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Merlin Properties: Building the Iberian Peninsula's Real Estate Giant
I. Introduction & Episode Roadmap
Picture this: It's the spring of 2014, and the Spanish real estate market lies in ruins. Property values have collapsed by 40%, unemployment hovers near 27%, and the wreckage of the country's banking sector—€100 billion in European bailout funds required just two years prior—still smolders. Foreign investors view Spain as radioactive. Yet in the midst of this carnage, two former Deutsche Bank executives are about to raise €1.2 billion to buy Spanish property. The financial establishment thinks they've lost their minds.
Merlin Properties was founded in 2014 by former executives of Deutsche Bank. A decade later, this company stands as the largest real estate firm trading on the Spanish and Portuguese stock exchanges, specializing in the development, acquisition, and management of commercial real estate assets in the Iberian Peninsula, primarily investing in office buildings, shopping centers, logistics platforms, and data centers.
The Merlin Properties story answers a deceptively simple question: How did two former Deutsche Bank executives go from zero to Spain's largest REIT in just a decade—and why are they now betting big on AI data centers?
The answer involves impeccable timing, regulatory arbitrage, aggressive roll-up execution, and perhaps most importantly, the courage to buy when others wouldn't even look. In 2014, MERLIN Properties made its debut on the Spanish stock market with an initial public offering (IPO) that raised approximately €1.2 billion, marking one of the largest IPOs in Spain that year.
Today, Merlin Properties commands a diversified commercial real estate empire. The company owns 105 office buildings, 95 logistics warehouses, and 12 shopping centers in Spain and Portugal. Rental income breaks down by type of asset between offices (57.5%), shopping centers (25.3%), logistics sites (16.7%) and other (0.5%). In 2024, the company closed with total revenues of €516.7 million (including gross rents of €500.4 million).
But what makes this story particularly compelling for the current moment is Merlin's audacious pivot. Spanish real estate group Merlin Properties expects its fledgling data centre business to account for about 40% of its revenue by 2030 as it taps into a boom in artificial intelligence. From traditional real estate to digital infrastructure—Merlin is attempting a transformation that could redefine what a European REIT looks like.
The narrative arc we'll trace covers four major themes: the SOCIMI regulatory framework that made the whole thing possible, the aggressive acquisition strategy that consolidated a fragmented market, the operational excellence that weathered multiple crises, and the strategic pivot to data centers that represents either brilliant foresight or a dangerous distraction. Let's begin.
II. The Backdrop: Spain's Real Estate Collapse & The SOCIMI Opportunity
A. The Spanish Real Estate Bubble (2000s-2012)
To understand Merlin Properties, you first need to understand the wreckage from which it emerged. Land prices increased 500% in Spain between 1997 and 2007, the largest increase among the OECD countries. As a result of the collapse of the real estate sector had a profound effect in banks: Five years after the crisis started, the quality of Spanish banking assets continued to plummet.
The Spanish construction boom had been breathtaking in its scale and devastating in its aftermath. At its peak, Spain was building more homes annually than Germany, France, and England combined. The construction sector accounted for over 25% of GDP. Spanish banks, particularly the regionally-based savings banks known as cajas, had become dangerously exposed to real estate.
The Spanish banking sector experienced a profound crisis starting in 2008. Its weaknesses stemmed from both conjunctural and structural factors. Starting in the mid-1990s, Spain accumulated increasing macro-financial imbalances including excessive credit growth that was heavily directed to the real estate sector. The rapid expansion of savings banks that had started in the mid-1980s generated additional financial stability risks as many of these firms were subject to little market discipline, poor governance and unsustainable business models. The latter were characterised by a large risk concentration in the real estate market and the dependence on unstable wholesale funding.
When the bubble burst, the damage was catastrophic. In the period for 2007-2013, Spanish house prices fell by 37%. Unemployment soared to nearly 27%, with youth unemployment exceeding 50% in some regions. After the bubble burst and Spain went into recession (GDP shrank by around 7% between 2008 and 2013), the loan defaults of property developers and construction firms as a percentage of total bank lending to these two sectors surged from a mere 0.6% in 2007 to more than 25%.
In June 2012, the Spanish government made an official request for financial assistance for its banking system to the Eurogroup for a loan of up to €100 billion. It was designed to cover a capital shortfall identified in a number of Spanish banks, with an additional safety margin. In December 2012, the Spanish government formally requested the disbursement of €39.47 billion via a dedicated ESM loan for the recapitalisation of the banking sector. The funds were transferred in the form of ESM notes on 11 December 2012 to the Fondo de Restructuración Ordenada Bancaria (FROB).
Spanish banks were desperate. Their balance sheets bulged with distressed real estate assets they couldn't sell, couldn't value accurately, and couldn't hold indefinitely. The most spectacular near collapse in May 2012 was that of Bankia, the fourth-largest bank which had been created in December 2010 from the merger of seven cajas. The total number of cajas declined from 45 to seven.
The market desperately needed a mechanism to absorb these assets and attract fresh capital. Enter the SOCIMI.
B. The SOCIMI Framework: Spain's REIT Solution
Law 11/2009 of 26 October 2009 was introduced in Spain to regulate Real Estate Investment Listed Companies. This is a new instrument to boost investment in a market, which is in decline, with the objective of boosting renting in Spain.
SOCIMIs—Sociedades Anónimas Cotizadas de Inversión en el Mercado Inmobiliario—were Spain's answer to the globally successful REIT model. The concept was straightforward: create a tax-advantaged structure that would allow companies to pool capital, acquire income-producing real estate, and distribute the bulk of earnings to shareholders.
