Investing in German Real Estate >>> Many Investors See Germany As a Safe Haven Inmidst of a Troubled World

immobilienmanager

Ausgabe 3 - 2013 sPeciathe decider‘s magazinel

residential Run for flats Office “Bread and butter“ is recommended

InvestIng In german real estate >>> Many Investors see Germany as a safe haven inmidst of a troubled world. Indeed local know-how and professional partners are crucial for being successful. Savills Investment offers support in: selling of single assets I portfolio selling I tendering procedures I selling of projects I ﬁnancing advice I international selling processes

Savills in Germany: Berlin I Cologne I Düsseldorf I Frankfurt I Hamburg I Munich

Investment I Corporate Finance - Valuation Ofﬁce Agency I Retail Consultancy Industrial Agency I Corporate Real Estate Services

www.savills.de LegaL noTice Publisher and provider within the meaning of the German telemedia act: Immobilien Manager Verlag IMV GmbH & Co. KG Stolber- ger Str. 84, 50933 Cologne / PO Box 41 09 49, 50869 Cologne / Telephone: 0221 5497-131 / [email protected] Registered at Cologne District Court under Sauerkraut for Gourmets No. HRA 14753 Chief executive with power to represent: Rudolf M. Bleser Personally liable partner: German real estate has been viewed as a safe Immobilien Manager Verlag IMV Verwaltung GmbH Registered at Cologne District Court under haven for some time – but only if you know what No. HRB 32091, VAT Reg. No. DE 184232376 www.immobilienmanager.de editorial board: Christof Hardebusch (Editor- you are doing, of course. in-Chief, responsible under press law and sec- tion 55 (2) of the RStV, Interstate Broadcasting Treaty), Bianca Diehl (Managing Editor), Roswi- tha Loibl, Harald Thomeczek Telephone 0221 5497-131, his special Telefax 0221 5497-6134 publication [email protected] T Customer service: Photo: refire Photo: “Investing in Ger- Nicole Sofie Victor, telephone 0221 5497-169 Photo: Balsereit Photo: man Real Estate” [email protected] provides plenty layout, visuals, realisation: made in Wilhelmsburg, Hamburg of useful infor- Cover picture: Gerd Altmann/Pixelio mation to help subscription prices: guide you Germany: EUR 160 incl. VAT and postage (annual)/Other countries: EUR 165 incl. VAT and Christof Hardebusch Charles Kingston through the Ger- postage (annual), Single issue: EUR 17 incl. VAT ma n ma rket , bot h and postage (recommended price) in helping to spot opportunities and highlighting areas of risk. (without engagement) Publication frequency: 10 issues per year After all, a good market for retail may not be so attractive for head of advertising: office or residential, and vice versa. Thomas Ceppok, telephone 0221 5497-135 This is the first time REFIRE and immobilienmanager have [email protected] advertising sales: brought out this joint publication, which combines our collec- Birgit Müller, telephone 0221 5497-153 tive know-how to hopefully maximise its usefulness for our [email protected] readers. This special “Investing in German Real Estate” issue is advertising management: Marion Hahn, telephone 0221 5497-244 appearing in time for MIPIM 2013 not only as a print publica- Advertising price list No. 22 of 1 January 2013 tion, but is also being sent out as a PDF to 16,000 international Marketing: investors and real estate professionals. It’s also accessible as an Katja Vogel, telephone 0221 5497-302 [email protected] immobilienmanager app for iPad and iPhone, and can be down- Management assistant: loaded as an eMagazine from www.immobilienmanager.de. Jeanette Schlüter, telephone 0221 5497-131 [email protected] Printed by: AZ Druck und Datentechnik GmbH This journal, including all the texts in it, is protected by copyright. Any use of the content outside the narrow limits of copyright law without the publisher‘s consent is prohibited by Christof Hardebusch Charles Kingston law and offenders may be prosecuted. This editor of immobilienmanager editor of REFIRE applies in particular to reproductions, transla- tions, microfilming and storage and proces- sing in electronic systems. ISSN 0940-7987 InvEsTMEnT

Investing in German Real Estate Weighing the pros and cons of different locations is complex in Germany, given the federally-structured nature of the country.

03 Editorial/Imprint 18 Residential Property 04 Table of Contents The market still offers good investment possibilities. 22 Locations 06 Facts & Figures Smaller cities often What do you know about offer better returns. Germany? 24 Retail Trade 08 Why Investing in Germany? Investors are spoilt for choice There are several good reasons to with German retail properties. buy property in Germany. 28 Retrospect 12 Office Market In the past foreign investors have Foreign investors are especially often failed to respect the character- keen on large-scale transactions. istics of the German market. 16 Investment Interview with Marcus Lemli, CEO 32 Real Estate Financing of Savills in Germany. Banks are granting fewer and fewer property loans.

4 immobilienmanager · special investment · 3 - 2013 InVEStMEnt

35 Listed Sector 18 The capital markets grow – without a single IPO. 38 Real Estate Market A professional partner helps when shopping for German property. 41 Property Advisers Interview with Piotr Bienkowski, head of BNP Paribas Real Estate in Germany. 42 Vote for Germany The entries for this year’s MIPIM awards with German participation.

In Hamburg. In Bremen. when things start looking up, And beyond. it’s not a coincidence …

…but the result of good consulting from someone who knows the market inside out, that is imaginative, but miles away from “business as usual”. So if you care to follow us … Spot-on consulting and full service on all aspects of property and investment – that is our business.

Robert C. Spies Gewerbe und Investment GmbH & Co. KG Hohe Bleichen 11 · 20354 Hamburg · Germany Phone: +49 (0)40 /32 50 919-90 www.robertcspies.de Investment

Facts and Figures

Capital Berlin

Facts and Figures Head of State President Joachim Gauck

Head of government Chancellor Angela Merkel +0.11 % per year (2010–2011) Germany How well do you Demographic trend Currency Euro (1 € = 100 ct) know the country between the Timezone UTC+1 CET UTC+2 CEST (March to Ocober) Baltic/North Sea and the Alps? Internet TLD .de

Here is some key information at a International country code +49 glance. Sources: Destatis/immobilienmanager

Building Permits

Building permits issued for building construction, buildings and construction projects, original numbers, in thousands 000

32,5

30,0

27,5

25,0

22,5

20,0

17,5

15,0

12,5

10,0

2004 2005 2006 2007 2008 2009 2010 2011 2012 2013

Sources: Destatis/immobilienmanager

6 immobilienmanager · special investment · 3 - 2013 InvEstmEnt Vacancy rate Vacancy 11) 12/Q4 (Q4 level rent top Trend for (EUR/m2/year) Top rent Stuttgart rate Vacancy 11) 12/Q4 (Q4 level rent top Trend for (EUR/m2/year) Top rent Munich rate Vacancy 11) 12/Q4 (Q4 level rent top Trend for (EUR/m2/year) Top rent Cologne rate Vacancy 11) 12/Q4 (Q4 level rent top Trend for (EUR/m2/year) Top rent Hamburg rate Vacancy 11) 12/Q4 (Q4 level rent top Trend for (EUR/m2/year) Top rent Main am Frankfurt rate Vacancy 11) 12/Q4 (Q4 level rent top Trend for (EUR/m2/year) Top rent Düsseldorf rate Vacancy 11) 12/Q4 (Q4 level rent top Trend for (EUR/m2/year) Top rent Berlin Top Cities 7 the in MarketData Office Sources :Jones Lang LaSalle Lang :Jones

/immobilien 5.6% % 2.8 222 8.4 % % 3.3 372 % 8.0 % 2.3 264 % 8.2 2.1 % 288 11.9 % % 0.0 396 11.0 % % 8.3 312 % 8.5 % 2.3 264 manager Berlin, Cologne, Cologne, Berlin, (4th quarter 2012) quarter (4th Clock Property Office German Gross domestic product domestic Gross terms) real (in growth Wage prices consumer rate Inflation growth Economic Data Economic Key Government surplus Government product domestic gross of Proportion Government debt Government Hamburg Munich www.immobilienmanager.de www.immobilienmanager.de iPhone and iPad and our eMagazine You on our app for morefind facts Düsseldorf Sources: Sources: Sources · special investment · 3 - 2013 - 3 investment· special · immobilienmanager Stuttgart Jones Lang LaSalle Lang Jones Slowing Growth Rental Accelerating Growth Rental im. : Jones Lang LaSalle/immobilien Lang : Jones digital 2012 2012 2012 2012 2012 2012 /immobilien Frankfurt am Main am Frankfurt Falling Rents Bottoming Out Bottoming Rents 2,643.9 bn euros bn 2,643.9 % 0.6 % 2.0 0.7 % 81.7 % 0,1 %

manager

manager 7

Foto: gg berlin/pixelio Investment ixelio p üller/ m ax m homas t photo:

Why Germany and How to Do it?

