ISMAEL CLEMENTE: "We've scared off HOUSING owners by protecting the CRIMINAL"

I'm glad to see you. Likewise, I can use 'tú' with you in the interview.

No, please, don't mention it. Let's use 'tú'.

I thank you for it. I thank you for it.

Yes, the pressure in almost all European countries, the fiscal pressure is high, and in Spain, clearly, quite a lot is paid, especially because very few people are net payers. Due to population aging, social policies, and the raising of tax thresholds, very few people actually pay.

Unfortunately, yes. Unfortunately, financial education in Spain is practically nonexistent, and it's the typical thing that doesn't cost money. It wouldn't cost anything to teach a little financial education already in primary school, very simple things, then in secondary school, and then in university degrees. For example, a guy who has studied medicine or journalism, give him a couple of economics modules so that in the future, imagine that doctor ends up having a private clinic or whatever, that he has some notions of economics. I don't think it's bad at all. Populations, the economy is everything. In reality, in Spain and in general in almost the whole world, we are made to believe that the great social primacy should be granted to politics. But I don't think so. I think that for a population to be free, first it has to be prosperous. And to be prosperous, there must be economy.

Unfortunately, still quite a few. I mean, Spain comes from 500 years of absolute monarchies and then 40 years of dictatorship, and there is still a part of the business community that lives off doing business with the power. In more export-oriented countries, that percentage decreases, and in countries where the weight of the public sector in GDP is smaller, necessarily, that percentage decreases. Both circumstances do not occur in Spain, and then there are unfortunately many people who, in private, tell you one thing and you say, 'And would you say that in public?' because you know that my obligation is to get along with politicians and such, my obligation is to get along, and then people, faced with this 'my obligation is to get along,' is the way they have to ingratiate themselves with power to do all kinds of business and such. And well, it's not entirely healthy, but well, in the end, it is what it is, and it's worse to work and live in many other countries in the world than in Spain, so in the end, it's not that bad. It's a wonderful country.

I think for two reasons. The first, because I'm the son of teachers. I think I have in my blood a certain didactic vein, that is, when I speak, I try to speak so that I'm understood. I think that's very important. And the second, because I'm from a very small town, and so the first thing you learn in a very small town is to adapt your registers. You can't pretend to be in a normal day, in a bar with your friends, and suddenly become exquisite and speak as if you were in parliament or at the Davos forum. You have to speak in a much more understandable way, because you're in a more relaxed environment and with people who might not care about what you say about economics, so you have to try to explain things in a much more humble, mundane, and easy-to-understand way. And well, perhaps the combination of these two factors is what makes me speak in a certain way. I often use many examples, sometimes metaphors. Yes, it's a bit of a strange thing. I'm criticized a lot, huh? I mean, everyone tells me, 'Oh, yes, you're criticized.' Yes, yes, yes. People tell me, of course, the first thing they criticize is that I respond to what they ask me. That's widely criticized. They tell me I need a communications department. Of course, we at Merlin are understaffed, that is, in administrative bodies like Jesus Christ of sins. So we don't have a DirCom, we don't have a press department.

We have nothing, no department. I don't have a department, I don't have a driver, I don't have anything.

Rafael del Pino will have a circle, [laughter] but that's it. I mean, Rafa del Pino is IBEX pata negra, we're a bit IBEX 100, right? Yes, yes, yes, yes, yes, yes. Really, in Spain we have an IBEX 35 so that a few companies, but of significant size at the European or world level, the IBEX could be 10, 15 companies, and the rest of us are a bit of extras. So, well, what happens is that being a company that owns assets, you quickly gain a lot of size, and that size gives you stock market capitalization. And if you don't have very clear controlling shareholders, that capitalization gives you liquidity, and that liquidity gives you IBEX. But we're a bit of a small company compared to the companies in the IBEX, which are much more organic, much more institutional in their way of speaking because there are communications departments, DirComs, Audis, you know? It's another level.