But here's the catch that made the difference between theory and practice: The crisis-stricken Spanish real estate market in 2009 onwards, added to the overly restrictive regulation and unattractive tax regime of SOCIMIs (which were subject to a corporate tax rate of 19 per cent) led to the failure of the regime, reflected in the fact that by 2012 not a single SOCIMI had been incorporated.
Not a single one. The original SOCIMI framework was a complete failure. The 19% corporate tax rate—compared to the 0% rate enjoyed by REITs in the UK, US, and France—meant there was no compelling reason for investors to use this structure.
Then came the critical inflection point. In December 2012, the Spanish government—aware that the initial regime did not meet real estate investors' expectations—introduced reforms in order to make SOCIMIs more attractive. The main feature of the new regime is that SOCIMIs now qualify for 0 per cent taxation, placing them on a par with the REITs of neighbouring countries in terms of tax liability. The reforms appear to have hit the right note, because under the new regime, a number of SOCIMIs have been incorporated. Moreover, the SOCIMI structure has become the preferred arrangement for large international investors to invest in Spain.
C. SOCIMI Requirements: The Structural Foundation
As a main feature of the regime, SOCIMIs will be subject to CIT at a 0% rate, which makes them very attractive for any kind of investor, whether resident or non-resident in Spain, and places them at the same level as other successful REITs created in Western countries.
The requirements to qualify for this favorable treatment were substantial but manageable:
The SOCIMI must invest at least 80% of its assets in urban real estate for leasing. Additionally, at least 80% of income from each financial year must come from leasing real estate and/or dividends from shares in other SOCIMIs.
The SOCIMI must distribute to its shareholders in the form of dividends: 100% of the profits received as dividends from other entities, at least 50% of the profits obtained in the transfer of assets, and at least 80% of overall earnings from leasing properties.
Minimum share capital requirement was EUR 5 million, with in-kind contributions of property expressly permitted.
The 2012 reforms transformed the SOCIMI from a dead letter into the vehicle that would reshape Spanish commercial real estate. This timing—the convergence of desperate sellers, a newly viable tax structure, and a market starting to stabilize—created an opening for someone with capital, expertise, and the willingness to act.
Two Deutsche Bank veterans saw this window and decided to jump through it.
III. Founding Story: Deutsche Bank Alumni See the Gap (2012-2014)
A. The Founders' Backgrounds
Ismael Clemente was not born into Spanish real estate royalty. The son of teachers, he was born in Valencia del Mombuey (Badajoz). After completing his schooling at the Jesuit boarding school in Villafranca de los Barros, he graduated in Law and Business Administration and Management (E3) at Universidad Pontificia Comillas (ICADE) in Madrid.
His training ground was the Deutsche Bank real estate apparatus during its aggressive expansion years. Ismael Clemente has experience as a real estate professional since 1998. Prior to founding MERLIN, he worked at Garrigues, Bankers Trust REIB, DB Real Estate and RREEF, as Managing Director, having participated in transactions with a total volume of approximately 5,000 million euros in all types of real estate assets. These include the sale and leaseback of the Tree portfolio, the largest real estate transaction in Europe in 2009.
That Tree portfolio deal is worth pausing on. In 2009—at the absolute nadir of the global financial crisis—Clemente was executing the largest real estate transaction on the continent. This wasn't theory for him. He understood how to move capital into distressed assets when others were fleeing.
His co-founder brought complementary skills. Miguel Ollero has experience as a real estate professional since 2005. Prior to joining MERLIN, he worked at Arthur Andersen, FCC Construcción, Deutsche Bank M&A and RREEF, as General Director having been involved in transactions with an aggregate value of approximately 4 billion €, from Core to Opportunity investments, and the subsequent management of the acquired assets.
Mr. Ollero has a degree in Law and Business Administration (finance major) from ICADE (E-3). The same alma mater as Clemente—ICADE's E-3 program, a dual degree in law and business with a finance specialization, functions as a talent factory for Spanish finance. The fact that both founders came through this pipeline speaks to a shared cultural and professional framework.
What's particularly notable about the founding team is that nearly the entire senior management also came from this Deutsche Bank/RREEF network. Merlin's management page reads like a RREEF alumni reunion, with multiple members holding the same ICADE E-3 degree. This wasn't a startup cobbled together from disparate backgrounds—it was a battle-tested team that had worked together on deals worth billions and understood both the operational complexity and capital markets dynamics of institutional real estate.
B. The Genesis of Merlin
Finally, all his collaborators ended up leaving with him as well, and thanks to his contacts in the sector, he created Magic Real Estate, a real estate fund manager, in 2012. Two years later, he founded Merlin Properties, a real estate company. The name comes from a play on words, from a consultant who called it Proyecto Merlin, playing on the magic of the former name.
The playful etymology—Merlin as in the wizard, evolving from Magic Real Estate—belies the serious strategic calculation behind the timing. By 2014, several factors had aligned:
First, the SOCIMI framework had been reformed and was now competitive. The 0% corporate tax rate meant investors could finally get the same treatment in Spain that they enjoyed elsewhere.
Second, the banking sector stabilization, while incomplete, meant there were motivated sellers with better-defined portfolios. Banks needed to offload assets but were no longer in complete panic mode.
Third, the international investor community was beginning to look at Spain again. After years of avoidance, yield-hungry capital from the US, UK, and elsewhere was starting to sniff around.
And fourth, valuations remained depressed. While no longer in free fall, prices hadn't recovered. You could still buy assets cheap.
C. The IPO: Spain's Biggest Real Estate IPO (June 2014)
The company was founded on March 25, 2014 and is headquartered in Madrid, Spain. Just three months later, Merlin executed one of the most audacious capital markets transactions in Spanish history.
It was founded in 2014 by former executives of Deutsche Bank. With the initial support of international investment funds like BlackRock, Principal Financial Group, Marketfield and Invesco it acquired more than 1,000 offices from BBVA.
