Union Investment Group, one of Germany’s largest asset managers, is plotting a bigger push into US core real estate markets following the awarding of a sizeable mandate to a US real estate investment management business.
The Frankfurt-based manager, which controls more than €190 billion in assets, has mandated Metzler Real Estate, the North America-focused real estate investment management business of German private bank Bankhaus Metzler, to boost its real estate holdings stateside. Union has mandated Metzler to invest approximately $350 million, primarily in the New York, Washington DC and San Francisco markets, but also in other markets including Seattle, Denver, Chicago, Houston and Austin.
Union is seeking a 6 percent to 6.5 percent return on a risk-adjusted basis from investments made across real estate’s main asset classes with a long-term holding strategy. “We’re going to be looking for good quality, well-located bricks and mortar,” Donald Wise, president and chief executive at Metzler Real Estate, told PERE. “We want quality in-place tenancy, credit worthiness and term. We also want buildings with sustainable credentials as this is important for German clients.”
Union has become Metzler’s largest investor since the German manager, well known for its management of retail capital through a series of open-ended real estate funds, first backed the firm about 10 years ago. Indeed, $1.7 billion of the approximately $2.5 billion of assets on Metzler’s books currently has been acquired on behalf of Union.
Wise said this latest mandate would enable Metzler to assume slightly more risk than it could in previous mandates. “What’s different this time is that we’re willing to take on some risk in areas of leasing or where some capital expenditure is required,” he added. However, he noted that the firm would draw the line at development for now.
Like all of Metzler’s capital raisings, this latest separate account has been raised on a non-discretionary basis, meaning the firm would source and offer potential investments to Union, which then would decide whether or not to proceed. Decisions will be made by a four-strong investment committee, which includes chairman Reinhard Kutscher and Union management board members Frank Billand, Heiko Beck and Volker Noack.
The strategy to invest $350 million via Metzler in US core real estate is part of a wider plan to invest €2.35 billion in real estate this year, higher than the €1.7 billion average it has invested annually since 2004. According to a report by Property EU, Union will deploy the majority of the capital, which is a mix of the retail and institutional money raised through spezialfonds vehicles.