example, the firm sees a big opportunity in last-mile logistics. It is in ongoing discussions for the launch of an investment vehicle to capture e-commerce growth in a country that is behind the curve with e-commerce penetration but catching up fast. Continued urbanisation and locations close to city centres provide a real estate value ‘floor’. Yet last-mile logistics in Spain remains a large and fragmented market with attractive entry yields. There is just so much obsolete stock in Spain begging for a make-over. Investors might ask why it is not investing in big boxes? The answer is because the big box market is crowded. 

García-Peri concludes: ‘Every investor is looking where to continue allocating money in real estate at attractive risk-returns and this is where we become more relevant. We have more experience in asset classes such as hospitality and residential-for-rent than almost anyone in Europe.’

Sun, beach, sports & leisure time

Azora launched its European Hotel & Lodging fund in 2019 before the world changed with the Covid-19 crisis. The ambition was big – to attract top international investors into a pan-European hotel fund with enough firepower to acquire more than €1.5 bn of assets.

Commitment documents were due to be closed with cornerstone investors on the same weekend as Spain announced its lockdown. So, you would be forgiven for assuming that an idea to invest in pan-Europe hotels would be shut down as quickly as the hotels and travel operators themselves. But you would be wrong.

Azora was able to capture commitments of €680 mln, €80 mln over target, and it will continue to raise more towards the hard cap of €750 mln.
Azora and its investors believe the crisis will present opportunities. Javier Arús was the first person at the firm to deal with hotel assets in 2011. Since then, he has led the restructuring of Carey and all the hotel deals for Hispania. Now he co-runs investment for the new fund along with Mónica Garay, who, among other things, led the successful build-up that Azora did in student housing via the RESA platform.

They explain the new fund is targeted at the tourism sector in Europe which lags behind the US in terms of institutional capital. ‘I think after this crisis there are going to be some changes in hotel investment paradigms, leading to opportunities for investors,’ Garay says.

The pandemic has shown that in a crisis, leases will not be honoured even if the assets are in ‘safe’ jurisdictions such as Germany where lease terms have had to be renegotiated. Instead, the only way to benefit from any upside recovery is gain exposure to the underlying risk through management contracts. Arús also feels that Covid-19 will lead to more creativity in terms of which kind of assets will prevail in the future.

Azora predicts that sub-sectors such as leisure resorts (including hotels on the beach with activities attached to them such as windsurfing or in the mountains) will be the first to recover as people emerge from confinement. These are typically 2 of 3-star hotels but the quality is going up to reach 4 or 5-star premises. Eventually, city hotels will also recover. The company has secured assets to refurbish into midmarket hotels with shared and family rooms. The fund will look to invest in smart buildings with the next generation of hostel rooms for families or groups of friends. ‘It should be a very dynamic sector for the coming years,’ Garay says.

Residential expert
Azora has the largest residential rental platform in Spain, employing around 180 people in the firm’s fully operational residential strategy which manages over 14,000 units. The majority of the assets are for its own managed platforms, however, it also manages residential assets for some of the newer players such as APG Asset Management’s residential REIT (Vivendio) or for Ares’ residential REIT.

Javier Rodriguez-Heredia says the strategy that will work well in this market is ‘back to the basics’ of how Azora began – creating residential products. Demand has been growing steadily over the past five years and is accelerating.

Bank financing restrictions are partly increasing demand for rental. In the past, it was possible to borrow 110% of the value of an apartment but since 2008 the maximum is around 80%. Also, there is polarisation of the upper, middle and lower middle class occurring in Spain. Members of the lower middle class require a lot of time before they can even get on the housing ladder. Indeed, the average Spaniard requires 15 years of savings before being able to buy a home.

At the same time, the generation of people below age 40 are ready to ‘pay for use’ rather than ownership. Furthermore, greater mobility is fuelling demand for rented homes. In the past 15 years, it is estimated around 2.2 million new units for rent have been created in Spain, but this is nowhere near enough to satisfy demand. An estimated 150,000 new units a year will be needed for the next 15 years and around €3 bn to finance that growth.

‘It is a market that will be very sizeable,’ says Rodriguez-Heredia. ‘The investment has to come from long-term institutional savings rather than individuals with personal savings.’
The bulk of new product Azora will look to create will be from ground-up developments, with the remainder coming from conversions of existing buildings, which could include land used for industrial purposes. The company has been working with some municipal administrations such as Madrid to alter the permissible uses of sites where inner-city industrial premises are currently located without demand. Rodriguez-Heredia: ‘Such a build-up is not new to us. This is how we started.’




A star is born. Banco Santander asset manager leaders Concha Osácar and Fernando Gumuzio leave the Spanish bank to form Azora.


Launches residential-for-rent platform Lazora. As a first mover in the Spanish sector, it believes the platform will be scalable.


Makes its first move outside Spain by launching CEE fund, Azora Europa.


The firm shows its pioneering qualities again by starting a student housing platform. The same year, it acquires student housing operator, RESA, and makes its first investment in the hotel sector via a rescue and turnaround of Carey Value Added, which had suffered from fraud. The complex deal gave Azora exposure to 14 hotels across Europe and the US.


Bolsters its position in student housing by launching EnCampus.


Shows capability in complex debt moves. Along with partner Fortress, it acquires a significant stake in Realia´s largest corporate loan from Spain’s bad bank, Sareb (it was Sareb’s largest single balance sheet exposure at several hundred millions of euros of nominal value), and subsequently launched a tender offer for over 100% of Realia’s capital. The duo were ultimately outbid by Carlos Slim in the tender offer but still managed an unlevered IRR of over 20%.


A huge moment as it takes public Spanish company Hispania in a €550 mln IPO. It targets gross levered IRRs of 15% and identifies a fragmented vacation hotel market to create the undisputed Spanish hospitality leader with €2 bn of hotels with around 13,100 keys in 46 hotels and circa €600 mln of offices and circa €250 mln of rented residential. From 2014 to 2018 it acquires hotels in Marbella, The Canary Islands, Balearic Islands, and Barcelona to become the largest hotel owner in Spain.


More residential success as it is appointed by Sareb to manage Témpore, the bad bank’s Socimi for rental housing assets. Two years later, TPG Real Estate Partners buys 75% of the shares listed on the Spanish stock exchange. In the same year, it sells its student housing platform to Greystar and AXA for a circa 30% IRR.


Blackstone announces a takeover bid for Hispania at €17.45 a share, later improved to €18.25, which is accepted and the investment in Hispania is done with a net IRR of 19% for shareholders. Azora also recapitalises its Lazora residential platform for €870 mln (+ €400 mln of new capital for further growth) and wins a property management contract with APG for residential REIT, Vivenio.


Launches Adriano Care with €120 mln of equity to invest in nursing homes. Also launches pan-Europe hospitality fund, Azora European Hotel & Lodging, and launches a build-to-sell residential vehicle after acquiring a 35,000 m 2 land plot where the Atletico de Madrid football stadium stood.


Announces initial commitments for Azora European Hotel & Lodging on €680 mln. Investors commit despite the global lockdown taking place. Lazard is the placement agent. 


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