Seth Klarman, the manager of the Baupost Group, is known as a savvy, risk-averse investor. Baupost has delivered steady, if not spectacular returns over the last few years. The U.S.-based hedge fund currently holds a more than one billion dollar position in chipmaker Micron Technology, Inc. (NASDAQ:MU).

Klarman

Given Klarman’s investing philosophy and the Baupost Group’s conservative investment track record, many will be surprised to learn that Baupost just made a more than $200 million (160 million euro) investment in Spanish commercial real estate. Baupost received seven shopping centers and a shipping and logistics park in return for its cash. GreenOak Real Estate joined Baupost as a junior partner on the deal.

Baupost purchased the lot of shopping centers, most near Madrid, from the Dutch real estate group Vastned, who sold the real estate assets to raise capital to reduce their debt load.

Spanish economy bottomed out, thinks Klarman’s Baupost

Spain’s economy is currently in tatters by almost any measure. Government spending has been slashed due to EU-mandated austerity program, the unemployment rate is around 26% and even higher for young people, and commercial real estate and rent prices have plummeted over the last few years.

However, many savvy investors such as Klarman believe the southern EU periphery has finally bottomed out, and Greece, Italy and Spain are due for multi-year economic booms. These investors have backed up their beliefs with their cash, as real estate investment in Greece, Italy and Spain increased by more than 80% from 2012 to 2013.

Analysts suggest it boils down to taking on a little more risk for higher returns. Taking German commercial real estate as an example, analysts say the cost of prime commercial real estate is so high that you can only expect to earn a 4.4% to 4.6% return on your investment.

Make 7% and wait for Spain to recover

According to European real estate analysts, Klarman and Baupost are likely to make as much as a 7% annual return on their investment through rents paid by retailers while Spain recovers. A source close to Klarman says the Baupost fund manager also believes he will be able to sell the prime retail properties for twice what he paid in just a few years.