They have represented everything. My parents are the ones who instilled in me a bit that fondness for learning, for having curiosity about everything, for reading. Reading is not necessarily novels, it's reading anything that falls in your hands, an instruction manual, the back of a shampoo bottle. So reading is very important for understanding new things, and nowadays with the internet, it's easier than ever. I tell my children, for example, never to throw a triple saying Ukraine has 10,000 inhabitants, because nowadays with the internet, how can Ukraine have 10,000 inhabitants? You take Wikipedia and look at how many millions of inhabitants Ukraine has so that the next time you have to opine about the inhabitants of Ukraine, you know it. So, reading is important and maintaining a kind of will, care, a will to add knowledge, which is good. My parents also had their principles, their beliefs. My parents instilled in me a faith, which is also a defining element of my life. I'm not an especially religious guy, but I have my principles and I try to behave according to what they taught me and what I later learned in school, right? And that's all. It's that and childhood in a town, because I think childhood in a town takes away a lot of nonsense because in towns, although the variety of friends to choose from isn't huge, you choose them. It's not like in cities where often as a child you're forced to be friends with your parents' friends' children. In a town, right? In a town you go out to the street and you befriend who you want and try to protect yourself from who you don't want, and that helps you in life. Felipe González used to say a phrase that I like a lot. Felipe González said, 'In life, you don't choose your friends. What you choose are your enemies, and you should have few.' [laughter] González is a curious guy, man. He represents a bygone era of Spain. He's quick. He's a guy, we have a bit of a grudge with him in Extremadura, he lives in Guadalupe, and he's a man. I've treated him little, but now as former president and such, and first, he has a lot of world experience, you learn a lot from him, he's seen it all, he's met a lot of people who for me were just mentions in history books, right? Helmut Kohl. Well, that's very special for me. He's a curious guy, very curious. And by the way, you also realize the human dimension of politics, right? He acknowledges his biggest mistake as the nuclear moratorium, for example. I mean, notice that this is something that caused long-term consequences in Spain, and today he acknowledges it as an error. A very curious thing, he's a very interesting person to meet. He's starting to age now.

I'm zero prototypical in that sense. My relationship with politics has been null throughout my entire life. While I worked abnormally and anonymously, of course, zero. And once I started working in a listed company, when we were a small listed company and such, also zero, because of the type of activity we had, which was commercial real estate, what Americans call commercial, right? Well, the truth is that our relationships with the administration were null. In offices, the public administration represents about 1.5% of our revenues, in shopping centers zero, and in logistics zero, and now in data centers zero too. So, well, I've never had any relationship, so knowing any politicians I've known has been through other issues that have made me deal with some. With Guillermo Fernández Vara, for example, I got along very well. He was a guy I considered a friend, not in the usual sense of the expression here in Madrid. They say, 'Intimate friend, intimate friend. You haven't seen him twice at a Europa Press breakfast, but no.' In this case, I got along very well with him, and then I've gotten along well for different reasons related to large families or issues of origin in some cases, so I've had some relationship, for example, with Pablo Casado, who later had a stormy exit from politics, although now he's doing very well in the private sector. Well, I've known some, but with compadreo and close knowledge and connivance and such, historically zero. Now, unfortunately for me, well, there we have a certain political dimension because the world of data centers is electricity-intensive, and electricity, unfortunately in Spain, the concession isn't fixed, it's not a concession through an administrative procedure, but rather a gracious concession granted by political desire. So, I have no choice but to ask for it, and well, I usually don't get it, but well, I have to every now and then. Now I do have to have some relationship with someone at high levels of administration or with a politician, but this is my first experience in this area.

