German Real Estate Attracts Investors - Buyers Search For Higher Yields In Stable Economy

Anita Likus

C

ommercial-property sales in Germany are expected to climb to a post-financial-crisis high this year as the country lures investors seeking higher yields than are available in Europe's most desirable cities, like Paris and London.

The value of deals this year is expected to hit €30 billion ($40.6 billion), an 18.6% increase from 2012, according to property advisory Savills PLC. Transaction levels are still below the €52.2 billion recorded in 2007 but above the €10.8 billion in 2009, the weakest post-crisis year.

The increase this year comes as Germany also is seeing mergers and acquisitions among listed companies and consolidations of investment-management funds. Meanwhile, there is greater availability of debt and equity financing, according to Marcus Lemli, head of Germany at Savills.

Commercial-property buyers include pension funds, insurers and hedge funds that are attracted to Germany's stable economy. Germany's economy is expected to expand by 0.5% this year and 1.4% next year, according to the International Monetary Fund, while the country's 5.2% unemployment rate is the lowest since 1991.

Investors also are looking for higher yields than they can find in the most popular European markets. For example, average office-building yields in Germany are at 6.9%, compared with 5.8% in the U.K. and 6.4% in France.

"Hedge funds we haven't seen before have showed up," said Keith Breslauer, managing director at private-equity firm Patron Capital Partners, which plans to spend €1 billion on German real estate in the next couple of years. "Two years ago there were five bidders on an income-producing asset; there are now 25 bidders."

During most of the downturn investors preferred fully leased buildings with solid cash flows. But investors are now also looking at empty buildings or those needing refurbishing.

Patron Capital is close to purchasing two buildings, both 40% empty. Mr. Breslauer said he can find good opportunities outside of the main city centers and financial districts.

Foreign buyers have come to Germany from the U.S., the U.K. and Asia. The market is still dominated by domestic buyers, but international investors from 21 different countries have purchased commercial properties with a value above €1 million in Germany in 2013, property adviser CBRE said, adding that 39% of total investment in Frankfurt came from non-Europeans.

Earlier this year, a group of six Korean investors, most of which never before invested in Germany, purchased the Gallileo Tower in Frankfurt for €250 million. A joint venture of Axa Real Estate Investment Managers and Norges Bank Investment Management earlier this month said it is buying the headquarters of German newspaper Süddeutscher Verlag for €164.1 million.

Germany can be tricky for foreign investors because the country doesn't have one central hub. There are six large cities to choose from: Munich, Berlin, Frankfurt, Düsseldorf, Hamburg and Cologne.

German-listed real-estate companies also are getting more attention as companies grow through mergers and acquisitions and others go public.

The largest residential player, Deutsche Annington Immobilien SE, listed in Germany in July. Rival residential company LEG Immobilien AG listed in February.

"If you want to be on the radar of big investors, you have to be big," said Jan Linsin, head of research at CBRE.

Listed real-estate giant Deutsche Wohnen AG, with a €5.3 billion portfolio of residential, commercial and nursing-care assets, has made an all-share bid for Berlin-focused residential-property company GSW Immobilien AG, with €3.3 billion of assets. More than 91% of GSW's shareholders accepted the offer.

The takeover will create one of Germany's largest property groups, with 150,000 residential units and an €8.5 billion portfolio, and finally put a German real-estate company on a par with much larger European peers such as Paris-based Unibail-Rodamco SE or the U.K.'s Land Securities Group PLC.

"We started the consolidation in Germany's listed property market because we want to grow and become more attractive to foreign investors," said a spokeswoman for Deutsche Wohnen.

On the real-estate fund side, Internos Global Investors, which currently manages €2 billion of assets, announced earlier in November that it purchased the €1.6 billion real-estate Spezialfonds business CRS, comprising nine funds, from Commerz Real. Internos didn't disclose the price.

Source: Wall Street Journal