Friday Letter Postcard from Germany

While relations between the governments of Britain and Germany might be frosty right now, PERE has been in Frankfurt playing its part to warm up property links. 

 The British Prime Minister David Cameron is to meet German Chancellor Angela Merkel in Germany today. As this correspondent can attest, it is cold here (hovering around 4 degrees Celsius) and, as Sky News kept saying on the television, the meeting between the two politicians is likely to reflect the weather. After all, Britain and Germany are in the middle of falling out over plans backed by Germany (and France) to introduce a financial transactions tax. Germany wants the tax to help generate potentially tens of billions of euros to recoup some of the costs of dealing with Europe’s financial crisis, while Britain thinks it will penalise London.

The political meeting is taking place in Berlin, just as PERE finishes up its the annual forum in Frankfurt. As a London-based organisation, we are doing our best to make sure relations with Germany (and its real estate professionals) are kept warm. So far, there has been very little anti-British sentiment, except for the decision by German insurance giant Allianz to avoid UK real estate.

Allianz is, of course, not anti-British at all, but it has taken a common-sense position following some recent experiences in the UK. Its main gripes are to do more with foreign exchange fluctuations between the British pound and the euro, as well as the relatively high volatility of the London office market.

Unlike the British government response to Germany, PERE has largely welcomed the messages coming out of this country. Stefan Brendgen, chief executive officer of Allianz’s German property division Allianz Real Estate Germany, for example, took to the stage early this morning and presented the possibility of the company entering into the opportunistic investing space. That is a potential future avenue in response to a search for better yields. Nothing has been decided by Allianz on this issue, but it is under consideration. Furthermore, any such move is welcome because the firm potentially could team up with joint venture partners or fund operators en route to realising its (potential) ambitions. There were many fund managers in the audience listening to that message with interest.

What else gave out a warm glow? Well, yesterday Roger Orf, managing director and head of Europe at Apollo Global Real Estate, said he saw Germany as the ‘winner,’ if there is any, from the current financial chaos. Also, for those opportunistic fund managers with equity to invest, the feeling here is basically that is a very good market right now. If your mission is to be involved in small to medium deals, there is a lot of opportunity, and finance isn’t a problem.

Mind you, it isn’t exactly a gold mine for those looking for much larger deals, such a Lone Star. For firms like that, exits as well as fresh investments are a big challenge given the lack of financing. On stage, Alexander Hesse, managing director of Lone Star in Germany, gave a fascinating glimpse of how creative firms need to be in order to exit larger deals. Though hardly reported on, earlier this year it sold a $730 million portfolio of German assets to a Canadian outfit in a deal involving an IPO, Lone Star helping source debt and the sale of a dedicated asset management team.

The two-day event ended just as Cameron prepared to meet Merkel. That meeting may not produce quite as much warmth as PERE has found in Frankfurt.