It's a patrimonial real estate company of old. Real estate is an activity in the services sector. The service you provide to society is measured in square meters, not in hours of work like a lawyer or whatever. And as a service sector company, we contribute to the primary and secondary sectors of the economy, right? So, how do we do it? By providing them spaces either to run their companies in offices, or to sell in shopping centers, or to store and distribute in the logistics sector, and more recently in data centers, for mainly doing artificial intelligence computing or some companies maintaining cloud applications or some companies storing data, which in our case is the minority. So, we're just another link in the economic system. We provide services and we have a long-term vocation. A SOCIMI isn't designed to buy and sell. In fact, rapid asset rotation is quite penalized from a legal and fiscal point of view. What you do is buy or build the assets yourself and manage them, as José Mota would say, forever, right? So, that's the characteristic of this. It's like a savings vehicle that in more advanced and financially developed countries than Spain is used as a way to earn a small dividend every year. I mean, a teacher in Wisconsin has $100,000 in an American REIT and gets a dividend every year of 5,000 or 6,000 euros, and with that he pays for his two-week vacation in Florida. So, that transferred to other countries is the same as the SOCIMI regime, and it's an ideal investment instrument for pension funds, although in Spain they don't really know what that is, for insurers, for individuals, for sovereign funds, for the famous family offices. It's capital that demands a relatively low return on investment but very secure.

Well, wait, I'll touch the seat because he's my [laughter] [__] hero. I mean, I don't know where he's from, Campo de Criptana or Montiel, from Montiel. From Montiel. Well, this guy is a [__], I mean, when I'm depressed, I watch two YouTube videos of Mota and I split with laughter. The one where the councilor picks up the trail of bills on the floor and such. That is the most delicious thing I've seen in a long time. The guy is a [__] phenomenon. His daughter was a classmate of one of my kids at school some time ago, but I never coincided with him at any parents' meeting or anything, and I don't know, I deeply admire him without knowing him. He's a true genius. The way he disguises himself, the way he imitates, but not only imitating the voice, but how he imitates the mannerisms, the gestures of the characters. He's a true modern genius of the 20th century.

Because it's a sector that's in the middle of a political battle, and unfortunately, no one has ever wanted to understand that from a national perspective. I remember once a Secretary of State for Housing, Elena Beunza, after talking with her for a while and with some logic, she says, 'But man, help us, man, invest in housing, because it would be very good for us to have large property owners who manage it professionally and such.' And I told her, 'Look, Elena, it's like a wife whose husband hits her.' When this wife, after being beaten by her husband, when her husband makes a move to comb her hair, the poor woman already flinches, she's afraid of him. Well, the same thing happens to us. You've tinkered so much with housing legislation, you've [__] it to such an extent that today, no one who is remotely professional wants to deal with housing. So, it has been left for these small landlords of one, two, three, which is why a professional sector has never been able to develop in Spain. We used to have some housing as a result of absorbing a centennial company called Texta and from Metrosacesa, we came to have a significant portfolio of housing, and moreover, they were all protected housing from a social or public point of view, they were free-price housing, but we saw very clearly that this was a kind of battlefield between left and right unions that in Spain usually behave so Cainite. And we decided to leave there, but running. So, we had an opportunity to sell the entire portfolio, we sold it and got out of there because it's a B2C business, business to consumer, as the moderns say. That is, it's a business of a company with an individual, and that is always betting on losing, because that individual, the politician wants to protect at the expense of your portfolio. So, it's better to work only in B2B, business to business, a business with another business. Company with company, what governs is the Civil Code. In company with individual, what governs is politics, what a politician has promised to that gentleman, which he will never fulfill, but he has promised him a paradise and normally he wants to deliver it at the expense of your bottom line.