Country For a management team like that of Dundee International, which had long-standing relationships with the German real estate and

investment communities, Germany is a natural choice. By Bruce traversy

ermany had shown remarkable resil- base, which depends on receiving stable and Gience during the financial crisis. Both predictable monthly distribution payments. the real estate markets and the wider economy remained relatively stable despite the Establish fully integrated volatility elsewhere in Europe. Like Canada, Germany is a country with a history of politi- operations on the ground cal, legal and financial stability that provides an attractive climate for long-term invest- As long-term holders, our core philoso- ment. All of this aligns well with our investor phy is to manage our real estate locally

8 immobilienmanager · special investment · 3 - 2013 Investment

Find your way to Germany. state Some tips from other companies might help. e eal r as B ari p p through a fully integrated team of experienced asset managers with an in-depth photo:BN knowledge of the local German markets.

Build strong relationships with local lenders The Cäcilienkloster in Cologne belongs While some international investors are to Dundee now. content to manage their real estate from afar, we strongly believe in having a plat- As new entrants to the German real es- form on the ground. It is what we do in tate market, we have spent a lot of time and Canada, where we have over 800 people on effort building relationships with Europe- our internal team, and what we are repli- an lenders in order to secure attractive cating in Germany and Luxembourg, debt financing for our growing asset base. where Dundee International already em- The relationships with the local lending ploys over 30 real estate professionals community, in particular the “Pfandbrief ”- working in five offices, with more to banks, have become a key factor in suc- come. cessfully financing our growth.

� Transaction Management � Project Management � Portfolio (Re-)structuring � Agency

Experienced in the German (home Meet me during Sandﬁ res LTD Florian Behr market) as well as in the European MIPIM 2013 Am Haag 8 and Asian markets – knowing the 82166 Graefelﬁ ng Germany needs of international portfolio- To get in touch dial T : +49 89 53 8 8 7 6-61 holders and investors of commercial / +4915117447711 M : + 49 1 5 1 1 7 4 4 7 7 11 Electronic vCard E : [email protected] for easy import industrial Real Estates. or mail [email protected] W : www.sandfires.com to address book

immobilienmanager · special investment · 3 - 2013 9 Investment

Our management team has been very focused on establishing close working re- Photo: SEB lationships with the local real estate community. With each acquisition that we complete, we make inroads in gaining the trust and respect of the local brokers and sellers, and we have earned a reputation as a serious and dependable buyer of Ger- man real estate.

Leverage challenging market conditions in Europe

The rather challenging market conditions in Europe have presented great op- In Stuttgart the building Z-Up was sold to the portunities for international real estate in- Canadian investor. vestors in Germany. The softer euro, cou-

Nominated for Best Office & Business Development Vote for THE SQUAIRE www.thesquaire-award.com

THE PERFECT LOCATION FOR GLOBAL PLAYERS HAPPIER EMPLOYEES. MORE TIME. MORE CLIENT CONTACT. THANKS TO THE NEW BECAUSE THE PRIME BECAUSE YOUR CLIENTS WORK CITY CONCEPT: LOCATION BRINGS PEOPLE REGULARLY PASS BY: THE SQUAIRE offers a wor- TOGETHER QUICKER: 150,000 air passengers, king environment that fosters THE SQUAIRE is situated at 23,000 rail passengers Visit us at MIPIM: productivity and motivation. one of the major European and 300,000 vehicles pass Palais des Festivals, The infrastructure is tailored transport hubs – within wal- through here every day. And Espace Riviera, R 33.07 to everyday working life with king distance of Frankfurt In- that includes many of your FURTHER INFORMATION: restaurants, stores, doctors, ternational Airport, above the clients, whom you can meet +49 (0) 69 606050-1500 fitness studio, day-care centre ICE long-distance train station, at the drop of a hat right on THE SQUAIRE, Frankfurt Airport www.thesquaire-award.com and various services. and just off the A3 motorway. your doorstep. Investment

pled with the significant amount of core and core plus real estate that is expected to trade over the next three to five years, has Photo: SEB created compelling possibilities for growth. By acting quickly and taking advantage of these opportunities, we were able to add over one billion Canadian Dollars of high quality assets to Dundee International’s portfolio over the last twelve months, and we continue to see a healthy acquisition pipeline. Since launching Dundee Interna- tional in August 2011, we have made great strides in getting to know the German market. We continue to see attractive opportunities to acquire assets in Germany.

Bruce Traversy is Head of Investments of Part of the portfolio sold by the German SEB Dundee International REIT. to Dundee: the Parkside in Nuremberg.

Nominated for Best Office & Business Development Vote for THE SQUAIRE www.thesquaire-award.com

Classical, Core and as Big as Possible

OffiCe market Foreign investors are especially keen on large-scale transactions, and this resulted in brisk turnover at the end of the year. The experts are prophesying, however, that the Americans at any rate will

soon be pulling back from the German market. By Susanne Osadnik Photo: StrabagPhoto:

The ABC Bogen in Hamburg is part of a portfolio newly owned by Dundee International.

anadian pensioners will be pleased. Stuttgart, Frankfurt am Main, Munich, CSince the beginning of February they Freiburg, Mannheim and Nuremberg. The have not only been the owners of the Ham- Canadian REIT Dundee International has burg office block ABC Bogen. They also own taken over a total of eleven properties from properties in the Moskauer Strasse in Düs- two of SEB Asset Management’s open-ended seldorf, a number of buildings in Cologne's funds, at a price the equivalent of 419 million old city centre and also various properties in euros. The REIT now has a total value of 738

12 immobilienmanager · special investment · 3 - 2013 Investment

million euros – and it is composed exclusive- The Austrian company Signa Holding ly of German real estate. “A special case,“ say paid the same amount for 17 department market experts. “The fund was set up spe- stores of the Karstadt portfolio. One of cifically for the German market.“ them is the KaDeWe store in Berlin which, Other investors come to Germany in with a floor area of around 60,000 square the hope of diversifying the risks of their metres, accounted for nearly 50 per cent of portfolios and stabilising their returns: the total. The third biggest deal was done German investment markets are held to by the Royal Bank of Scotland: during the be steady and sustainable despite the euro year-end rally it sold the “Frankfurter debt crisis. These days there’s a host of for- Welle“ office complex, with nearly 82,000 eign investors romping about on the Ger- square metres of commercial space, and man commercial real estate market – and the “Neues Kranzler Eck“ business build- they all want the same thing: wherever ing on the Kurfürstendamm in Berlin, with possible classical office property, core lo- more than 72,000 square metres of office cation and large packages. “They’re look- and retail space. The buyers are a joint ven- ing for something that scarcely exists,“ ture of Axa Real Estate and the Norwegian says Fabian Klein, in charge of the invest- sovereign wealth fund Norges, which was ment division at CB Richard Ellis (CBRE). making its first investment in Germany. “Large-scale portfolios worth nothing less The transaction earned the Royal Bank of than 100 million euros if you please.“ Scotland about 784 million euros. Property packages worth as much as 50 According to CBRE, just these four million euros are felt to be too small, deals produced a total sales volume of 3.2 whereas expenses and costs are held to be billion euros. Jones Lang LaSalle (JLL) too large. makes it nearly 3.5 billion euros, which is Major foreign investors normally only more than three quarters (77 per cent) of make the occasional find here in Germany. the total commercial portfolio transac- But last year they struck it rich several tion volume. “Almost half of the money times, though only at the end of the year. that foreign investors put into commer- Norwegian, French, Austrian and Ameri- cially used real estate in Germany in 2012 can investors made a resounding success was invested in portfolios,“ says Helge of the fourth quarter, pouring, according Scheunemann, Head of Research at JLL. to CBRE, 10.7 billion euros into German The biggest buyer group was the assets real estate. Way out in front was the spec- and funds managers, with invested capital tacular deal by American investors Lone totalling 7.1 billion euros (a 28 per cent Star, who acquired the portfolio of the share), followed by institutional investors state-owned TLG, consisting of about 780 such as insurance companies, pension largely commercially used properties in funds and sovereign wealth funds with Berlin and the eastern federal states. The three billion euros (a twelve per cent share). purchase price is said to have been in the The total value of commercial real es- region of 1.1 billion euros. tate transactions in 2012 came to 25.3 bil-

immobilienmanager · special investment · 3 - 2013 13 Investment

cent of the total transaction volume went state

e to Berlin, Düsseldorf, Frankfurt am Main, Hamburg, Cologne, Stuttgart and Munich – up by 28 per cent. CBRE puts it at 35 per cent growth compared with 2011 and cal- nvestmentReal i culates a transaction volume of more than eleven billion euros for the office market

photo:Union overall – 44 per cent of the total. Berlin and Frankfurt am Main, with a collective share of around 60 per cent of commercial real estate dealings, again attracted the strongest attention of foreign investors. Stuttgart, with only ten per cent, lags far behind. “It’s always difficult for foreigners to assess the different market dynamics in the various locations,“ says Timo Tschammler, member of the JLL management team in Germany. “But an investment location like Stuttgart, where foreign investors have traditionally had a low profile, would certainly also be of interest if it offered the right kind of properties.“ This is exactly what is often missing, and not only in the Swabian metropolis. However, foreign investors have also known for quite some time that Germany doesn’t work like France or the UK, where the office real estate market is concentrated almost exclusively on Paris and Lon- don. “They know their way around here in Germany, particularly in the major cities,“ says Markus Schmidt, head of research at A joint-venture of Axa Real Estate and Norge Aengevelt Immobilien. “But they tend to bought the “Frankfurter Welle“ office complex. be apprehensive about the second-rank cities like Dresden. The question they al- lion euros – according to JLL the office ways ask themselves there is: Who’s going property market accounted for about 42 to buy the property off me later on?“ per cent of this amount. Investors have Last year the numbers for foreign buy- traditionally been focused on office build- ers and sellers were pretty well evenly bal- ings in the so-called “Big 7“. Nearly 60 per anced. On the buyer side they had a mar-

