MARIANO CAPELLINO INTERVIEWED BY EL OBSERVADOR NEWSPAPER IN URUGUAY

Acquiring a property and keeping it for a long time. This is a frequent mistake made by investors and which result in their own detriment when the aim is to earn returns sustainable over time. This is the opinion of Mariano Capellino, CEO of Inmsa – a real estate investments company based in Argentina, USA and Spain. He also indicates that most investors believe that by simply acquiring a property they are investing, but this is not the case. In general, the rental income is seen as the only visible benefit which creates value. Instead, the experts consider that a high rotation of assets is key for the business.

This means “buying properly”, i.e. under the market value so that the investor starts earning from the very beginning”, considering the high transactional costs typically involved in real estate investments in any part of the world.
 
Capellino states that when a market falls 50%, there is 80% and 100% increase margin to recover historic values, recovery which is produced during an opportunity window of 4 to 7 years. “It is about benefiting from the decline and operating during the rebound process since the market tends to stabilize after a while”, he says.
The other part of the business involves selling and exiting at the right moment. According to Capellino´s view, failing to sell the property at the right moment has a negative impact on the returns which is even worse than performing a wrong sale operation.

The executive says that the idea that the value of properties never falls and always goes up is “a huge lie”. As he says, it has been proved that if a property reaches a strong appreciation for more than 5 years, this situation is unlikely to be maintained over time.
Most people do not sell a property thinking that values will continue to rise.
The company run by him specializes in distressed markets, located in countries which have faced strong crises and their assets have experienced strong corrections. In these countries you can buy properties sold by banks in auctions. The executive says that it is possible to obtain appreciations higher than 10% annually if investments are managed professionally. Below, there is a summary of the interview to Mariano Capellino with El Observador.
 

What should be taken into account when you think about a real estate investment?
One of the key factors to build high returns in this business is benefiting from the moments in which prices are rising and avoid declines. For this, it is necessary to think about assets rotation rather than buying a property and keep it for life, like you do in the traditional approach. This business is not about location; this business is about timing. When should I enter? When should I exit? All markets and all types of assets experience five or six years of high appreciations in the course of 20 or 30 years. It is necessary to interpret this and be right there. Another key variable is that real estate operations involve very high costs. If you consider commissions and deeds, there is at least 10% expenses in all markets. Every individual who acquires a property loses 10% of his/her equity upon the signature of a cheque. An operation is not considered an investment unless you earn from the very beginning. The key point here is to buy 20%-30% below the market value. If the asset value is 100, you should buy at 60 or 70.

How to buy properly?
There is only one way to do it. It involves a totally distressed market, with a huge volume and low demand. When there is an excess of volume, supply, and the banks are flooded with assets, when thousands and thousands of properties are auctioned every day, that is the right moment to buy under the market value. You can have power, money, contacts and knowledge, but if the market is not meeting these conditions, there is no way you can apply this method. In Uruguay, we couldn´t buy even if we had all the power and ability in the world because there is no distress.

 
There is a frequently said expression: “Property value is always rising and never falling…”
This is a huge lie. Property value rises, evens out and always goes down. It depends on the moment of the market. If you are going to keep an asset all your life, in the long term you’ll never lose and it will protect you against inflation. The property keeps its value. It is a protection for your savings. But the fact that you never lose is not true. In real estate, when the market is rising and the correction process starts you can deceive yourself and say you never lose because you don´t sell or you don´t need to sell. But you lose when the market starts falling. You can pay it in cash by selling it or waiting for 15 years until the asset recovers its price. It is a mistake to think that you never lose with real estate assets. If considered as a financial investment, the loss is really huge.
 
Where are large investment funds putting their money?
There is always an important participation in the United States which is the most attractive market because of its institutional framework, transparency, legal certainty and access to financing plans. The largest funds still choose this market as the main global player. Thirty three percent of the investments made by the largest funds at global level is absorbed by the United States. 

And the most speculative ones?
The most speculative funds target those markets which have undergone some strong crisis. They benefit from distressed markets where there is an important volume of mortgage foreclosures such as Spain, which in 2008 started a very profound crisis like the rest of the world. Unlike the United States which, in two years and a half, hit rock bottom and started a fast recovery process, it took Spain eight years to stop the fall because the banks behaved in a much more conservative way.
They refused to admit the strong losses they had suffered so that large funds could feel attracted by such market and go for it. When a market enters into a crisis process, the appetite of foreign investors is always focused on the capital cities and on the three or four most important neighborhoods. This type of assets recovers their value rapidly. In Madrid the current values exceed the prices they had before the crisis in 2008. This is applicable to super prime zones, but the rest of the residential and commercial markets, peripheral areas of Madrid, Barcelona and the provinces hit rock bottom some years later in 2017.

Portugal is also a market that is convenient today, even though it is much smaller and the large funds fear lack of liquidity at the exit. Italy still has a very strong political and economic crisis but this market is also being targeted because it has not reached rock bottom and no rebound has been produced yet.

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Source: El Observador