German share of European investment continues to rise · US biggest source of cross-border investment · Deals under mln and private vehicles drive growth · Share of retail grows further · Crunch year for GOEFs
PEU12-MA02-067-BINNENCOVER.indd 67 28-02-12 13:40 focus on germany definition of core widens
With competition heating up for prime assets in Germany, foreign investors are widening their definition of core
By cormac mac ruairi and judi seebus
he run on Germany by foreign investors in search tended to residential as well. ‘Residential and retail pro- of a safe haven could result in bubble-like pric- vide a stable income and are less volatile than other Ting in 2012, panelists at PropertyEU’s inaugural forms of investing. If the interest increases this year Investment Briefing in Amsterdam warned in February. as I expect it will, the pricing will become much hotter ‘Competition is tough for shopping centres in Germany,’ in retail and residential.’ noted Christoph Schumacher, board member of Union The current ‘core frenzy’ has virtually swept the market Investment. ‘It’s very difficult to get good assets. There clean of qualifying assets,’ said Thomas Beyerle, head of are a lot of foreign buyers out there and even the big CS and research at IVG. Accordingly, the standard mar- local insurers are having trouble competing. As a seller, ket fare these days consists mainly of ‘portfolios with it’s exciting, but we don’t want to sell too many assets.’ restructuring need’ or ‘locations with plenty of upward Last year, TIAA-CREF, the US teachers’ pension fund potential’ – in other words, non-performing loans.’ Mar- manager, bought the PEP shopping centre in Munich ket watchers believe deals like those done by TIAA-CREF for about €415 mln, according to those who track the or Dundee REIT (Deutsche Post) could put Class B loca- top left to right: christoph schumach- market. The price reflects a net initial yield of 4.6%, tions or indeed anything ‘beyond core’ in the limelight er, union investment; which is a record low for prime shopping centres traded this year. Beyerle: ‘What counts at the end of the day is, thomas beyerle, ivg; jan-baldem mennicKen, so far in Germany. on the one hand, security, and, on the other, relative low pramerica real estate Tim Andreas Lasys, managing director of Catella Ger- entry-level pricing that enables you to ride out the cycle.’ international PHOTOS: PETER STRELITSKI many, said the strong demand from foreign buyers ex- Beyerle believes the market entries to be witnessed in
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big five . . The top fi ve cities accounted for almost 50% of investment . volume in 2011. All fi ve are rated ‘warm’ for offi ces by DTZ. HAMBURG 2011 volume: €23.5 bn | Prime offi ce yield: 5.1% | prime rent €/m2: €320*
. top 5 deals during 2011 . asset price (€ mln) buyer vendor . 1 Deutsche Post assets 736 Dundee REIT Intl. Lorac IM BERLIN 2 Metro cash-and-carry assets 700 Cerberus Metro shareholders 3 50% Centro Oberhausen 650 CPPIB Stadium Group 4 Doppelturme, Frankfurt 600 DWS Deutsche Bank 5 Karstadts Munich, Hamburg 500 Signa Holdings Highstreet . . .