14 immobilienmanager · special investment · 3 - 2013 Investment

ket share of 42 per cent, and on the seller There is a growing willingness to take side it was 41 per cent. The average value the risk of looking at other market seg- of investment transactions in German ments as well. Purely financial investors, commercial real estate in 2012 by Ameri- however, also take other assets into ac- can, Canadian and British investors was count: just in 2012 American and British no less than around 60 million euros. The asset and fund managers stocked up on total volume was 3.3 billion euros, with the German residential property market – only 30 per cent of this going to office to a value of no less than 1.8 billion euros. properties. “Foreign investors are well One of the deals was by the American fi- aware that here in Germany there is a nancial investor Cerberus. It paid the in- stronger trend towards mixed-use proper- solvent British firm Speymill Deutsche ties,“ says Schmidt. “The crucial criterion Immobilien Company at least 985 million for individual properties is whether they euros for the SDIC real estate portfolio in are in the high-profile cities.“ Germany, a package containing 22,000 For example, in 2012 the US investor apartments. Pembroke paid about 270 million euros That the future will see a large number for the Maximilianhöfe in Munich, a of big investments by the Americans is, property used for retail trading, restau- however, in the opinion of Thomas Bey- rants and offices. The decisive factor in erle, unlikely. In the long term puny re- the deal was the property’s prominent lo- turns of less than five per cent are simply cation in one of the best-known streets in not their thing. They’re also put off by the the Bavarian capital. lack of REITs here in Germany. “The big The demand for such properties is strong US investors will not be active on the Ger- but supply is thin on the ground. Which man market for much longer,“ says the means that returns keep on falling – and IVG head of research. “The pressure on investors are compelled to rethink. JLL’s them to invest abroad, in Europe, has fall- current figure for returns on core office en off since their own domestic economy properties is only 4.76 per cent. CBRE puts started to pick up.“ The facts are that the current top returns in Berlin and Düs- American consumer spending rose by 2.2 seldorf at about five per cent, in Frankfurt per cent in the fourth quarter and invest- am Main at 4.9 per cent, and in Hamburg ment spending on equipment and soft- and Munich they are still at 4.75 per cent. ware by as much as 12.4 per cent; unem- Consequently, since 2010 market ob- ployment rates are falling and the real es- servers have been recording a slight shift tate market is stabilising. House prices of investor interest from core to core plus- were up last year in all 20 of the biggest locations with development potential. “In conurbations with the exception of the good second-rank positions the returns New York region. are about 80 basis points above those of Phoenix, San Francisco, Detroit, Min- core properties in the best positions,“ says neapolis and Las Vegas even posted two- JLL researcher Scheunemann. digit growth rates.

immobilienmanager · special investment · 3 - 2013 15 INVESTMENT

“Significantly Increasing Interest“

INVESTMENT German real estate markets have just started to draw international attention, thinks Marcus Lemli, Savills’ CEO in Germany and Head of Investment Europe.

S Has interest from for- easier for foreign investors to gain a good eign investors reached its understanding of these markets. Regarding peak already? asset classes, both German and interna- photo: Savillphoto: Marcus Lemli: We expect tional investors are mainly interested in interest from foreign in- prime retail and office properties. vestors in German real estate markets to increase What about secondary cities? significantly. Foreign in- Marcus Lemli: Generally speaking, sec- vestors’ share in the total ondary German cities offer interesting op- commercial transaction portunities due to their market fundamen- volume already grew from tals. However, foreign investors are usually Marcus Lemli 31 percent in 2011 to some looking for opportunities with bigger lot 46 percent in 2012. In 2013, sizes. In 2012 the average volume per trans- we expect this share to increase further as action by foreign investors was approxi- foreign opportunistic investors as well as mately 27 million euro, which is almost risk-averse investors – for example Sover- three times higher than that of German in- eign Wealth Funds – are looking for op- vestors at eleven million euro. This lot size portunities in Germany. is quite hard to find in secondary cities. Furthermore, these markets are character- Which asset classes and which cities ised by a lower liquidity. However, there are stand in focus? also a couple of investors such as Dundee, Marcus Lemli: Foreign investors are even who are looking for investment opportuni- more focused on the top German markets ties in secondary cities as yields are usually of Berlin, Frankfurt, Düsseldorf, Hamburg higher in these markets. and Munich than domestic players. The reason for this preference is two-fold. The interview was conducted by Christof Transparency in the top markets is greater Hardebusch, editor in chief of immobilien- than in the regional markets making it manager.

16 immobilienmanager · special investment · 3 - 2013 German Real Estate Finance

Investing profitably in German real estate means putting together the right building blocks to support your strategy over the course of several years. REFIRE will help you to identify opportunities and mi- nimize your risks in Germany, as the leading English-language publication solely devoted to this key market.

Now in our seventh year of publication, the REFIRE Intelligence Report has developed a strong reputation for authoritative reporting and analysis of the German market for real estate finance.

REFIRE is read by institutional investors who really need to know what is happening on continental Europe‘s most important market for real estate, whether on the debt or the equity side.

Our readers trust us for our local market insight and close connections with key market players in Ger- many, and rely on us for qualified comment on significant market developments.

refire-anzeige-RZ.indd 1 22.02.13 12:05 inveStment

“Low Risk with Steady Returns“

GeRman ReSidentiaL pRopeRty German apartments are regarded as safe, low-risk investment products and are therefore keenly sought after by investors at home and abroad. Demand is so strong that prices have risen significantly, first and foremost in the major cities. Nevertheless, experts believe that the German market still offers good investment

possibilities. By Christian Hunziker

billion euros – that was mobilien AG, “Germany has the largest 11.5 the level reached by the rented accommodation market in Europe“ transaction volume for German residential – with a correspondingly large number of packages last year. According to Jones Lang transaction possibilities. LaSalle (JLL) this was an increase of about 70 per cent on the result for 2011. “While Many large-scale transactions residential property was, for years on end, largely ignored in Germany, it is now at the top of the shopping list for many safety- Recent times have been marked by a conscious investors“, says Karsten Nemecek, number of large property sales. According Managing Director Corporate Finance at to Savills, six portfolios with more than Savills Deutschland. 10,000 residential units each were sold last There are a number of reasons. One is year. The biggest deal involved LBBW Im- Germany's economic stability, which mobilien GmbH, a housing company hold- makes German real estate seem in princi- ing 21,500 units, which the Landesbank ple an attractive class of investment. In Baden-Württemberg sold to a consortium addition, in the view of Christian Schulz- including Patrizia Immobilien AG for Wulkow, partner at Ernst & Young Real 1.435 billion euros. Nor was this the only Estate GmbH, “residential properties offer large-scale transaction for which the pub- a low risk and steady return“. Moreover, lic sector was responsible. The federal gov- adds Dr Marcus Cieleback, head of re- ernment sold TLG Wohnen with its 11,350 search at the listed company Patrizia Im- apartments, all of them located in eastern

18 immobilienmanager · special investment · 3 - 2013 Investment

Germany, for 471 million euros to the listed company TAG Immobilien AG. Further investment opportunities have resulted from the after-effects of the last property investment boom. In 2006 and Foto:Deutsche Wohnen 2007 foreign investors distinguished themselves by frequent, rather indiscrimi- nate purchases of residential property (cf. the article “The seductions of cheap money“, page 28). In many of these cases a refinancing is now due, which why no small number of portfolios are looking for a new owner. In 2012, for instance, Deutsche Wohnen AG, a listed real estate owner, acquired the Baubecon portfolio of 23,500 apartments, which had changed hands several times in the years before then. The price Deutsche Wohnen paid corre- sponded to 13 times the annual rental income, which meant a gross initial return of 7.7 per cent. TLG Wohnen got a higher gross Attractive for investors from all over the world: initial return – nine per cent – though it German residential property. must be said that its properties are located in eastern Germany, parts of which have Bundesbank called for “intensive observa- structural weaknesses. “Institutional inves- tion“ of the German residential property tors pay 14 to 15 times the annual rent total market. In regional sub-markets, accord- for good quality portfolios and thus achieve ing to the central bank, excessive prices a distribution return of 4.5 to five per cent“, could “not be ruled out“. says Klaus Niewöhner-Papke, the chief ex- The markets the Bundesbank had in ecutive of residential property specialists mind were, primarily, major cities like Industria Wohnen. So he found no evidence Berlin, Hamburg and Munich. “In the me- of exorbitance in the portfolio prices. tropolises,“ states Matthias Pink, head of research at Savills Deutschland, “prices High prices have now reached levels which are no longer very attractive for institutional investors“. According to Pink, investors are Analysts have nonetheless launched a paying more than 20 times the annual rent debate on whether there is a risk of prices total for residential properties. overheating in Germany or even of a price There have been very striking price bubble forming. Some months ago the surges on the market for private investors