The backers tell you everything about the credibility Clemente and Ollero commanded. BlackRock. Principal. Invesco. These weren't speculative venture funds—they were the institutional heavyweights who manage pension funds and endowments. Getting them to commit to a blind pool in post-crisis Spain required extraordinary trust in the management team.
The structure was essentially a blank check: raise the capital, then deploy it into acquisitions. The bet was on the team and the market, not on specific assets that could be underwritten in advance.
And deploy it they did. The first major acquisition was immediate and transformational: more than 1,000 offices from BBVA. BBVA became both a seller and—critically—an anchor tenant. This sale-leaseback structure accomplished multiple objectives simultaneously. It allowed BBVA to monetize its real estate holdings and improve its capital ratios. It gave Merlin a large, diversified portfolio with built-in cash flows from a creditworthy tenant. And it signaled to the market that major Spanish institutions were willing to do business with this new SOCIMI.
The BBVA relationship would prove foundational. The client principal is BBVA with a percentage over the total rents of the SOCIMI in the year 2016 of 19.54%. When your largest tenant accounts for nearly 20% of your rent roll and is one of Spain's two dominant banks, you have tenant credit quality that most REITs can only dream of.
IV. The Roll-Up Strategy: Aggressive Acquisition Phase (2014-2017)
A. The Strategic Logic
The genius of Merlin's early strategy was recognizing that the Spanish commercial real estate market was fragmented and under-institutionalized. Quality assets were scattered across bank balance sheets, family offices, and small private equity portfolios. There was no dominant player with the scale to attract major institutional capital flows or command premium valuations.
Clemente and Ollero set out to create that dominant player through systematic acquisition. When the 2009 regulations that officially created this figure were relaxed, the first SOCIMI began to appear and low-cost capital investors began to invest their money. Opportunity funds which rotate the assets they buy at low prices were gradually expelled from the market and institutional capital began to enter the market.
Merlin positioned itself as the bridge between opportunistic distressed-asset buyers and the long-term institutional capital that was beginning to return to Spain. The SOCIMI structure, with its listing requirements and transparency obligations, gave institutional investors comfort that this was a proper vehicle for their capital, not a vulture fund play.
B. Key Inflection Point #2: Testa Acquisition (2015)
The acquisition that transformed Merlin from a significant player into the dominant force came just one year after the IPO. Spanish real estate investment trust Merlin Properties Socimi SA is buying Testa Inmuebles en Renta SA from Sacyr SA for 1.79 billion euros ($2 billion) to create the country's largest property company.
MERLIN Properties and Sacyr have entered into an investment agreement for the acquisition in several steps of the entire share capital of Testa Inmuebles en Renta owned by Sacyr for a total consideration of 1,794 million euros. Ismael Clemente, CEO of MERLIN Properties commented: "Testa acquisition represents the creation of the Spanish leading real estate company, with a gross asset value above 5,500 million euros and combined gross annual rents of over 290 million euros. MERLIN Properties combination with Testa places the joint entity as the undisputed leader in the office segment, third player in the logistics segment and with a relevant position in shopping centers. Testa portfolio of assets is clearly one of the best portfolios in the Spanish market."
Testa owns a portfolio of assets of superior quality, with a gross value above €3.2 bln, gross annual rental of €159 mln and a gross leasable area of 1 million m².
The transaction mechanics revealed Merlin's financial sophistication. The group chaired by Manuel Manrique (Sacyr) has opted for Merlin's proposal after rejecting the bids made by other investors such as the US fund Blackstone and the real estate company Colonial. The agreement forms part of an "accordion operation", in which Testa will simultaneously make a contribution to its shareholders of €1,196 million, through an ordinary dividend of €527 million and a reduction in share capital of €669 million. Through this transaction, Sacyr and Testa will normalise their balance sheets.
Beating Blackstone in a competitive process just one year after IPO demonstrated that Merlin had achieved credibility as a preferred counterparty. For Sacyr, selling to Merlin meant selling to a public SOCIMI with transparent ownership and governance—preferable to a private equity fund that might be viewed as more extractive.
By 2015, MERLIN Properties had expanded its portfolio significantly, acquiring a wide range of properties. By the end of 2015, the total value of the real estate assets reached around €2.8 billion.
C. Key Inflection Point #3: Metrovacesa Integration (2016)
If Testa made Merlin the leader, Metrovacesa made it the undisputed champion. MERLIN Properties has entered into a definitive agreement with Metrovacesa's shareholders for the integration of the company's commercial portfolio into MERLIN, creating the undisputed leading REIT in Spain and one of the largest diversified players in Europe. The resulting entity will own the single largest diversified property portfolio in Spain with greater exposure to the Madrid and Barcelona office CBD and a dramatic increase in scale in shopping centers. Once the integration is completed, the Company will reach a pro-forma GAV of € 9.3 billion, NAV of € 4.9 billion and annual gross rents of € 450 million.
MERLIN will issue 146.7 million new shares to acquire Metrovacesa's commercial property portfolio at a valuation of €1.67 billion. MERLIN shareholders will own 68.76% of the portfolio, while Metrovacesa shareholders will hold the remainder. The commercial property portfolio will have an NAV of €4.9 billion and span more than 3 million square meters of office, shopping center, logistics, high street retail and hotels.
The Metrovacesa deal was architecturally elegant. Rather than a straightforward acquisition, it was structured as a three-way split of Metrovacesa's assets: commercial property went to Merlin, residential went to a spin-off called Testa Residencial, and development assets went to a new entity retained by Metrovacesa's shareholders.
The agreement has the backing of Metrovacesa shareholders Banco Santander, BBVA, and Banco Popular which will hold a combined 31.2 percent stake in Merlin after the merger.
