Bondstone is a private equity real estate investment and asset management firm exclusively focused on the Portuguese market.
Can you please give us a brief insight on the context in which Bondstone came to life last year?
Bondstone is a private equity real estate firm that evolved from a high-end residential pure-play developer called Louvre Capital. In all our projects we systematically co-invest with international companies looking to establish a local footprint with a renowned operating partner, the purpose being to cover a market segment that is underrepresented since the Portuguese real estate environment is highly fragmented and abounds in small-size developers (usually from construction and project management backgrounds). Bondstone cherry-picks landmark real estate opportunities with strong winning risk/return profiles to invest side-by-side with investors with international institutional investors and investment funds.
Talking about returns, what is the average percentage that projects in Portugal can offer nowadays?
At Bondstone we focus mostly on opportunistic and value add investment opportunities and usually don't tackle projects that offer less than 15% IRR. Interest rates are relatively low now, as investors went in value reserves during the pandemic.
Two years ago, investors wouldn't even consider projects yielding under 17% IRR but nowadays a 12% rate is becoming increasingly attractive.
However, we still maintain a rigorous screening process before submitting any project to the investors we partner with.
What are the key criteria you take into consideration when screening projects for those deemed worthy?
To simplify my answer, there are three major elements we take into consideration when analyzing an investment opportunity: acquisition price, project costs and marketability, especially looking at how liquid the market is. Unfortunately, we can't control the exit price, but the in-house asset management team we have helps us reduce risk and better control the costs. Once we have quantified these three criteria, we balance them out with the associated risk of the project in order to optimize our risk-reward ratio.
Portugal has been suffering from a lack of market liquidity, particularly in the commercial space, how do you see this evolving?
During the 2008-2011 financial crisis, most real estate operators in Portugal stopped their investments and for ten years there were virtually no new constructions on the market. At the moment, the demand for new housing projects is colossal, as well as for industrial parks. During the first year of the pandemic, the number of projects placed on the market decreased even further, so right now liquidity is relatively low – it should go up in the next couple of years.
You are involved both in residential and commercial projects, but where does your investment focus lie at the moment?
We are agnostic regarding asset classes, but at the moment we are particularly focused in two main classes: the living sector - multifamily dwellings with 100+ apartments in large cities, built-to-rent schemes, student living, senior housing and, since the beginning of the lockdown, logistics and light industrial. Retail, offices and hotels assets fall outside of our radar screen for now but we are permanently on the lookout for any real estate opportunity displaying compelling returns. Right now, we are mostly about beds & sheds.
Do you expect the changes to the 2022 Golden Visa policy to impact your work?
Our co-investors profiles are very eclectic, spanning from the Americas all the way to the Middle East. Fortunately, we already sold our residential projects that might have been impacted by the change in the Golden Visa scheme. Touristic apartments and real estate investment-funds will still be on the table for foreign citizens who wish to apply to a golden visa in Portugal, even after the beginning of 2022.
What other aspects have you noticed international investors express concerns about? Is the current political crisis an issue?
International investors do not have a political agenda, they do not want political favors - if the investment climate is positive, if they sense political and fiscal stability and legal certainty, they will invest, if not they will seek other horizons.
Even though at the moment there is political turmoil due to a lack of majority to vote next year's budget, in late January 2022 Portugal will have government elections. Fortunately, the growth projections will stay relatively the same with or without an established budget, so from an economic standpoint, things should be business as usual.
One of the concerns we repeatedly hear from international investors is the VAT burden. The 23% VAT is a significant cost, applicable to all projects except for rehabilitation ones, which benefit from a 6% tax instead. But the top of the list of frustrations is taken by planning uncertainty, as it can last anywhere between six months and more than two years to license a real estate project. Moreover, understanding and applying the legislation is a very different process in every municipality. As a risk mitigation strategy, we avoid these challenges as much as possible by conditioning the full commitment of capital to a prior successful licensing process, usually by conditioning deed signature itself to some kind of valid license to be obtained prior to committing the full capital.
Looking at the coming two-three years, what are the key objectives Bondstone is pursuing?
Our primary goal is to become the most recognized private equity real estate investor in Portugal, and we are extremely grateful that we are already starting to become one of the go-to operating partner. We intend to increase our current assets under management fivefold through high profile projects that capture the attention of international investors who believe in the potential of our real estate market and our country.
Do you have a final message for investors eyeing the Portuguese market?
Portugal has a mature, steadily growing market that offers a great deal of opportunities, so they should definitely jump on the real estate bandwagon.