immobilienmanager · special investment · 3 - 2013 19 Investment

situation in a nutshell. The gap between declining regions and thriving conurba- mmobilien i tions is going to get even bigger, according to Jürgen Michael Schick, vice-president of the IVD association (Immobilienverband Foto: Patrizia Deutschland). “More and more people are moving from the country into the cities.“ This means a growing demand for housing, further boosted by the increasing proportion of single-person households. The trend is also reinforced by the fact that these days Germany is attracting High hopes: the prices for residential property in large numbers of people from abroad. In big German cities are rising. 2012, according to the Federal Office of Statistics, immigrants added another acquiring a single residential block or an 200,000 to the population total – and most owner-occupied flat. According to the re- of them settled in the economically strong search institute Empirica, apartment pric- cities. es rose in Frankfurt am Main last year by eight per cent, and in Munich and Berlin Rents still rising by as much as ten per cent. But even this is no cause for alarm, says Jens Tolckmitt, Chief Executive Officer of the association High entry-level prices are therefore of German mortgage-lending banks (vdp), acceptable in the major cities, says An- since the price increases are concentrated drew Groom, head of Valuation & Trans- in the economically attractive major and action Advisory Deutschland at JLL. He is university cities. “The current rise in resi- convinced that “rents will continue to dential property rents and prices“, says Mr rise“. Even with an extremely low gross Tolckmitt, “reflects the present strong de- initial return of three per cent, as has been mand on the housing market, particularly found to happen in Munich, an invest- in the regions attracting population in- ment could pay off in the medium term f low.“ because of increasing rent levels. Any assessment of the German residen- For the current year Empirica expects tial property market must indeed take rents to go up by three to four per cent in wide differences into account. “Whereas Munich and Hamburg and four to five per prices in the conurbations are more or less cent in Berlin. IVD spokesman Schick be- exploding, you can acquire real estate in lieves, though, that “rent growth will slow rural areas for almost nothing“, Rainer down gradually over the course of 2013“. Bomba, Permanent Secretary in the Fed- The potential for rent growth is in any eral Construction Ministry, here puts the case not unlimited. German tenancy law

20 immobilienmanager · special investment · 3 - 2013 Investment

lays down that rents governed by existing However, the experts believe the pros- contracts may not be raised by more than pects for the German housing market are 20 per cent within a period of three years still good. Klaus Niewöhner-Pape of Indus- (and in areas with a tight housing market tria Wohnen at any rate is convinced “that the maximum is as low as 15 per cent). residential real estate will continue to be an On top of all this there are two trends important component of the asset alloca- which forward-looking investors should tion of institutional investors in the next not leave out of account. On the one hand few years“. And major deals can also con- the supply of housing is also increasing. tinue to be expected. At the beginning of In the current year, for the first time the year the owners of LEG Immobilien AG since 2006, more than 200,000 housing (91,000 apartments) were pleased to record units are expected to be placed on the a successful initial public offering. Another market. On the other hand there will be making its listed debut is Deutsche An- a slow decline in total population num- nington, which, with 210,000 apartments, bers. According to a projection by the is the biggest German housing company Federal Office of Statistics, by 2060 there there is. GBW, a company with 32,000 will no longer be 82 million but only 65 units which is still owned by the Bavarian to 70 million people living in Germany. state federal bank, is also up for sale.

SUBSTANCE AND VALUE

Berlin is Europe’s biggest tenant market. Continuously rising rents and household incomes mean attractive conditions on the Berlin property market for institutional investors and private small investors.

With a portfolio of around 58,500 residential units, GSW Immobilien AG is the only MDAX-listed residential property company that is focused solely on portfolio management in Berlin. In 2012, GSW successfully carried out a capital increase and the placement of a convertible bond. The proceeds were used to acquire around 7,000 apartments in Berlin.

Find out more at www.gsw.de

WWW.GSW.DE MY BERLIN. MY HOME.

08213030 Anz Refire 210x147_rz.indd 1 21.02.13 17:11 investment

Opportunities in the B-level Cities

LOCatiOns Most residential property investors focus on the largest German cities. But the smaller ones offer better returns – and some of them at similarly low risk. By Christian Hunziker

afety-orientated residential property German cities like Potsdam, Jena and Ros- Sinvestors have always been sure of one tock are well worth a closer look from the thing: the best places to invest are the seven investors. The same applies, he says, to biggest German cities (Berlin, Hamburg, university towns like Münster, Freiburg, Munich, Cologne, Düsseldorf, Frankfurt am Regensburg and Heidelberg. Main and Stuttgart). That’s where demand is Dr Marcus Cieleback, head of research strong and the risk correspondingly low. But at Patrizia Immobilien AG, is also con- there’s a downside to this strategy: sharply vinced that “there are opportunities out- rising prices. “In the big cities the multipliers side the biggest cities“. The cities he rates have in some cases reached dimensions as having above-average potential are, for which must give investors pause for thought,“ example, Regensburg, Mainz, Bonn and says Manfred Binsfeld, economist at Feri, the Nuremberg, but also Potsdam. The city rating agency. This, he says, kicks in when rankings published by immobilien- the multiplier moves in “the direction of 25“. manager and Deka Bank come to a similar And that is now not a rare event. In Munich conclusion. While three major cities head for example, according to estate agents Engel the list (Munich, Hamburg and Frank- & Völkers, prices for residential blocks in furt), there are also smaller cities among good positions have gone up to the equiva- the top ten, namely Bonn, Mainz, Mün- lent of 30 years of net rental payments. ster, Karlsruhe and Nuremberg. So it is no surprise that investors are The investment possibilities are how- looking for alternatives in smaller cities ever not confined to the economic centres. (the so-called B-level cities). It’s important “With the right strategy you can earn good for them, according to Feri expert Bins- money outside the conurbations as well“, feld, to take into account not only the says Christian Schulz-Wulkow, partner in usual data in the real estate sector but also consultants Ernst & Young Real Estate general economic and population trends. GmbH. His information is that rents are This would make it clear that, in addition now moving upwards in certain regions to the west German conurbations, east outside the big centres. “If what you offer

22 immobilienmanager · special investment · 3 - 2013 Investment eidelberg h photo:City of

University cities like Heidelberg, amongst others, are well worth a closer look.

is right you can raise the rent even in areas the best locations in the big cities is five with economic problems.“ per cent, “Magdeburg, with returns be- Even a slight decline in population tween 8 and 9.5 per cent, offers an ex- numbers is not necessarily a reason not to tremely attractive alternative“. A study invest, says Patrizia researcher Cieleback. published by consultants Wüest & Partner Apart from the quantity aspect of demand under commission from TLG Immobilien for housing there is also the quality side, GmbH reaches a similar conclusion. The which finds expression for example in the study shows that Bielefeld and Braun- demand for low-barrier apartments for schweig, for instance, have a very low level older people. of investment risk and offer significantly The reward for having the courage to better yields than the big cities. invest in locations outside the established However, investors looking for non- metropolises are higher yields. The differ- mainstream investment opportunities ence can be substantial, as shown by the shouldn‘t dawdle. “The investors in the calculations of Annett Lorenz-Kürbis, vanguard of the move into the smaller cit- branch manager of estate agents Aengevelt ies have already been there for quite some in Magdeburg, capital of the federal state time,“ says Feri’s Manfred Binsfeld. of Saxony-Anhalt. Whereas the maximum “Things have got too expensive for them in return obtainable on residential blocks in the big cities.“

immobilienmanager · special investment · 3 - 2013 23 inveStment

Retail Parks Outstrip Shopping Centres

Retail tRade What‘s your preference? A high street department store, a shopping centre, or a retail park? Investors are spoilt for choice with

German retail properties. By Ralf-Peter Koschny

esearch done by Bulwien Gesa indi- ed to no less than roughly twelve per cent Rcates the transaction volume for of total transaction volume for the year. German retail properties was approxi- The investment deals that set the bar mately 9.3 billion euros last year. The 2011 for the market were concluded in Berlin. volume was not attained, true, but inves- The sale of the prestigious department tor interest in German retail real estate store KaDeWe, that was part of the Kars- continued to be very strong last year, as tadt portfolio , alone realised the amount Germany is regarded internationally as a of some 0.5 billion euros. Other sales in stable and crisis-proof location. Demand Berlin last year included properties like was not matched by supply, however, since the Friedrichstadt-Passagen, Quartier the right amount of core and core plus 207 (Galerie Lafayette) and the Neues projects was simply not available. Kranzler Eck. As a result, the share of retail invest- Asset and fund managers, private in- ment in total commercial property turno- vestors and funds or Spezialfonds formed ver fell from about 46 per cent in 2011 to a strong contingent among the buyers in roughly 36 per cent in 2012. In the first 2012, followed by public limited compa- three quarters of 2012 only meagre turno- nies specialising in real estate, insurance ver was posted, but then the last quarter companies and pension funds. The sellers saw a number of large-volume deals being were property companies, property devel- concluded. opers, project developers and open-ended Particularly worthy of mention was the and closed-ended funds. sale of the Karstadt portfolio, with 17 high In some cases the opportunity was street properties, to Signa Holding. The seized to acquire property from sellers in total value was around 1.1 billion euros, insolvency situations. One example was which made it the biggest retail property the deal achieved by the Royal Bank of transaction last year. The deal correspond- Scotland (RBS), which last year sold the

24 immobilienmanager · special investment · 3 - 2013 photo: Archive photo:

Norway‘s sovereign wealth fund acquired the Neues Kranzler Eck in Berlin last year.