This was a critical moment. Spain's two largest banks—Santander and BBVA—along with Banco Popular, were now directly invested in Merlin's success. The transaction transformed the shareholder register from purely financial investors to a mix that included strategic Spanish banking relationships. Santander said in a separate statement that it would own 21.95 percent of Merlin.
In 2016, Merlin saw its net profit soar by 1,087% to €582.6 million, thanks in large part to the contribution of Metrovacesa's assets, which increased the value of its portfolio to €9,824 million. In 2016, the listed real estate investment company (Socimi) Merlin Properties managed to turn itself into one of the largest real estate companies in Europe. It also made the leap onto the selective Ibex 35, which had not featured a single company from the property sector since 2008. And it achieved these milestones thanks to the completion of the largest corporate transaction between real estate companies since the burst of the real estate bubble.
D. IBEX 35 Inclusion and Investment Grade Status
It is a component of the IBEX 35 since 2015. Inclusion in Spain's benchmark index marked Merlin's arrival as a blue-chip company. For a firm that didn't exist until 2014, joining the IBEX 35 by 2015 was extraordinarily rapid.
Merlin Properties has an investment-grade credit rating from S&P (BBB) and Moody's (Baa2). Investment grade rating meant access to the bond markets at institutional rates—critical for a business model that depends on leverage for returns.
Since Merlin's listing on the stock market, Mr. Clemente has led two of the largest transactions in the sector in Spain, i.e., the acquisition of Testa and the Metrovacesa integration agreement, two transactions that have made Merlin Properties a leading real estate company in Spain.
In just three years, Merlin had gone from a standing start to a €10 billion portfolio, IBEX 35 inclusion, investment grade ratings, and the backing of Spain's major banks as shareholders. The roll-up was complete. Now came the harder part: operating what they'd built.
V. Building the Diversified Portfolio (2016-2019)
A. The Four-Pillar Strategy
The main activity of the company is the acquisition, active management, operation, and selective rotation of quality commercial real estate assets in the "Core" and "Core-Plus" investment segments, mainly in Spain and, to a lesser extent, in Portugal. Its segments are based on the type of assets namely Office buildings, Data Centers, Shopping centers, Logistics Warehouses, and others. The company generates the maximum revenue from the Office buildings segment.
Merlin's portfolio evolution tells a story of strategic adaptation. The 3% allocation in low-yielding non-strategic assets includes hotel and residential assets obtained as part of the acquisitions of Testa and Metrovacesa. The company inherited legacy assets through acquisitions and systematically divested those that didn't fit the core commercial strategy.
The portfolio evolved from a net-lease-heavy initial structure to a more balanced commercial approach. The company originally had significant exposure to sale-leaseback properties—stable but lower-growth. Over time, it shifted toward assets with more active management potential: offices in prime locations that could command rent increases, logistics facilities riding the e-commerce wave, and shopping centers that required renovation and tenant remixing.
B. Geographic Focus: Madrid, Barcelona, Lisbon
Lisbon is its third largest market for office space, after Madrid and Barcelona. For foreign investors, there is no difference between them. Lisbon is an hour away from Madrid, exactly the same as Barcelona.
Clemente's observation here captures an important insight about how international capital views Iberia. For a pension fund in California or a sovereign wealth fund in the Middle East, Madrid, Barcelona, and Lisbon aren't three different markets requiring three different strategies—they're one Iberian commercial property thesis.
In 2016, MERLIN continued to grow, acquiring additional high-profile assets, including the major office buildings located in the prime business districts of Madrid and Barcelona.
The lion's share of its portfolio is made up of premium office buildings that are located mainly in Madrid, Barcelona and Lisbon. Merlin Properties owns and is building some of the most iconic office buildings and high street retail complexes in the Iberian peninsula, including Torre Castellana 259 (PwC HQ), Torre ChamartĂn, Callao 5 and Adequa in Madrid; and Torre Glòries in Barcelona.
C. The Logistics Bet
Logistics centres are enjoying an upsurge thanks to the boom in e-commerce, which requires three times more storage space than physical commerce, because Spain has become an export economy and on account of the growth in the major logistics operators in this country.
The company has also been increasing its exposure to logistics to meet its asset allocation target. To be sure, logistics presents the most promising area of investment for the company, given the rapid expansion of e-commerce in the country. It is also the category that offers the highest yields.
Spain's e-commerce penetration lagged northern Europe, meaning the logistics build-out was earlier in its cycle. Merlin's development pipeline included major warehouse projects in the Madrid corridor, Barcelona logistics zones, and key distribution points. The yields on logistics development—in the high single digits on cost—exceeded what could be achieved buying existing office or retail assets.
D. Shopping Centers: Managing a Challenged Asset Class
He pointed out that hard times lie ahead for shopping centres due to online sales. Centres in large cities and those that provide other experiences are the most viable, partly because they complement online shopping and facilitate reverse logistics (product returns).
Clemente's candor about shopping center challenges is notable. Many REIT executives in this period were in denial about e-commerce impacts. Merlin's approach was more pragmatic: acknowledge the structural headwinds, focus on dominant regional malls and urban locations, and invest in renovations that created experiential destinations rather than pure retail boxes.
VI. Navigating COVID-19 & Market Disruptions (2020-2022)
A. Pandemic Resilience
When COVID-19 hit in early 2020, commercial real estate investors globally braced for catastrophe. Office buildings empty. Shopping centers shuttered. Supply chains disrupted. Merlin's diversified portfolio faced simultaneous pressures across all asset classes.
The occupancy in the portfolio bears the Covid-19 effect and remains at the same level as before the pandemic outbreak, reaching 93.9%, proving its quality and the robustness of its tenants. The gross asset value (GAV) of the portfolio amounts to €12,755 million, which remains flat (+0.2%) as compared to December 2019. By asset category, the valuations in offices and logistics continues to grow due to higher rents, whereas net leases remains equal and shopping centers declines 4.7%.