* top 5 cities (Berlin, Düsseldorf, Frankfurt, Hamburg and Munich) DÜSSELDORF
SOURCES: PROPERTYEU RESEARCH/DTZ RESEARCH/JONES LANG LASALLE . focus on germany . the coming months will be more international than ever. . In 2011, foreign investors accounted for 30% of total FRANKFURT investment in Germany, Timo Tschammler, head of AM MAIN DTZ Germany, revealed during a keynote presenta- definition of tion. ‘A healthy level’, he said, compared to the peak of 75% in the boom years of 2005-07. While local play- ers accounted for the bulk of deals under €100 mln, . foreign investors have been driving the bigger trans- . core widens actions, he added. . Tschammler sees more investment coming from Ca- MUNICH nadian pension funds. ‘They are the newest biggest players. But others are also sniffi ng around,’ he said pointing to the Koreans and Malaysians. ‘They often KEY pay the best prices.’ Whereas US investment banks DEAL VOLUME BN OFFICE INDUSTRIAL RETAIL drove transactions in the boom years, institutional in- COLD WARM HOT vestors have now come to the fore, Lasys said. ‘We’re DTZ FAIR VALUE INDEX Q seeing more core investors and what they’re looking SOURCE: DTZ RESEARCH for is stabilised income and that explains why they are looking at retail and residential investment. These are the less volatile forms of investment in Germany.’ secondary cities gain ground Lasys said foreign investors such as the Swedish pen- Foreign investors are heading towards secondary cities in Germany in sions funds, which have done deals in Germany in search of a ‘safe haven’, Timo Tschammler, head of DTZ in Germany, said the past, are now coming back again. ‘We are advis- during PropertyEU’s fi rst Investment Briefi ng on Germany in late February. ing AP1 and AP2 who are stepping into Continental Foreign investors traditionally focus on Berlin, Düsseldorf, Frankfurt, Europe. They started in the UK and France and now Hamburg, Munich and to a lesser extent Cologne and Stuttgart. But they are investing in Germany.’ Tschammler claims there are also good opportunities to acquire offi ce developments in cities like Hannover, Mannheim and Erlangen where the immune to the crisis offi ce market is established and relatively stable. Thomas Beyerle, of IVG, It is not hard to understand why Germany remains confi rmed that offi ce assets in secondary German cities outside the big so attractive. The economy appeared immune to the seven were much more on the radar of international investors. In 2011, IVG crippling eff ects of the crisis aff ecting many other sold a sizeable number of assets in 2nd and 3rd tier cities, he said. ‘Until eurozone countries in the second half of 2011, and late spring 80% of the buyers were local investors. This changed after the economists expect it to avoid falling into recession. summer when 80% of the buyers were foreign. It is just a simple GDP shrank by 0.2% in the fourth quarter of 2011, the operational question: the yield should refl ect the possibility to leave the fi rst decline since early 2009, however analysts be- market in good or bad times,’ he said. lieve the downturn will be brief and that the economy
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‘If the interest increases this year as I expect it will, then pricing will become much hotter in retail and residential’ Tim Andreas Lasys, Catella Germany
1. marKus beran, berlin hyp and jan-baldem mennicKen, pramerica real estate international 2. tim andreas lasys, catella germany 3. timo tschammler, dtz germany 4 & 5. time for a chat over coffee: visitors at propertyeu’s first investment briefing in amsterdam
PHOTOS: PETER STRELITSKI
3 4
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will resume growing by mid-2012. Importantly, lead- ing indicators such as the Ifo business climate index munich pricing bubble set to last and the ZEW institute’s poll of economic sentiment Strong demand from both local and foreign investors will continue to boost remain strong. Against this background, the tradi- prices for residential in Munich, Jan-Baldem Mennicken, board member of tional image of Germany as a ‘boring but stable’ real Pramerica Real Estate International said. ‘There’s a clear bubble for Munich estate investment market has changed to that of an residential,’ he noted. ‘Will it stay a bubble? Potentially yes. Why? People ‘appealing and stable’ one. are going for the same investments there. We have competition from new So far, Germany’s biggest cities have been drawing players such as family offices who are going deeply and more heavily into the most buyers. In 2011, the Big Five – Berlin, Dus- residential, plus foreign investors. That is the ingredient for a bubble.’ seldorf, Frankfurt, Hamburg and Munich – account- Tim Andreas Lasys, managing director of Catella Germany, said the strong ed for 47% of the €23.5 bn invested in commercial demand from foreign investors extended to retail. ‘If interest increases this property with a strong focus on core retail and office year as I expect, then pricing will become much hotter in retail and assets, according to DTZ. And three of these – Mu- residential.’ Given low bond yields, real estate investments offering a nich, Hamburg and Berlin – feature in the top five spread of 1.5% still make sense, he pointed out . ‘This covers the risk in this European cities where investors expect to increase in- area which is why they accept such low yields in the retail sector.’ vestment in 2012, according to the Emerging Trends report. Munich is rated as a ‘deep and liquid market’ and ‘more stable’ than Frankfurt. The city is benefit- vacancy rates decreased from 8.5% to 8.3% over the ing from investors’ need for refuge, and it is frequent- course of 2011. And Munich’s retail property market ly mentioned alongside cities such as London, Paris was the second-most attractive in Europe, largely due and Stockholm for this reason. The office sector is to TIAA-CREF’s acquisition of the PEP mall. ranked as one of the top three in Europe in the sur- But foreign investors are also looking further afield, vey, behind London and Paris. Take-up in the Bavar- Tschammler said. ‘Core continues to be first choice ian capital was the highest of the five German office but the definition of core is widening to prime offices markets during the first nine months of 2011, and in mid-sized cities. One trend that we believe will con-
top investment picKs berlin 2011 volume: €2.2 bn | Prime office yield: 5.05% | prime rent €/m2: €264 ‘Retail and residential are the less volatile forms of investment in Germany’ top 3 deals 2011 Tim Andreas Lasys, Catella Germany asset price (€ mln) buyer vendor 1 GSW IPO 630 various Cerberus/Whitehall F. ‘Bread and butter investments in residential real 2 Gropius Passagen 341 MFI/Parella W. Wealthcap estate can generate yields of 6% to 6.5% and 3 4,800 apartments 330 GSW Gagfah even more sometimes if you choose a secondary location.’ Major deal activity in Germany’s capital centred on residential Markus Beran, Berlin Hyp property last year. In a sign of the country’s improved eco- ‘We’re doing a lot of value enhancement. There is nomic position relative to other enough demand to add additional space to exist- eurozone countries, US private ing retail centres’ equity firm Cerberus and Gold- Christoph Schumacher, Union Investment man Sach’s Whitehall Funds finally cashed in on their invest- ‘We are seeing a couple of juicy institutional lo- ment in Berlin’s GSW housing portfolio (asset pictured) by listing gistics assets coming to market. It is easier to the entity. The IPO was originally scheduled for 2008 but was de- obtain prime stock in this segment in secondary railed by the financial crisis. GSW went on to acquire almost 5,000 locations’ apartments in the largest direct residential portfolio investment in Timo Tschammler, DTZ Germany Berlin during 2011. Mall developer MFI and US firm Parella Wein- burg completed the largest non-residential deal.
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PHOTOS: PETER STRELITSKI
dÜsseldorf franKfurt 2011 volume: €1 bn | Prime office yield: 5.25% | prime rent €/m2: €279 2011 volume: €2.9 bn | Prime office yield: 5.05% | prime rent €/m2: €414
top 3 deals 2011 top 3 deals 2011 asset price (€ mln) buyer vendor asset price (€ mln) buyer vendor 1 Rheinpark Center 228 Union Investment Unimo 1 Doppelturme 600 DWS Deutsche Bank 2 Deutsche Bank Carrée 184 Undisclosed Metrovacesa 2 Dresdner Tower/ Silberturm 400 IVG consortium Commerzbank 3 Dreischreibenhuis 77 Blackhorse Inv. RREEF 3 80% in Skyline Plaza 288 Allianz RE CA Immo-ECE
German fund manager Union Investment was a prolific buyer last Germany’s financial centre claimed the top 2 office deals in 2011 year of shopping centres in its domestic market, of which the as major banking groups offloaded towers to domestic investors. Rheinpark deal is believed to Deutsche Bank sold its own be the largest. The asset (pic- Doppelturme (pictured) head- tured) located in Neuss near quarters for €600 mln in March Düsseldorf attracted Union to a vehicle owned by its DWS Investment – one of the larg- closed-end fund unit. Around est European investors in 2011 the same time Commerzbank – because of the region’s high level of purchasing power and in- struck a €400 mln deal with a consortium led by IVG for Silber- tegration into the national transport network. The second-largest turm after a sales process that drew intense domestic and inter- deal tells a less positive story, and was linked to Spanish real es- national interest. This was a major turnaround from 2008 when tate giant Metrovacesa’s retreat from its international forays dur- amid the financial crisis no one wanted the then-vacant 166-metre ing the boom. The sale price for Deutsche Bank Carrée property tower. The largest non-office deal was also a German affair: insurer included €167 mln of debt. Allianz took a 80% stake in the Skyline Plaza mall from the Ger- man unit of Austrian-listed CA Immo and German developer ECE.