Neues Kranzler Eck to Norges Bank In- Among the investments most sought vestment Management (NBIM). after were inner-city office and retail Shopping centres or shopping centre buildings, the targeted properties being developments accounted for the largest vol- found not only in the seven biggest cities ume of property transactions, but stayed but also, to an increasing extent, in the 1A well below the level attained in recent years. locations of medium-sized cities with 2012 sales in this segment included the Mi- good catchment areas and an attractive laneo shopping centre development in inner-city area. Stuttgart and a number of centres in sec- A strikingly large number of depart- ond-tier locations like Münster, Bochum, ment stores were sold in 2012. Karstadt but also the Europa-Galerie in Saarbrück- featured prominently: apart from the sale en and the Luisen-Center in Darmstadt, of 17 Karstadt stores to Signa Holding (al- these being classified as third-tier loca- ready mentioned), a Karstadt store in tions. Not quite in this category was the Frankfurt am Main was sold to the Sahle major deal done by Unibail-Rodamco, group of companies, and a number of Kar- which obtained a substantial financial in- stadt stores to ECE. terest in MFI and whose acquisitions in- There was increased demand – and last cluded a large part of the Ruhrpark. year the property turnover volume was

immobilienmanager · special investment · 3 - 2013 25 investment

close to the level ket segment. Future demographic trends of the shopping will result in more and more people hav- centres and of- ing to manage on a modest household fice and retail budget, which means there will be a buildings – for stronger demand for the goods offered by the segment the centres at favourable, discount-orient- consisting of re- ed prices. photo:russell harrison/wikimedia tail parks. In our opin- Flavour of the month: ion this class of asset will retail parks become vastly more important Retail parks also offer a high level of in the future: certainty and stability. Anchor tenants The transac- renting large amounts of floor space nor- tion volume for mally conclude long-term leases (15 years The department store shopping cen- or more) at rents secured by indexing. KaDeWe changed hands tres will contin- One of the reasons that retail parks are for 0.5 billion euros. ue to fall be- being managed with ever greater compe- cause there are tence is that investors are increasingly scarcely any established core projects be- focusing on this market segment. More ing negotiated. Furthermore, the latest and more market players – both on the new developments of shopping centres as investor and on the developer side – are a rule involve – in terms of the amount of concerning themselves professionally retail space and the investment volume – with this kind of centres. smallish properties which are usually not This asset class is not a realistic possi- situated in the top-level locations. This bility for every investor, however, since means that, if only to maintain the vol- the project volumes are as a rule distinctly umes of the past, significantly more cen- lower than, for instance, with shopping tres would have to change hands. centres and inner-city office buildings. Both the shortage of supply and the fact Where investments in this asset class score, that new centres are generally small and however, is the level of yield compared are not found in the top-level locations, with the shopping centres and the inner- which is why they generate lower purchase city business buildings. prices, will result in a further decline of Research by Bulwien Gesa has shown property transaction volume. that the main focus of investor interest is The supply of retail parks, on the other on retail parks which have at least one, and hand, is distinctly larger. Bulwien Gesa sometimes two, food stores (supermarkets/ also believes that a growing number of discounters or hypermarkets) as their an- consumers are being attracted to this mar- chor tenants, these being supplemented by

26 immobilienmanager · special investment · 3 - 2013 Top German retail deaIs in 2012 Deal/property City Volume Buyer Seller (in euro mn) Karstadt portfolio (17 properties) various incl. Berlin approx. 1,100 Signa Holding Highstreet Hamburg Trust Milaneo Stuttgart approx. 400 (78 %) ECE/Strabag Aachener Münster Arkaden Münster approx. 200 Grundvermögen Sonae Sierra Unibail Rodamco Ruhr-Park Bochum approx. 190 (50 %) Perella Weinberg Herold-Center Norderstedt approx. 187 Deutsche Euroshop RBS

Source: Bulwien Gesa AG/immobilienmanager other stores from the drugstore, clothing, pronounced internet affinity and de- shoes, pet food and natural foods seg- mand for them is strong among consum- ments. Large retail parks also tend to in- ers under price pressures. For shopping clude electrical goods retailers. centres, it will be crucial to offer addi- The debate on the growing shift of tional value in the form of extra services sales volume towards online trading will and an interesting and diversified mix of also have to include the retail parks in its tenants and sectors, so that they can take purview. Yet we see the stores organised the “third-place“ spot. This will mean along the above lines as well armed for placing heavy demands on shopping cen- the fray, particularly if the relevant tre management. Future investors will framework conditions are in order, espe- have their gaze more firmly fixed on cially those in a good location, with these “soft” factors. strong catchment area and, a vital factor, the tenant mix. These aspects are also Ralf-Peter Koschny is a management important in the context of the sustain- board member at Bulwien Gesa AG. ability of the projects, in the sense that after expiry of a lease a good new tenant can be found. The preferred investment locations for retail parks are locations in west Germany. im.digital Alongside the top-level locations, investor interest will increasingly be focused on Find two additional charts concerning the smaller cities. German retail (investment) market in our It should also be borne in mind that app and our eMagazine. the products offered in the retail parks (excluding electrical goods) do not have a

immobilienmanager · special investment · 3 - 2013 27 inveSTMenT

The Seductions of Cheap Money

ReTRoSpeCT This is not the first time that foreign investors have focused their gaze on Germany. Between 2004 and 2007 they bought up German residential and commercial real estate on a large scale. Some of these opportunistic investors landed big profits, but for many of them the venture ended in catastrophe: often the special characteristics of the

German market were simply disregarded. By Christian Hunziker

he current investment boom in the year. The plan was to achieve this by rais- TGerman real estate market is modest ing the proceeds from the properties and by comparison with what was happening then selling their portfolio, after holding it between 2004 and 2007. That was a time for a short period, for example three to when opportunistic investors discovered seven years, at a significantly higher price. the German market in a big way, generat- ing an unprecedented transaction volume. Ambitious business plans According to statistics from DIP (Deut- sche Immobilien-Partner is an association of estate agents), in 2006 real estate But in many cases things did not work and real estate companies in Germany out like this. “Probably only a small changed hands to the tune of 118 billion number of the opportunity funds attained euros, and in 2007 the figure was as high the objectives they had set for themselves,” as 128 billion. says Christoph Wittkop, management The crucial factor in this boom was the spokesman for Pamera Asset Manage- foreign investors. According to DIP, in ment GmbH. While no exact figures are 2006 about two thirds of the transaction available on the successful and unsuccess- volume for commercially used properties ful ventures of the opportunistic investors, was accounted for by foreign financial in- a whole series of spectacular debacles tend vestors. Their business model: they inject- to confirm Wittkop’s comment. Level ed a large amount of debt and sought a One, Speymill and Tower Group are ex- return on equity of at least 20 per cent per amples of the investment trusts whose

28 immobilienmanager · special investment · 3 - 2013 investment

ventures into Germany ended in disaster.

What were the reasons why gsw photo: many of their dreams did not burst into flower? “Some of the opportunity funds had too little know-how on board as regards real estate in Germany,” is Mr Wittkop’s reply. In addition they had fallen victim to the mis- judgement that “big deals are fundamentally good deals”. And finally, their business plans had in many cases been “too ambitious”: “Some of the investors underestimated the maintenance costs and overestimated the rental and sale proceeds.” Two-digit yields on a conservative asset like residential real estate?