The company moved quickly on multiple fronts. The Company implemented a commercial policy that offered 100% rent relief to all tenants affected by the compulsory shutdown set forth in the state of alarm. Furthermore, an additional commercial policy was approved that would last from June to the 31st of December 2020 (progressive from 60% to 10%).
The Board of Directors decided to reduce their compensation by 25% and agreed with the CEO, General Corporate Manager and all members of the senior management team the initiative to waive all the variable compensation and stock plan corresponding to 2020.
This wasn't just optics. By sharing the pain with tenants through rent relief, management aligned interests for the recovery. And by forgoing their own compensation, the executive team demonstrated that they weren't profiteering from crisis.
MERLIN Properties reiterates its commitment with tenants whose stores have been forced to close and continues working towards helping, to the extent possible, in fighting the pandemia. The company and its staff have fully funded the purchase of 4 robots for PCR massive testing of coronavirus, which are now operating in the Carlos III Health Institute, and the medical centres of La Paz, in Madrid, and Vall d'Hebron and Clinic in Barcelona.
B. The Work-From-Home Challenge
Clemente believes that public market investors have overblown concerns about the long-term impact of the pandemic on commercial property. "They are completely clueless in terms of order of magnitude," he said. "Since they do not know about the order of magnitude, they say 'I don't like shopping centers, so I'll put a 0 on the value of that retail portfolio. Offices? There could be some work from home, so [I'll reduce] the value by 30%. And logistics, well, it's good, but still I will knock off 10% because … it's 2020.'"
Clemente's blunt assessment—calling public market investors "completely clueless"—captures both his communication style and a genuine frustration with what he saw as irrational pessimism. Time would largely vindicate this view: Merlin's office occupancy recovered, and the feared structural collapse in demand didn't materialize in Iberia the way some predicted.
C. Rising Interest Rates (2022-2023)
The post-COVID recovery brought its own challenge: the fastest interest rate hiking cycle in decades. For a leveraged REIT, rising rates impact both the cost of debt and—crucially—asset valuations, which move inversely with yields.
Madrid, 28th February – MERLIN Properties has reported FY23 results, with total revenues of €488.3 million (including gross rents of €475.6 million), EBITDA of €367.0 million and FFO of €284.2 million (€61 cents per share). Gross asset value (GAV) of the portfolio amounts to €11,270 million, affected by a significant yield expansion (+42 bps) with a limited impact on valuations (-3.4% vs. 2022) thanks to an extraordinary operating performance.
The key phrase is "limited impact on valuations...thanks to extraordinary operating performance." Asset values declined, but strong rent growth and occupancy improvements partially offset the yield expansion. This is the benefit of active management—you're not just collecting rents, you're creating value through leasing, renovations, and tenant relations that partially insulate you from macro factors.
The Loan-to-Value (LTV) is at 28.3% (vs. 35.0% in FY23), with a liquidity position of €2.4 billion. 100% of debt is fixed and average maturity is 4.3 years.
The conservative financial management—100% fixed-rate debt, no near-term maturities, low leverage—gave Merlin the flexibility to weather rate volatility without distress.
VII. Key Inflection Point #4: The Data Center Pivot (2020-Present)
A. Identifying the Opportunity
In the midst of pandemic uncertainty, Merlin made a decision that would reshape its strategic trajectory. MERLIN Properties and Edged Energy are not new to groundbreaking projects. Since their partnership began in 2020, the two companies have launched data centers in Barcelona, Madrid, and Bilbao, with another campus under construction in Lisbon.
The thesis was straightforward: the Iberian Peninsula possessed structural advantages for data center development that weren't being exploited. Spain's position as a landing point for submarine cables—connecting Europe to Africa, the Americas, and the Middle East—provided exceptional connectivity. The country's renewable energy abundance (solar and wind) offered low-cost, green power. And Merlin's existing land bank included sites with the power infrastructure suitable for data center development.
MERLIN Properties SOCIMI, announced a long term, multi-phase strategic partnership with Edged Energy, a subsidiary of Endeavour devoted to net zero digital infrastructure, to build a major network of ultra-efficient, waterless data centers in the cities of Madrid, Bilbao, Barcelona and Lisbon, within MERLIN's existing land bank. "We service a wide range of customers, from high tech companies in our signature office buildings to international logistics operators in our warehouses," says David Brush, co-founder of MERLIN and Special Advisor to the Data Center Program at the company. "The Iberian region is perfectly positioned to be the principal gateway connecting the digital economies of Europe, North America, South America, Africa, the Middle East and beyond."
B. Partnership with Edged Energy
Rather than attempting to build internal data center expertise from scratch, Merlin partnered with Edged Energy, a company founded by Jakob Carnemark—the founder of Aligned, a major US data center developer. The company is working with Edged Energy, the new data center venture from Aligned founder Jakob Carnemark.
Each data center will consume zero water and have an annualized PUE of 1.15. The power that each facility uses will come from local renewable energy sources, primarily MERLIN roof-mounted and ground PV installations. Each data center will also have hours of battery energy storage which will allow for 24/7 renewable energy use and will dramatically increase its reliability. The sites in Barcelona and Madrid will support up to a total of 20MW of load each, while the data center campus sites in Bilbao and Lisbon have the infrastructure to support hyperscale builds in excess of 100MW each.
The 1.15 PUE (Power Usage Effectiveness) is exceptional. With an industry-leading average Power Usage Effectiveness (PUE) of 1.15 portfolio-wide, the facilities are built to handle the dense AI-driven loads that are reshaping the IT industry without consuming any water for cooling. For context, They are currently designed to provide customers with a Power Usage Effectiveness (PUE) of 1.15, compared to the European average of 1.46 and the global average of 1.56, according to the Uptime Institute.
