Energy infra is ‘big opportunity’ for real estate funds

IVG Immobilien, a European real estate company with €22 billion of assets under management, has become the latest in a growing line of real estate firms and fund managers to set its sights on the infrastructure space.

In a recent report, IVG said that it saw “big opportunities for real estate investors in the [German] energy infrastructure sector” due to the radical impact of Japan’s Fukushima disaster on German energy policy.

According to IVG, Fukushima has created “a new market…. for energy infrastructure, which is defined in chronological order through the three components [of] energy generation, storage and transport,” remarked IVG’s Thomas Beyerle, head of corporate sustainability and research.

Beyerle goes on to say that “infrastructure facilities are distinguished by relatively high risk-adjusted returns and little correlation in their performance with other asset classes,” adding that “they are therefore an ideal means of diversifying asset portfolios”.

IVG highlights the wind sector as a well established product for infrastructure funds in Germany and looks favourably at the country’s solar sector, although it notes that its returns are entirely dependent on government subsidies and thus “political will”. 

Infrastructure isn’t risk free, though, and IVG points out that regulatory risk, transparency and turnover frequency should make real estate investors cautious when looking at deals in the space.

Despite the risks, though, it’s undeniable that real estate investors are increasingly taking the plunge into infrastructure. Commerz Real, a subsidiary of Commerbank which manages a range of property funds, recently led a group of German institutional investors in a €1.3 billion, high-profile acquisition of Germany’s largest electricity grid – Amprion.

Amprion, however, threatens to become a textbook example of the sort of regulatory risks Beyerle alludes to if the German regulator follows through with its proposal to cut returns in the electricity sector by 1 percent. The regulator’s proposal was announced just one day after Commerz Real and its institutional investor clients bought the power grid.

Another recent real estate entrant was fund manager Palmer Capital, which launched a £52 million (€60 million; $81 million) UK-focused solar park fund in September. At the time, chief executive Alex Price enthused on what he saw as the similarities between real estate investing and renewable energy investing, remarking that more real estate managers are likely to follow his lead in entering the space.