Sought-after apartments a thorough job of their homework on the German market. “Some of the investors,” This applied particularly to residential says Timo Tschammler, member of the properties, which were especially sought management board of Jones Lang LaSalle after in the first years of the boom cycle, Deutschland (JLL), “ignored the fact that 2004 to 2006. “Many of the private equity the low incomes of the tenants would lim- investors were convinced that you could it the amount of privatisation and that easily get a two-digit yield on a conserva- German tenancy law sets limits to rent in- tive asset like a residential property,” says creases.” Jörg Schwagenscheidt, member of the An additional failing is defined as fol- management board of the listed housing lows by Dr Thomas Herr of Valteq, the company GSW Immobilien AG. “To reach technical consulting firm: “Some compa- that point, in many cases up to 90 per cent nies did not realise the value and benefits borrowed capital was invested, an appre- of sensible asset and property manage- ciable rent rise was assumed and the cal- ment.” The result was lack of maintenance, culation was based on an unrealistically declining occupancy levels, decreasing high proportion of privatisation, for ex- proceeds from rent, even less money avail- ample tenants buying their apartments.” able for maintenance – a vicious circle. These assumptions contained the fatal This flawed approach had particularly ad- flaw that the investors had failed to make verse effects if an investor had acquired

immobilienmanager · special investment · 3 - 2013 29 investment apartments at a a variety of different loca- Winter remembers it. He managed the tions. “What in many cases did not work GSW deal for Cerberus and has been run- at all,” says GSW board member Schwei- ning Corestate, the investment trust, since genschweidt, “was a business model un- 2006. As he sees it, there were three waves der which apartments were bought in of investment. First the big market players scattered locations and no independent like Cerberus, Oaktree, Morgan Stanley administration platform was set up.” and Goldman Sachs made a successful job of developing the German market. This The early birds made smaller, opportunistic companies aware of Germany’s potential. And finally there were still more investors, “who On the other hand the experts still launched themselves into the last wave find it easy to understand why foreign and found themselves left behind.” Pam- investors turned their attention to Ger- era’s Christoph Wittkop turns to a differ- many. “Foreign investors compared ent metaphor and speaks of the “lemming apartment prices in Germany with those effect”: “They all based their efforts on in London, Paris and New York,” says over-optimistic assumptions.” JLL’s Timo Tschammler. On that basis This sequence can be illustrated by the Berlin and other German cities looked case of Baubecon, the housing company. like “the ultimate bargain”. Cerberus took over the trade union owned And in fact the venture into Germany company at the end of 2005 and sold it just had negative results for by no means all one year later – at a higher price of course the opportunist investors. On the con- – to Pirelli, the Italian conglomerate, and trary, some of those who spotted the op- Rreef, the investment trust. These two portunities inherent in the German mar- overreached themselves, with the result ket at an early stage achieved good returns. that the portfolio went to Barclays. Finally, One example is GSW, the housing com- in 2012, Baubecon’s 23,500 apartments pany, whose sale in 2004 was the first were acquired from Barclays by the listed spectacular major transaction at the start company Deutsche Wohnen AG, at a price of the boom years. Financial investor Cer- of 814 euros per square metre. According berus and the Whitehall Fund set up by to media reports the price paid by Pirelli Goldman Sachs paid the federal state of and Rreef was 960 euros. Berlin 405 million euros for GSW and its 65,000 apartments – which today looks High prices, like an absurdly small amount. In 2011 the investors cashed in by taking GSW high leveraging public. “Opportunistic investors look for un- According to JLL’s Timo Tschammler, dervalued markets, which is what Ger- the fact that other investors during the many was at the time,” is the way Ralph later phases of the boom also paid high

30 immobilienmanager · special investment · 3 - 2013 investment

prices was due to the circumstances of the customers’ disposal. Some of these loans time: “There was so much capital exerting they then quickly sold on. Says Pamera pressure on the market that there were boss Wittkop: “The result was they be- even markups on portfolios. And because came more willing to provide too much competition was so intense, some inves- financing, even for properties of inferior tors allowed themselves compromises on quality and location.” When the financial the thoroughness of their due diligence markets crisis escalated in 2008, the whole checks” – to the benefit of other market supporting structure collapsed. Today the players. “That the opportunists in consequences are there for all to see. Ac- 2006/2007 in certain cases bought proper- cording to DIWG, the services company, ties at prices above the values set by ex- the price markdown on sales of portfolios perts was a lucky chance for the sellers – often come to 30 to 75 per cent on the loan particularly the open-ended funds, which amount. were able to streamline their portfolios at Does this mean the market will develop the time.” negatively in the same sort of way as in the Ralph Winter has an explanation for last boom? “No,” says Christoph Wittkop. the wildness of the times. “The situation “There has been a clear change in invest- then was that investors demanded that ment behaviour. Investors scrutinise the their money be invested within a few properties and locations more closely now, months. The overriding idea for them was having learned that success depends on not to miss out on the big deals,” he reports. active management and further develop- In addition there was what he calls ”the ment of the real estate.” Corestate boss seductions of cheap money”. Banks were Ralph Winter is not so sure: “There’s one practically competing for permission to thing that never changes: the greed for place 90 to 95 per cent borrowed capital at high returns.”

ESSEN: No.1 in GDP development* +15.7 % 20 %

15 %

+4.4 % 10 % +3.8 % Join the boom - +1.3 % +0.7 % 5 % +0.2 % invest in ESSEN! 0 %

-0.1 %

Essen -5 % Berlin

Munich -2.2 % -10 %

Cologne -4.3 %

Stuttgart -5.8 % EWG - Essen Economic Development Agency E S S E N

Hamburg Frankfurt a.M. Frankfurt Phone: +49 201 82024-0 Email: [email protected]

Dortmund ESSENER

Bremen WIRTSCHAFTSFÖRDERUNGS

GESELLSCHAFT MBH Düsseldorf *2008 - 2010 among Germany´s ten biggest cities / Source: Statistische Ämter der Länder MIPIM • Booth LR4.12 invEstmEnt

Last Exit Debt Fund?

REaL EstatE Financing Banks are granting fewer and fewer property loans. Structural change looming. By Dr thomas Beyerle photo:istock

here’s hardly an event in the real es- dence. But then the winding up of Euro- Ttate sector which does not go into the hypo wiped entire regions of eastern Eu- question “Who’s still financing anything?“ rope off the financing map. Currently there Sober analysis must give even the most is no successor in sight. One thing is clear: optimistic listener, reader or banker the owing to the stricter regulatory provisions cold shudders. For all are agreed: in prin- of Basel III the banking sector is pulling ciple “financing arrangements for com- ever further out of the business of granting mercial real estate properties are provided new property loans. as a matter of course” – it is just that the The situation has however also created focus on the renowned core location/ opportunities which, in the last few quar- property/tenant combination unites all ters, have lured new providers onto the the parties involved. In translation: fi- market for property loans. Alongside the nancing yes, but please no risk. large international insurance companies To be added to this are the highly cycli- and certain sovereign wealth funds, par- cal communication activities of the financ- ticular mention should be made in this ing sector. While there were still, at the context of debt funds. The observable ex- beginning of 2012, more than a handful of pansion of debt funds is a logical conse- institutes which were basically prepared to quence not merely of the investment pos- do financing Europe-wide, by May they sibilities which result from distressed had shrunk to a figure that could be count- loans and which in the initial phase only ed on the fingers of one hand. After the attracted opportunist British and Ameri- “rescue of the euro” at the beginning of 2013 can investors but now also, first and fore- there was a clear recovery, at least of confi- most, of the incentive effects of the new

32 immobilienmanager · special investment · 3 - 2013 investment

regulations for banks and insur- properties encumbered with long-term ance companies and the low- letting risks. interest policies of the central banks. In view of the expecta- Enormous demand – tions attached to Solvency II and the low interest levels in the declining supply of credit government bond segment, property loans represent, for in- In the next few years the European surance companies and pension market for real estate financing will offer funds, a really attractive invest- enormous growth potential for new in- ment alternative compared with vestment products in the form of debt the traditional fixed-income funds. As a late consequence of the credit products and with direct or in- glut in 2006/2007, in each of the next three direct real estate investments. years, according to the estimates of DTZ, Debt funds will certainly real estate loans with a volume of about 250 supplement the offering on the billion euros will be due for refinancing. At European real estate financing the same time, however, the banking sector, market and give it a broader basis of lend- which in the past provided some 90 per ers. Thus the target volume of the debt cent of Europe’s property loans, has found funds, which, according to the informa- itself compelled, since the Lehman Broth- tion at our disposal, are currently in the ers crash, to keep on reducing its activities marketing phase in Europe, is more than in this segment, and has therefore been im- eight billion euros. In spite of this the debt posing a series of restrictions on its supply fund will have no great influence on the of credit. The most important reason for financing bottleneck in specific segments this is the regulatory provisions of Basel III, of the real estate market. For instance, which have obliged European banks to many of the new creators of debt funds are make a significant increase in their core traditionally marked by a strong aversion capital ratios. It has become clear that the to taking risks. Consequently the supply measures taken to achieve this – the of property loans will expand above all in strengthening of the banks’ equity basis by the senior financing tranche and less in means of capital increases and the with- the mezzanine segment. holding of dividends - have not sufficed. The strategic orientation of the current The banks are therefore compelled to debt funds gives little reason to expect an sell loans and to reduce, or even put a com- appreciable improvement in the financing plete end to, their activities in the market situation in the real estate markets of segments in which real estate financing southern and eastern Europe, which carry requires a relatively large amount of equity. very considerable economic risks, or in The number of banks which have now specialised segments such as operator-run pulled right out of the real estate loan busi- properties, or with regard to problem ness is already well over the 40 mark.