C. Phase I Completion (2023)
According to a mid-year company report published in June, Merlin's MAD01-GET, BCN01-PLZF, and BIO03-ARA data centers are fully operational.
By the end of 2023, Merlin Properties completed the first phase of three data centers in Madrid, Barcelona, and Alava, all built in partnership with Edged Energy.
In February DCD reported that Meta had become the main customer for the three live Merlin data centers in Spain. Landing Meta as an anchor tenant validated the commercial proposition and provided the stable cash flows needed to justify further expansion.
D. Major Capital Raise (July 2024)
Merlin Properties Socimi SA has raised €921 million ($998 million) in new capital to fund the expansion of its data center business.
The Spanish real estate company will issue 94 million new shares through an accelerated book-building at €9.8 per share. That is a 4.7% discount compared with the closing price of Tuesday.
The company's two top shareholders, Banco Santander SA and Nortia Capital, as well as company officials including Chief Executive Officer Ismael Clemente, have participated in the offering to maintain their current stakes. Merlin currently has data centers in cities including Madrid, Bilbao and Barcelona.
The participation of anchor shareholders—including Clemente himself—signaled confidence in the data center strategy. This wasn't a desperate capital raise; it was an aggressive move to fund growth in a high-conviction thesis.
Merlin Properties aims to use the proceeds of the capital increase to invest in the second phase of its data centre strategy, which consists of developing 200 MW of additional capacity in Bilbao, Barcelona and Lisbon. Merlin Properties is already the leader in the Iberian data centre market with 60 MW of operating capacity.
E. Phase II: Massive Expansion Plans
Phase II will see the company develop another 200MW between 2024 and 2028, investing €2.1 billion ($2.27bn).
This build-out includes 100MW in Lisbon-VFX, another 94MW in Bilbao-Arasur, and 6MW of repowering capacity in Barcelona-PLZF.
MERLIN-Edged has facilities in Spain and Portugal, with operations in Madrid-Getafe (MAD 01 with 20MW in operation, expandable to 27MW), Barcelona-Zona Franca (BCN 01 with 16MW in operation, expandable to 22MW), Bilbao-Arasur Campus (ARA 03 with 24MW in operation, ARA 02 and ARA 01 with 46MW and 60MW under construction, expandable to 300MW), and Lisboa-Vila Franca de Xira Campus (LIS 01 to 05 under construction, totaling 180MW, expandable to 300MW).
F. Gigawatt-Scale Ambitions: Extremadura Project
MERLIN Properties and Edged Energy announced a pioneering public-private project with the regional government of Extremadura, Spain, to develop two state-of-the-art, carbon neutral data center campuses focused on generative artificial intelligence and advanced computing. The facilities will be located in Navalmoral de la Mata in Cáceres Province and Valdecaballeros in Badajoz Province, and will each offer up to 1GW of IT capacity with an industry-leading average PUE of 1.15. The project will capitalize on Spain's abundant renewable energy, which is expected to be the lowest long-term energy cost in Europe.
Currently, Extremadura produces approximately six times the electricity it consumes, and many of its facilities are unable to feed the entire production into the grid.
This is where the strategic logic becomes most interesting. Extremadura—historically one of Spain's poorest regions—has massive renewable energy generation capacity with insufficient local demand. By locating gigawatt-scale data centers there, Merlin can access stranded energy at potentially the lowest costs in Europe while catalyzing regional economic development.
G. Revenue Transformation Vision
Aiming for 40% revenue from data centers by 2030, Merlin Properties leverages the AI boom and plans major investments in Spain. Merlin Properties is betting on data centers to skyrocket its revenue, with ambitions to make them 40% of its total by 2030. Currently, data centers contribute less than 1% to Merlin's revenue, which mainly comes from offices, shopping malls, and logistics. But CEO Ismael Clemente has a grand vision: he estimates that by 2030, the data center division will rake in around €313 million ($350 million) in gross rents.
From less than 1% to 40% in six years—this isn't an incremental strategy. It's a transformation of the company's fundamental business model.
H. CoreWeave Partnership (2025)
In May 2025, Merlin achieved a significant validation of its AI infrastructure strategy. CoreWeave Inc today announced it is partnering with MERLIN Edged to host one of the first large-scale NVIDIA Hopper training and inference supercomputers in Spain at a new ultra-efficient data center in Barcelona. The 15MW site will host 10,224 NVIDIA H200 Tensor Core GPUs with InfiniBand connectivity, with plans to extend capacity with a Blackwell supercomputer in 2026.
"Catalonia is positioned as a strategic technology hub," said Ismael Clemente, CEO of MERLIN Properties. "The region's renewable energy mix, combined with robust connectivity, makes it ideal for hosting AI hyperscalers like CoreWeave." "CoreWeave is pleased to collaborate with MERLIN Edged as it brings highly performant and scalable compute to Europe, powering the next wave of AI," said Mike Mattacola, GM, International at CoreWeave.
In 2024, CoreWeave announced an initial investment of $2.2 billion across Europe, bringing the AI cloud and high compute capacity to continental Europe, powered by 100 percent renewable energy.
VIII. ESG & Sustainability Leadership
Merlin Properties has entered a formar parte del selectivo Dow Jones Sustainability World Index, Ăndice de referencia en materia de sostenibilidad y gobernanza a nivel mundial, convirtiĂ©ndose en la primera compañĂa inmobiliaria española que ingresa en el mismo. El Ăndice está compuesto por las compañĂas lĂderes globales en sostenibilidad identificados por S&P Global e incluye el 10% de las compañĂas de cada sector que tiene mayor puntuaciĂłn en materia de sostenibilidad. En el caso del sector inmobiliario, solo 17 compañĂas en todo el mundo forman parte del selectivo, siendo Ăşnicamente cinco de ellas europeas.
