Along Lisbon’s Avenida da Liberdade, a half-dozen vacant buildings mar a boulevard lined with gardens, ornately tiled sidewalks and luxury shops that’s considered the Champs-Elysees of the Portuguese capital.
About 12,000 buildings are in poor condition or in ruins in Lisbon, about 20 percent of the total, the City Council estimates. The city is one of the last capitals in Western Europe with so many vacant structures, said Fernando Vasco Costa, head of consulting at Jones Lang LaSalle Inc. (JLL:US) in Lisbon.
“It’s in the center of the city where there’s the biggest percentage of empty buildings in need of being rehabilitated,” said Manuel Salgado, the city councilman responsible for urban planning and renewal. Renovating buildings and surrounding areas could cost as much as 8 billion euros ($11 billion), he said.
Now, as the country emerges from a three-year recession, city officials are doing something to dress up downtown Lisbon. The city’s “rehabilitate first, pay later” program has led to the sale of more than 50 buildings since early 2013 and tax breaks are being offered to sweeten deals.
Owners of many of the empty buildings can’t afford renovations after losing tenants when Portugal began phasing out rent controls in 2012, according to Luis Lima, president of the Portuguese Real Estate Professionals and Brokers’ Association. “Other European cities don’t have these empty buildings which were neglected for so long because of rent-control laws.”
Ending rent controls was a condition of a 78 billion-euro European Union and International Monetary Fund rescue package in 2011. Portugal came out of its longest recession in at least 25 years in the second quarter of last year, and Prime Minister Pedro Passos Coelho is trying to regain full access to debt markets as the end of the bailout approaches next month.
The century-old rent limits on commercial and residential property meant some tenants paid less than 50 euros a month, leaving Portugal’s city centers to crumble as rental income failed to keep up with maintenance costs. Tenants began to flee when the rules started to be phased out.
Lisbon landlord Ernesto Neves said almost half of his 80 apartments in the city wound up empty after he began raising rents. Now he’s tapping his savings to renovate the buildings in hopes of selling or renting them out.
“I used to have to wait for my old tenants to die before I could make some money out of my properties,” Neves said. “Now I have to come up with tens of thousands of euros to refurbish all my empty apartments.”
French real estate investor Geoffroy Moreno is among those seeking properties to renovate. The 35-year-old left Cushman & Wakefield Inc. in 2010 and bought a crumbling five-story edifice on Avenida da Liberdade that now houses a Cartier jewelry store at its base and modern offices in the top floors.
Moreno, who spent 8 million euros to buy and revamp the Etoile 240 building, plans to spend another 35 million euros with a group of investors to rebuild three other vacant properties in Lisbon’s historic quarters and another one in Estoril, on the outskirts of the capital.
Lisbon’s empty buildings include dozens of palaces and the former homes of aristocratic families whose heirs can’t agree on what to do with them. Developer Anthony Lanier’s Eastbanc Inc. fund spent 50 million euros to buy 17 buildings, including four 19th-century palaces in Lisbon’s Principe Real quarter. It’s investing another 50 million euros to turn the properties into a hotel, luxury apartments, stores and cafes.
Buying in Lisbon “played to our strengths,” said the Brazilian-born Lanier, who made a mark in Washington, D.C., by transforming a Georgetown alleyway into a European-style shopping strip.
Local and foreign investors are increasingly targeting vacant properties dotting Lisbon’s center and the hills overlooking the river Tagus, said Eric van Leuven, managing partner at Cushman & Wakefield in Portugal.
“These investments are contributing to the overall recovery,” van Leuven said.
Spending on Portuguese commercial real estate tripled to 322 million euros in 2013 from a year earlier, according to data compiled by Cushman & Wakefield. Home sales increased 72 percent last year from 2012.
The situation in Lisbon contrasts with cities in neighboring Spain, where limits on rents were eased in the 1980s before a real estate boom a few years later. Barcelona and Madrid have few old empty buildings in the city center, according to Oriol Nello, a professor of geography at the Autonomous University of Barcelona and an author of books on urban planning.
“The major problem is not as much old empty buildings but new buildings that were built during the real estate boom that took place in Spain between 1996 and 2006 that are now empty,” Nello said by phone.
Investing in Portugal still is risky and some say ending rent controls only imperils the economy. Romao Lavadinho, president of the Association for Lisbon Tenants, said doing away with the limits risks hurting small business, worsening poverty and forcing more people into homelessness.
That’s not curbing interest in Lisbon real estate. German-American Billionaire Nicolas Berggruen’s holding company said last month it planned to spend as much as 300 million euros on rundown buildings in Lisbon.
Edge Berggruen Investments originally planned to spend 1 billion euros on new commercial real estate, but a jump in demand for such assets led it to shift focus to old buildings, said Jose Luis Pinto Basto, a partner at the firm.
Deka Group (DESPAEU), Germany’s biggest manager of real estate mutual funds, already owns seven properties in and around the capital that are valued at 164 million euros. It bought a building last year that’s rented by postal service CTT-Correios de Portugal.
Deka is interested in acquiring prime hotel, retail, warehouse and office properties in Lisbon and may look at the city’s decrepit buildings once they’re restored and almost rented, Stefan Scholl, Deka’s head of acquisition and sales in Europe, said by e-mail.
“These neglected buildings are something special in western Europe and give Lisbon a fantastic chance to renew the city,” Scholl said.
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