immobilienmanager · special investment · 3 - 2013 33 investment

Furthermore, insurance companies is to say, on the financing tranches in and pension funds have increasingly been which the investment is done: moving into the gap left by the banks in • Pure senior financing is the term used the property financing market. The two for loans which, in the event of failure to decisive reasons for this are: attain the investment objective, are given • On the one hand the insurance com- priority or first-tier servicing. Funds which panies are facing extreme investment aim solely at the senior tranche currently pressure. As interest rates for government provide mortgages to a maximum of 60 per bonds in supposedly safe investment cent of the value of the property. The re- countries like Germany and the United turns aimed at by most funds in this seg- Kingdom have fallen to an extremely low ment are therefore, at four to six per cent, level as a result of the state debt crisis (the distinctly lower than for direct investments interest on ten-year federal bonds is cur- in real estate, but are attractive compared rently a mere 1.3 per cent), it is scarcely with government or corporate bonds. possible for the insurance companies to achieve their planned actuarial or alterna- How much risk can you take? tively guaranteed interest rate with traditional fixed income products. • On the other hand, because of the • Furthermore, many debt funds direct planned new regulations of Solvency II, their activities at loans which are given European insurance companies have an second-tier servicing and which cover the incentive to operate on an increased scale financing tranches above the level of the on the financing side of the real estate sec- mortgaging rates for senior loans (for ex- tor. While the insurance companies, ac- ample, junior loan for the financing of 60 cording to current estimates, have to un- to 70 per cent of the loan value; mezzanine derpin with equity at least 25 per cent of 70 to 80 per cent). The default risk is ap- their direct investments in commercial preciably greater than with senior loans. real estate, the proportion required in the The debt funds have this extra risk paid for case of loans will be significantly lower. It by way of higher loan margins, which is generally expected that the rate for real means that they currently tend to count estate loans will turn out to be about as low on target returns of between eight and 15 as for bonds, namely around 15 per cent. per cent. As real estate factors are of great- It is not possible to make generalised er importance in the case of second-tier statements about how debt funds which loans, this segment is more of an alterna- invest in real estate loans should be as- tive to real estate investments than to con- sessed in comparison with other asset servative fixed-income investments. classes in respect of achievable returns and investment risks. The reason is that Dr Thomas Beyerle is Head of Corporate such questions are to a very large extent Sustainability & Research at IVG Immobil- dependent on the debt fund’s strategy, that ien AG.

34 immobilienmanager · special investment · 3 - 2013 photo:istock

A Stellar Year for German Listed Property

LiSted Sector In 2012 the EPRA Germany Index increased by 35 percent outperforming its EU benchmark index by 12pp. Numerous equity placements and a resurgence of convertible bond issuance contributed a combined two billion Euros to capital markets growth … and all that without a single IPO. By Peter Barkow

he listed German sector apparently While this was more than twice the long Tbenefited from investors’ flight to sta- term average, 2012 still fell short of previ- bility throughout the year. Looking at the ous year’s two billion Euros placement sub sectors it becomes obvious that listed record. However, 2012 also saw a resur- residential properties were the preeminent gence of German convertible bond place- driver of outperformance. The average ments after years of low or no issuance. Six German residential company increased by convertible bond issues with a total volume 62 percent throughout the year benefiting of 0.5 billion Euro – a record in its own from its triple safe haven status (Germany, right– propelled 2012 to the best ever year property, housing). On the contrary office for combined German real-estate ECM is- companies increased by only 19 percent suance. In addition, Deutsche Wohnen over the twelve months period slightly un- and TAG executed the two largest-ever derperforming the EPRA Europe. rights issues in the German listed property In addition, 2012 was another strong sector. Though the placement window was year for German equity capital markets ac- open for most of the year, there was no IPO tivity, with equity placements totaling 1.5 in 2012. Two listings (IVG Immobilien billion Euros in the listed real estate space. Management REIT and Grand City Prop-

immobilienmanager · special investment · 3 - 2013 35 investment

EPRA Germany Index beats EPRA EU Index

Germany EU 135,5 130

120 121,1

110

100

80 30.12.2011 30.3.2012 30.6.2012 30.9.2012 31.12.2012

Source: EPRA, Akselrod Consulting, Barkow Consulting/immobilienmanager erties), complemented the listed universe dian REIT, Dundee International, a rela- however. tively new entrant to German real estate On our calculations residential property raising the equivalent of circa 190 million accounted for 65 percent or close to six bil- Euros in 2012. lion Euros of the investible sector at the end of 2012. Germany therefore represents the Substantial sector growth, only European market with a fully investible listed residential sector. The dominance still low by comparison. of residential property was also reflected in the listed sectors capital raising activity. In a nutshell, 2012 saw another year of While residential real-estate was already strong growth for German public real es- the main driver of 2011 equity placements, tate companies. Comparing listed-space the subsector’s dominance was redoubled ECM activity to unlisted property funds in 2012. 1.2 billion Euros or 85 percent of paints a different picture however: Ger- total equity was placed by residential com- man open-end funds raised over three bil- panies. A secular consolidation trend also lion Euros of fresh capital in 2012, 50 per- appears to be taking shape as stock-listed cent more than the listed sector. German resi players acquired circa 100,000 Looking to the US, equity offerings re- housing units from unlisted sellers. This is lated to the Archstone acquisition by Aval- the first time the listed German resi plat- onBay and Equity Residential alone sur- form flexed its consolidation muscle and passed the combined volume of capital we expect this trend to continue. raised by the listed German property sec- Surprisingly, the most active equity tor by a wide margin. Positive ECM trends player in the commercial space was Cana- notwithstanding, German listed real-es-

36 immobilienmanager · special investment · 3 - 2013 investment

German real estate equity placements by year (in million euros) 2004 1860

1536 1549

1142 1012 600 733 499 494 228 19 117 0 16

2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 ytd

Source: German RE ECM, , Akselrod Consulting, Barkow Consulting/immobilienmanager

tate companies have a long way to go ver- In addition the owners of the 90k unit sus their private-fund counterparts and by LEG portfolio have successfully floated 57 international comparison. percent of the company or the equivalent of 1.3 billion Euros in January. Books have Strong start into the year been covered after three days only. An- other indication of strong demand. As a consequence, January placements alone Despite significant ECM activity since have therefore matched or possibly exceed- the end of the financial crisis and strong ed all equity placements of 2012. In the share price performance over the last short to medium term, additional equity years, Germany’s investible market cap might come from Deutsche Annington, was only nine billion Euros at the end of Conwert and Immofinanz to name just a 2012. Crunching some crude numbers, few who have voiced intentions to float there is good reason to believe that the German or German dominated portfolios. German listed sector is poised for a quan- On top of that, current players should be tum leap in terms of growth. expected to continue taking advantage of Firstly, a several-times oversubscribed NAV premiums. All of the above consid- 200 million Euros placement by Deutsche ered, investible market cap could double by Wohnen this January reaffirms that the 2015. The dominance of the residential placement window is open. With market sector will, however, likely further increase volatility at record lows and many German to more than 80 percent by 2015. property companies at significant NAV premiums, the stage is set for further Peter Barkow is Special Advisor growth. to Akselrod Consulting.

immobilienmanager · special investment · 3 - 2013 37 investment photo:gerd altmann/pixelio

Work Hard to Get the right Price

German real estate market With a professional partner at your side you can turn shopping for German property into pleasure. It will perhaps cost a lot but definitely not too much. By miriam Beul-ramacher

f the roughly 100 real estate transac- A matter of chance? “No, international in- Otions on the Hamburg market in vestors find it very hard to understand the 2012, only a handful involved foreign buy- German market. Paris, London, Warsaw, ers. A hotel was bought by a Singapore Germany – often enough that‘s the ABC for chain, an office property by a French fund, investors looking at Europe”, says Timo and a retail building by a Spanish company. Tschammler, chief executive and manage- International buyers contributed a share of ment board member at Jones Lang LaSalle just 17 per cent to a total real estate turnover (JLL). Even though Germany, with its 81 figure of two billion euros. By way of com- million people living between the North parison, in Frankfurt am Main investors Sea and the Alps, is the second most popu- with an international background came lar investment target after the United King- away with a more than 50 per cent slice of dom, many foreign potential investors have an investment cake worth 3.2 billion euros. their problems with it.