Este plan se compone de tres pilares clave: la reducciĂłn en un 85% de la huella de carbono operacional, la reducciĂłn del carbono embebido en la construcciĂłn y reforma de sus edificios y el uso de energĂa renovable.
Merlin properties, the largest traded real estate company in Spain, goes one step further in its plan to become a net zero emissions company by 2030 after ranking in the top 1% of best ESG companies in the world, according to Sustainalytics. The company has considerably improved its ESG risk rating, from 12.0 to 7.2, thus becoming a leader both globally and in the real estate sector. The company strives to design and operate assets that have lasting positive impact on its users and the planet. This improvement in rating enables the company to position itself in the negligible risk category.
En cuanto a otras calificaciones en materia de sostenibilidad, la compañĂa cuenta con un rating A- para la organizaciĂłn Carbon Disclosure Project (CDP), una nota de 83 para para la firma especializada en calificaciones ESG de Real Estate GRESB y un 7,2 para Sustainalytics, situándose en el top 1% de empresas mejor valoradas a nivel global.
The ESG credentials matter beyond reputational benefits. Access to green financing, inclusion in ESG-focused indices, and credibility with institutional investors increasingly depends on sustainability performance. Merlin's data center strategy—built around waterless cooling and renewable energy—aligns the growth business with the sustainability story.
At a time of growing water scarcity where water reservoirs in portions of Portugal are at their lowest level and restrictions are in place on water usage, the Lisbon campus is expected to save nearly 2.7 billion liters of water each year compared to conventional data centers.
IX. Current State of the Business (2024-2025)
A. Portfolio Overview
Strong operating performance in all key metrics and all assets classes: record high occupancy (96.7% +58 bps YoY), increasing rents (+3.4% LfL) and solid FFO generation (+9.4% YoY). Accelerated deployment of Data Centers capacity, with 26 MW of IT in operations, 38 MW equipped, over 200 MW under construction and more than 2 GW of pipeline.
MERLIN Properties closed 2024 with total revenues of €516.7 million (including gross rents of €500.4 million), EBITDA of €379.2 million, operating profit (FFO) of €310.8 million (€55 cents per share) and net earnings of €283.8 million. Gross asset value (GAV) stood at €11.5 billion, virtually unchanged thanks to the revaluation of data centers (+16.9% vs. FY23). Net asset value reached €8,071 million (€14.32 per share).
Logistics portfolio performance continues to be impressive for yet another year, with like-for-like rents growing at +2.8%, release spread (+1.4%) and occupancy at 99.4%, setting an all-time high that is hard to replicate.
Strong operating performance in shopping centers, with strong like-for-like rental growth (+2.7%) and release spread on renewals (+3.3%). Occupancy cost ratio remains at historical lows (11.2%) and footfall (+2.5%) and tenant sales (+5.5%) have performed better than in 2023.
B. Financial Performance and Outlook
Looking ahead, Merlin Properties projects a 2025 FFO of €0.56 per share and plans to increase its dividend from €0.40 to €0.42 per share, maintaining its strong dividend growth trend. While 2026 is expected to see relatively flat performance, significant cash flow improvements are anticipated in 2027.
Merlin Properties SOCIMI SA's data center division is currently a negative contributor to cash flow, with profitability not expected until 2027.
This is the crucial dynamic: the traditional business is performing exceptionally well, but data center investments are consuming capital and generating expenses before revenues fully ramp. 2027 represents the anticipated inflection point when data center cash flows turn positive and begin contributing to, rather than detracting from, overall earnings.
Our financial situation remains very healthy at 28.6% LTV, under 9% net debt to EBITDA, 100% fixed rate with no debt maturities till November 2026, and we have EUR 1.6 billion of liquidity position. Standard and Poor's has reiterated the BBB plus with stable outlook.
X. Bull Case, Bear Case & Competitive Analysis
Bull Case
Dominant Market Position with Barriers to Entry: Merlin owns irreplaceable assets—landmark office buildings in Madrid and Barcelona CBDs, critical logistics nodes, regional dominant shopping centers. These assets benefit from limited supply (you can't build a new Torre Glòries) and sticky tenant relationships.
Data Center First-Mover Advantage: The Iberian Peninsula thesis for data centers is compelling. Spain's position as a fiber landing hub, combined with abundant renewable energy and lower costs than northern Europe, creates structural advantages. Merlin's early move—partnering with Edged, securing power agreements, landing major tenants—builds a moat that later entrants will struggle to replicate.
ESG-Aligned Growth: The waterless, renewable-powered data centers align perfectly with institutional investor mandates. As ESG screening becomes more stringent, Merlin's positioning could attract incremental capital flows.
Diversified Revenue Base with Counter-Cyclical Elements: Offices provide steady income from creditworthy tenants, logistics benefits from e-commerce growth, shopping centers generate yield from defensive retail (grocery, services), and data centers offer exposure to AI/digital infrastructure growth. This diversification provides resilience.
Shareholder-Aligned Management: Clemente and Ollero founded the company, remain significant shareholders, and have demonstrated disciplined capital allocation through multiple cycles.
Bear Case
Data Center Execution Risk: The transformation from less than 1% to 40% of revenue requires flawless execution across multiple projects spanning billions of euros. Delays, cost overruns, or demand shortfalls could strain the balance sheet and disappoint growth expectations.
Office Obsolescence Risk: While work-from-home hasn't destroyed Iberian office demand (yet), structural shifts in work patterns could pressure occupancy and rents over time. Barcelona specifically has shown some weakness.
