Commercial properties are becoming increasingly attractive in the real estate market. The growing number of vacant commercial spaces, coupled with the shortage of housing supply in certain urban areas, turns the refurbishment of commercial properties into a great opportunity for both developers and investors.
Today, in our success stories series, we want to highlight precisely a financing operation for the conversion of a commercial space into residential use. This is the Doce de Octubre project, launched in May 2021 and located in the Niño Jesús neighborhood of Madrid, on Doce de Octubre Street, 26. A privileged enclave, very close to Retiro Park and the Salamanca neighborhood.
This project, promoted by Chapnik & Giesen, involved the acquisition of a commercial space of 206 square meters (a former bank office) for subsequent renovation and transformation into four residences (two studios and two one-bedroom apartments). The four units, located on the ground floor, have independent entrances.
The Doce de Octubre project was based on a capital gains strategy. Urbanitae investors partnered with the developer through a special purpose vehicle to develop the project through a capital increase. This increase allowed for the acquisition of the land and its subsequent renovation without the need for bank financing.
Improved returns and IRR
The investment, totaling €732,000, was raised through the participation of 218 Urbanitae investors who took part in this operation. The initial estimated return was 10% over a period of 9 months with an IRR of 14%. Finally, even though the timeline was extended by three more months, the total return for investors increased significantly to 15.2%. The IRR increased by almost two percentage points, reaching 15.9%, surpassing all initial forecasts.
Key success factors
- The developer, in addition to handling the comprehensive management of the project, renovation, and marketing, invested his own capital: approximately 20% of the total investment (€169,000).
- The project is located in the Retiro district, next to the Salamanca neighborhood. A unique and established location, surrounded by services such as schools, hospitals, shopping centers, and supermarkets. With over 118,000 inhabitants, Retiro ranks fifth in the price of second-hand housing among the 21 districts that make up the city of Madrid.
- The developer processed both the construction license and the change of use license through a responsible declaration (in collaboration with an Urban Collaborating Entity approved by the City Council), so it was not necessary to process a file with the municipal administration to start the works.
Despite facing a slight delay in timelines and an additional cost in construction execution – coinciding with one of the periods of the highest surge in construction material prices – the project was a success. Sales projections were comfortably exceeded, compensating for the delay and additional cost.
The Doce de Octubre project is not just a successful case of return on a commercial property. It is another example of how crowdfunding can open up interesting liquidity avenues for all types of real estate transactions and, at the same time, bring investors truly interesting and distinctive opportunities.