38 immobilienmanager · special investment · 3 - 2013 investment

Point number one: Germany does not have experience of foreign real estate mar- have a capital city where all the operations kets as well. “It often happens that we of politics, administration and the finan- have to start by explaining the city, with cial sector converge but, depending on the its locales, qualities and leading sectors, perspective taken, five, six or seven major to complete delegations,” says Uwe Re- metropolises: Berlin, Hamburg, Munich, intjens, head of investment at CBRE, in- Cologne, Frankfurt am Main, Düsseldorf ternational real estate consultants in and Stuttgart. Hamburg. The ideal venue in the city for that purpose, he says, is the viewing plat- Every market has its own rules form in the 22nd floor of the Emporio office block, which provides a fantastic, genuinely panoramic view out over Ger- Point number two: all these cities have many‘s most northerly metropolis. Be- attractive real estate markets, which how- cause domestic markets are less transpar- ever all work according to their own rules. ent than the Anglo-Saxon ones, on-site For example, property owners and/or asset inspections, according to Reintjens, pro- managers in Berlin handle different tenant vide an opportunity to develop a feeling groups from those in Düsseldorf or Frank- for the locales and their special features. furt am Main. Berlin is felt to be a finan- Purchases only involving an Excel cially enfeebled but lovable city of govern- sheet, the way they were seen in the pre- ment, the media and creativity. People crisis years from 2006 to 2008, are com- who let office space here will seldom get pletely out these days, he says. Even so, more than 22 euros per square metre and international buyers and domestic sellers month. In Düsseldorf on the other hand, seldom find common ground at the drop where the character of the office market is of a hat. “Above all the buyers can’t under- shaped by the consulting professions and stand how prices are arrived at in Germa- fashion and design firms, the top rate is 26 ny.” The assessment of the value of a spe- euros per square metre and month. In cific property in a specific position usually Frankfurt am Main the tenants most ac- produces immense bafflement. That office tive on the market are financial services block A costs more than office block B, providers and financial consultants who which is in the same street, only a few me- don‘t mind paying for quality. And easily tres away, is very difficult to get across to have the resources to pay up to 33 euros per most foreign investors. Furthermore, the square metre and month. differences between German and interna- Outsiders however rarely grasp what tional valuation systems very often make potent force the various economic, mac- negotiations drag on and on. Brokers re- ro-economic, historical and social factors port that sales also get bogged down when can have. They should therefore seek the an international investor comes across a assistance of advisers with good local property from a fund that is due for liquida- cross-links who should themselves ideally tion. The seller then brings factors like book

immobilienmanager · special investment · 3 - 2013 39 investment values and sustainable rent rates into the ment of domestic open funds and special- equation, aspects which are of very little ised funds. Investors who find all this too importance for international investors. demanding also have the option of acquir- “Even those with experience of investing in ing a simple financial interest. Germany often don’t understand why properties are so expensive here”, says Reintjens. Is residential real estate in Alongside the on-site inspections, advisers therefore also set up special data rooms Germany too cheap? with examples showing the letting and sales statistics of comparable transactions. The Foreign investors only use the tag “too idea is on the one hand to create under- expensive” for commercial properties, such standing of the myriad influencing factors as office blocks, shopping centres, hotels and on the other to compensate a little for and warehouses. By contrast they regard the lack of the transparency to which many the purchase prices for German residential investors, particularly the Anglo-Saxons, real estate as too low. Here too their frame are accustomed on their home markets. of reference is price levels on their home It is unwise however to visualise “the markets in Paris or London, which can be foreign buyers“ as a homogeneous “herd of misleading. For a price like 10,000 euros, bulls“ with fully identical investment ob- which is offered for luxurious condomini- jectives. There is a considerable range of ums in Munich, Frankfurt am Main or motives for investing capital in Germany. Hamburg and which is seriously hefty by “Some of them, like most domestic institu- German standards, is often found to be fa- tional real estate investors, are looking for vourable by potential foreign buyers. What core products with a view to preserving totally mystifies the international invest- their assets. Others are setting their sights ment world, therefore, are the prices nor- on opportunistic ventures”, says Marcus mal in Germany for residential portfolios, Lemli, head of investment Europe and CEO reports Mr Tschammler of JLL. If you buy Germany at Savills. Both investor types a property at 600 euros per square metre, however should seek cross-linked partners he says, you’re speculating on decent on the spot, especially as most of them want growth in value as the result of rent increas- to put their money in concrete but have no es. But this is precisely what will not hap- desire to do the management of their prop- pen, in the case of many large residential erties themselves. “They should therefore portfolios governed by social security oc- enlist the services of experienced asset cupancy arrangements. And there are in managers who have sound structures in any case legal reasons why residential rents Germany”, says Lemli. in Germany cannot rise without limits. The firms open to such partnerships “The low prices generate unrealistic include German insurers and classical in- fantasies about tenants buying their apart- vestment and fund managers, but also ments, which can come to a bad end for companies focused on the asset manage- the investor”, warns Mr Tschammler.

40 immobilienmanager · special investment · 3 - 2013 Positive Light REpp photo:BN interview International investors are beating a path to Germany, while German property advisers travel the globe selling their home markt. An interview with Piotr Bienkowski, the head of BNP Paribas Real Estate in Germany. Piotr Bienkowski

Which particular groups of investors are How do you find these investors? most prominent at the moment? Piotr Bienkowski: We take a bottom-up Piotr Bienkowski: We’re seeing a lot of in- approach, based on available properties terest from investors in Asia and the Middle and portfolios which we can offer to poten- East. So far, however, apart from some Asian tial buyers. Obviously these have to provide sovereign wealth funds, they haven’t bought a good fit with the investor’s own profile as that much yet. They’re being joined by inves- a service provider, including strong market tor groups from China, for example, along access and competent teams of staff in the with pension funds from Norway and Swe- key locations, as a minimum. London is a den. The big Anglo-Saxon investors are also good place to reach these global investors, active, frequently investing capital which or else directly in their home markets – they’ve raised in Asia or the Gulf region. which means a lot of travelling.

What aspects need to be explained? The interview was conducted by Piotr Bienkowski: Firstly, the duration of Christof Hardebusch. lease agreements. For German office leases, these are typically for five years with an option for a further five. Investors also need to understand how rent increases im.digital within existing contracts are handled: In Germany the consumer price index is the You’ll find the Top ten reasons relevant benchmark. to invest in Germany in the eMagazine Investors also need to understand the struc- on www.immobilienmanager.de. ture of Germany’s larger cities. Although Immobilienmanager magazine Frankfurt, for example, is more like a small subscribers can access the information in town with its 700,000 inhabitants, its true their app for iPhone and iPad. significance is as the centre of a metropoli- tan region with 5.6 million people.

immobilienmanager · special investment · 3 - 2013 41 INVESTMENT

Vote for Germany

MIPIM 2013 The entries for this year‘s MIPIM awards include a number of projects with German participation.

he finalists for the MIPIM awards BEST OFFICE AND BUSINESS T2013 have now been decided. Three DEVELOPMENT German developments have made it into The Squaire the final round. Frankfurt am Main, The IVG is jubilant about the nomina- photo:IVG Germany tion of its The Squaire at the Frankfurt Air- Investor/Developer: port, in the category “Best Office and Busi- IVG Immobilien AG ness Development” (architects: JSK Inter- Architect: JSK international national). ECE, Strabag and Bayerische Hausbau, along with the Stuttgart Milaneo, are rep- BEST FUTURA PROJECT resented in the category “Best Futura Mega The Square³ Project” (architects: RKW Rhode Keller- Berlin, Germany tzGruppe mann Wawrowski in cooperation with I Developer: Moritz ECE‘s in-house architects). Gruppe GmbH,

In the category “Best Futura Project” photo:Mor Dirk Moritz; the Berlin Moritz Gruppe and Professor Architect: LAVA, Professor Dr Tobias Wallisser from the Lava archi- Tobias Wallisser tecture practice have entered the final straight with their residential high-rise development The Square³ in Berlin. BEST FUTURA MEGA PROJECT e ECE is also represented in the category C Milaneo “Best Shopping Centre”, in this case “Mar- Stuttgart, Germany mara Park“ in Istanbul. photo: e Developer: ECE The decisions on the winners will be Projektmanagement made by visitors to the exhibition, who will G.m.b.H. & Co. KG, cast their votes during the fair from March Strabag Real Estate, Bayerische Hausbau; 12th to March 15th, and the jury. The win- Architect: RKW Rhode Kellermann ners will be announced on Mary 14th in Wawrowski Architekture + Städtebau in the Palais des Festivals in Cannes. cooperation with ECE architects

42 immobilienmanager · special investment · 3 - 2013 The Mayor City of Cologne

MIPIM 2013 Cannes, 12 – 15 March Please visit us at Lerins Rotunda, LR 4.12 Cologne & Partners © Paulo dos Santos dos © Paulo And when can we welcome you to Cologne?

Adobe, ArcelorMittal, ARRI Film & TV Services, Bastei Lübbe, CMS Hasche Sigle, Deﬁ ance, Detecon, Electronic Arts, FedEx, Fortis, Freshﬁ elds Bruckhaus Deringer, Generali Deutschland Holding, Germanwings, HDI-Gerling, IMG International Management Group, KA Köln.Assekuranz Agentur, Lanxess, Lufthansa, Mateco, Microsoft, MindTree, Mitsui Sumitomo Insurance, PSA Peugeot Citroën, Rödl & Partner, RTL, SCOR, Self Electronics, SID Sport-Informations-Dienst, Turkcell, Wipro – leading companies which are contributing to the strength of the cathedral city by deciding to locate here and ensuring that new records continue to be set on the Cologne property market.

Cologne has fi rmly established itself as a sought-after location of top international companies in the leading group of German property centres. Thanks to the excellent fi gures of the demographic trend and the numbers of persons employed in offi ces, all the signs are of continued stability. Thus, Cologne regularly offers new top-class projects and optimal perspectives. Come along and see for yourself.

Ofﬁ ce of Economic Development, Willy-Brandt-Platz 2, 50679 Cologne, Phone +49 221 221-25765, Fax +49 221 221-26686 [email protected], www.stadt-koeln.de

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