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tinue is the interest in secondary cities.’ Schumacher of Union Investment also sees opportunities in sec- if it won’t burst, it’s not a bubble! ondary cities. While most core investors target office, Timo Tschammler, head of DTZ Germany agrees that prices for residential retail or residential, Union Investment is a strong be- property are heating up in Munich but rejected the idea that a bubble is in liever in low-budget hotels, he said. ‘We believe they the making. ‘It’s hot but not a bubble. Bubbles pop up and burst. If demand will develop further in Germany. There are some big stays at the same level, then it’s not a bubble. Munich is historically the most international brands that want to go heavily into the expensive market for residential and high-street retail prices are comparable market.’ While retail in prime locations is becoming to Bond Street in London. There will be ongoing demand for this type of hot due to strong foreign demand, Schumacher none- product.’ theless sees possibilities at the value-add end of the Jan-Baldem Mennicken, board member of Pramerica Real Estate Interna- spectrum. ‘We’re doing a lot of value enhancement. tional, pointed out that Germany remained a safe bet for many foreign inves- There is enough demand to add additional space to tors. ‘They see the inflation adjustment which is very important for them. existing retail centres.’ For those who need to invest in the eurozone, if they were to pick a country Markus Beran, head of the international investor de- with the highest likelihood of survival following the breakup of the euro that partment at Berlin Hyp, said he was open to financing would be Germany.’ retail and office refurbishment in secondary cities. Residential is also on his list, he added. ‘Bread and butter investments in residential real estate can gen- segment. ‘Altogether only a few hundred million eu- erate yields of 6% to 6.5% and even more sometimes ros worth.’ In that sense, logistics may be a better bet. if you choose a secondary location.’ After moving in towards 6% during the boom years, Healthcare remains a niche segment, but is receiving yields have become more realistic, Lasys said. Tsc- increasing interest from institutional investors, Lasys hammler of DTZ also sees opportunities in this seg- said. ‘German institutions are trying to move into this ment. ‘We are seeing a couple of juicy institutional sector.’ Student housing is also gaining traction, he logistics assets coming to market. It is easier to obtain noted, but added that this was likewise a small niche prime stock in this segment in secondary locations.’
hamburg munich 2011 volume: €2 bn | Prime office yield: 5% | prime rent CBD €/m2: €282 2011 volume: €2.8 bn | Prime office yield: 4.7% | prime rent €/m2: €360
top 3 deals 2011 top 3 deals 2011 asset price (€ mln) buyer vendor asset price (€ mln) buyer vendor 1 Hamburger Meile mall 254 Real IS ECE-Bruhn 1 PEP mall 415 TIAA-CREF RREEF 2 Alte Post 110 Stenham Prop. Consortium 2 Hypo HQ 200 Bayerische Hausb. Bayer. Vereinsbank 3 Hammerbrookhoefe 70 Deka Deutsche Immobilien 3 Pasing Arkade 288 MFI Bayerische Immo.
German closed-end fund manager Real IS acquired the 50,000 Domestic and cross-border players scrambling to acquire prop- m2 Hamburger Meile shopping centre (pictured) in April 2011, erty in the vibrant city drove investment volumes up about 130% about a year after the property to €2.8 bn in Munich last year underwent a €200 mln revamp compared to 2010. Although and extension programme. The two of the three largest trans- second-largest deal involved action involved local Bavarian the historic Alte Post mixed-use players, US pension giant TIAA- building. The buyer, UK inves- CREF pulled off a major coup tor Stenham Property, was one of the consortium that acquired by scooping up the 50,000 m2 Perlacher Einkaufsparadies mall the property dating from 1845 to refurbish it to modern standards (pictured). The investment volume reflected a net initial yield of for office and retail tenants. The other members of the consortium 4.6%, which was a record low for prime shopping centres traded were listed REIT Alstria and Quantum Immobilien. The largest of- in Germany last year. The largest office deal saw lender Bayerische fice deal also revolved around a development. It acquired Ham- Vereinsbank follow the example of Deutsche Bank and Commerz- merbrookhoefe – which is pre-let to Deutsche Bahn – on behalf of bank in Frankfurt by selling its headquarters building in the centre an institutional fund.
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