What's happening, unfortunately, many, many things, and it would probably be hard to list them all because we wouldn't have time, right? But fundamentally, we have chosen as a way to increase GDP, fundamentally by increasing population, and that population increase pressures prices upward because there are many demanders and few suppliers. Second, we have scared homeowners by protecting the criminal, protecting the guy who doesn't want to pay or who is an occupier, and giving him all kinds of legal guarantees so that he isn't evicted, so that he doesn't know what. So, homeowners, even having a very modest standard of living, if they have a housing that they could rent to round out their standard of living, etc., they don't rent it because their mentality, the mentality of a town person is 'he who rents loses in life.' I mean, that's what they say. They tell you, 'No, no, but I often say to people, but that you have a flat, why don't you rent it?' And with that, you round out your day-to-day, your month. He says, 'No, no, no. He who rents a housing loses in life.' So, of course, but we have created this by tinkering with the housing law and protecting the non-payer, the criminal, right? So, of course, why? Because we liked him, because he was our voter, for whatever reason, right? So, we protected that one instead of the poor owner, and on top of that, the owner is almost branded immoral or fascist. When these famous large property owners, who have always been attacked, there were three. I mean, 97% of the Spanish housing stock is in the hands of individuals. So, housing in the hands of funds or banks were four, and they've all left. Yes. So, what that has done is withdraw supply from the market. In Spain, there are quite a few empty homes, and those empty homes don't come to market because people are afraid that they'll be damaged, spoiled, or occupied, right? So, the first thing to act on is that, but no one wants to. And the second thing to act on is long-term introduction of supply in the market in bulk. And the first thing to do is if you are progressive and want to introduce supply in the market, build it, but build it yourself. Don't try to achieve your goals at the expense of the private sector. You want to build housing, so start if you have unused military barracks, dotational land, I don't know, take all that and start producing housing, which shouldn't be that complicated. I mean, under Franco, RASE built housing, the state built housing, so what do we want? A public park, start building. But not talk yes, build no, because we need to order means of production and such, and unfortunately, today the state no longer has those capabilities, it can't do it.

Yes, yes. In Spain, in fact, there are a lot of people who have a flat, and by the way, that's good. Yes, no, totally. That people have assets, totally in favor. The thing is, I don't see them too interested, as you say, in providing the means for that which is a polygon where housing should be built. [sigh] I don't know what to tell you, right? Look, I have six kids and all six live at home, and it looks like they're going to live there for a long time because even though three of them already work and by the way, they have [__] jobs and earn quite a bit of money, when I sit down with them to do a small financial model to buy a housing, it explodes on all sides. So, currently, they can't, they couldn't in a very simple way, which is by resorting to the transfer of my savings. I mean, if I make them a donation, then they could buy a housing, but I don't do that because I think it's very important for a person to fend for themselves, because among other things, that affects their self-esteem. So, just as I fended for myself, they also have to fend for their own abilities, right? So, well, for now, they can't. I think we're reaching a point, Carlos, where the cycle is about to turn and turn because of demand exhaustion. This time, it's not like in 2006-2007, where what happened was an oversupply, which is also a trauma for a country that I think still has a lot of population in Spain and a lot of political endowment. Because many people discovered that housing goes down. I mean, I've heard many people from my town and here in Madrid say, 'Housing never goes down.' And I said, 'How not, go to Japan and ask?' And indeed, after 2006, housing went down, right? So, the trauma, as you say, won't be the same, because at that time, the most serious thing that can happen in real estate is an oversupply not accompanied by demand. In this case, it's not so much an oversupply because there's still a lot of pressure to buy housing. What happens is a demand exhaustion. Demand can't, and since it can't access, it can't buy, it retracts, and when it retracts, in the end, supply has to adjust prices a bit, right? So, I think that in the coming years, we're going to see a softening of the price increases we've seen in recent years, and there will be better offers in housing matters, as long as, as long as, careful, we don't go overboard, and the panorama in terms of admitting new inhabitants for Spain doesn't look very promising. That is, if we continue messing with the census to bring people in here in bulk and such every year as many as needed, then obviously that adds even more pressure to housing, and not only to housing, to services, to the welfare state, to free social benefits, education, health, etc. It's something that has to be done carefully, it can't be done in the uncontrolled way it has been proposed.