Interest Rate Sensitivity: Despite fixed-rate debt, cap rate expansion with rising rates pressures NAV. Extended high-rate environments could compress valuations even as operations perform.
Tenant Concentration: BBVA's historical significance as a tenant (nearly 20% at one point) illustrates concentration risk. Large tenant departures could create meaningful income gaps.
Regulatory Risk: SOCIMI tax benefits depend on maintaining qualification requirements. Political changes that modify the favorable tax treatment could significantly impact returns.
Capital Intensity of Growth Strategy: The data center build-out requires €2+ billion of capital through 2028. This necessitates either additional equity raises (dilutive), debt increase (leveraging the balance sheet), or asset sales (reducing diversification).
Porter's Five Forces Analysis
Threat of New Entrants (Low-Medium): Barriers are substantial—access to prime real estate, established banking relationships, IBEX 35 status, investment grade ratings. However, sovereign wealth funds and global private equity could deploy capital at scale if sufficiently motivated.
Supplier Power (Low): Construction contractors and service providers are numerous in Spain. Merlin's scale gives it purchasing leverage.
Buyer Power (Medium): Large corporate tenants have negotiating leverage, particularly in office. However, prime locations command premium rents due to scarcity.
Threat of Substitutes (Medium): Co-working spaces, remote work, and logistics automation represent varying degrees of substitution threat across segments.
Industry Rivalry (Medium): Colonial (offices), Lar España (retail), and smaller players compete for assets and tenants. However, Merlin's scale creates advantages in tenant services, capital access, and acquisition capacity.
Hamilton Helmer's 7 Powers Framework
Scale Economies: Merlin's size enables operational efficiencies, G&A leverage, and better debt terms. The overhead ratio—committed to remain below 5.5% of gross rents—demonstrates this advantage.
Network Effects: Limited direct network effects, though tenant relationships and reputation create soft switching costs.
Counter-Positioning: The data center pivot represents potential counter-positioning. Traditional real estate players may struggle to replicate the technical partnership with Edged and the early hyperscaler relationships.
Switching Costs: Physical relocation costs for tenants create moderate switching costs. Long-term lease structures lock in relationships.
Branding: The MERLIN brand carries recognition in Iberia but limited global brand power. More relevant is reputation with institutional investors and major corporate tenants.
Cornered Resource: Prime locations in Madrid, Barcelona, and Lisbon CBDs represent effectively cornered resources—there's no way to replicate Torre Glòries or Paseo de la Castellana addresses.
Process Power: Demonstrated competence in deal execution (Testa, Metrovacesa), capital markets access (IPO, capital raises, green bonds), and operational management creates accumulated process advantages.
XI. Key Metrics for Investors
For investors tracking Merlin Properties' ongoing performance, three KPIs stand out as most informative:
1. Like-for-Like Rental Growth (LfL) This metric strips out acquisitions, disposals, and developments to show organic rent growth from the existing portfolio. It captures the combined effect of CPI indexation, lease renewals at higher rents (release spread), and occupancy changes. For 2024, LfL was +3.4%. Sustained positive LfL in the 2-4% range indicates pricing power and strong tenant demand. Negative or flat LfL would signal market weakness or competitive pressure.
2. Data Center Megawatts in Operation and Under Contract Given the strategic importance of the data center pivot, tracking operational capacity and contracted backlog is essential. Phase I delivered 60MW; Phase II targets 200MW by 2028; the Extremadura pipeline adds gigawatt-scale optionality. Watch for pace of leasing, tenant quality (hyperscalers vs. smaller customers), and construction timelines vs. plan.
3. Funds From Operations (FFO) Per Share As the primary measure of recurring earnings power for REITs, FFO per share captures cash generation while adjusting for real estate depreciation conventions. The 2024 figure of €0.55/share, with 2025 guidance of €0.54-0.56/share, establishes the baseline. Recovery of dilution from the 2024 capital raise and inflection of data center contributions are the key drivers to watch.
XII. Conclusion: From Crisis to AI Infrastructure
The Merlin Properties story spans three distinct eras. The founding era (2014-2017) exploited regulatory reform and market dislocation to consolidate a fragmented industry through aggressive acquisition. The maturation era (2017-2023) optimized the portfolio, weathered COVID, and established operational excellence. The transformation era (2023-present) pivots toward AI infrastructure, betting that the same Iberian geography that attracted office and logistics investment will prove equally compelling for data centers.
Whether the data center gambit succeeds will likely define the next decade of shareholder returns. The base case—strong traditional real estate performance plus gradual data center contribution—supports a sustainable dividend yield in the mid-single digits with modest NAV growth. The bull case—successful scaling of data center operations, multiple blue-chip hyperscaler tenants, and rerating as an infrastructure play—could generate substantially higher returns. The bear case—execution stumbles, demand disappointments, or macro stress—could strain the balance sheet and undermine the premium valuation that the data center optionality commands.
What remains consistent through all three eras is the management team's willingness to act decisively when opportunity presents itself. In 2014, they raised €1.2 billion to buy property when Spain was still viewed as uninvestable. In 2015-2016, they executed the Testa and Metrovacesa deals that created the dominant platform. In 2020, amid pandemic uncertainty, they launched the data center partnership. In 2024, they raised another €921 million to accelerate that strategy.
Clemente described what he considers makes a good leader: "You must be just, lead by example, avoid being arbitrary and not be afraid to surround yourself with brilliant people who you empower and give some freedom."
The ultimate test of that leadership philosophy will come as the data center investments mature and Merlin discovers whether it successfully transformed from Spain's largest traditional REIT into the Iberian Peninsula's premier digital infrastructure company. The wizard of Spanish real estate has cast his most ambitious spell. The market will determine if the magic holds.
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