There was plenty of talk about US investors becoming keenly interested in European real estate at the EXPO REAL trade show in Munich this week. However, the hefty focus on that welcome development did leave something else a little overlooked – the export of German capital around the world.
It is a shame that the movement of German capital hasn’t received that much attention because there is a really strong story emanating from the country’s institutional investors that deserves air play. For instance, is it well known that German firms have become the second largest foreign ‘investors’ in the US? Over the past 36 months, they have accounted for more than $3.5 billion of transactions – second only to the Canadians and outgunning the supposedly rampant Koreans and Chinese entities, as well as (so far at least) Norway’s government pension. The most active German players in terms of both acquisitions and exits include GLL Real Estate Partners, DEKA and Union Investment, according to property broker Savills.
But that’s not all. A fizzing development is that German institutions seem to be moving in the direction of property funds instead of doing everything direct. This is a fortuitous shift for investment managers, of course.
Commerz Real, part of Commerzbank, and Frankfurt-based Universal-Investment each have produced research on the trend this month. They say that over the next three years the average real estate allocation in German portfolios will increase to a record high of about 8.6 percent from 7.3 percent within three years. Commerz and Steinbeis University Berlin surveyed more than 110 institutional investors, which seems a fair sample to base conclusions upon. Commerz also said that allocations could rise even higher, to as much as 18 percent over the medium term, because investors liked the security and transparency of property.
More tantalizing still from the perspective of fund managers is this nugget: Universal-Investment believes there is a “paradigm shift” underway in the type of investments to be made. Whereas survey participants previously held 54 percent of their real estate investments directly (with only 46 percent invested via funds), now nearly 60 percent of new investments in property are being made through regulated funds. At present, the proportion of capital invested by Universal’s survey participants in real estate already has risen to 10 percent and is set to increase to an average of 12 percent by year’s end.
Universal, by the way, was at the center of yet another piece of evidence about German institutional investors being the friend of investment managers. On Monday, CBRE Global Investors announced its first truly global separate account to deploy €500 million – possibly rising to €1 billion over five years – on behalf of Bayerische Versorgungskammer (BVK), Germany’s largest public pension. BVK is investing through a specialfonds, for which Universal-Investment is the custodian and administrator and CBRE Global has the contract to be the portfolio asset manager.
As experts will tell you, there is huge pressure upon German institutions to invest globally in order to diversify after years of retreating to their home market after 2008, and this is part of the trend. “That’s something that has really picked up this last year,” said one manager.
Taken in isolation, Germany’s capital flow is good news for global mangers. When combined with the wall of money from the US and Asia for real assets generally, German capital is another welcome brick.