Martin Brühl’s work schedule means he is up most hours of the day. “My job is quite demanding,” Brühl observed, speaking with PERE over tea at the Mandarin Oriental Hotel in New York. “When I’m in Germany, I start calls at 5 am with Australia and Asia, and I’m happy to have calls until midnight with the US.”
As head of international investments at Germany’s Union Investment Real Estate, Brühl can be found in New York more frequently nowadays, given that his firm is looking to ramp up its presence in the US. Indeed, the Hamburg-based firm, which manages some €24 billion in assets on behalf of German retail investors, is in the midst of a program to globalize its property portfolio.
Although it has been investing in US real estate since 1985, Union Investment is planning to ramp up its presence in the country over the next three to five years, earmarking up to $2 billion for property investments. This would double the firm’s current real estate holdings of $2 billion in the US, which at present represents its third largest property investment market after Germany and France.
As part of that initiative, Brühl has been named the new principal representative for the Americas. “I’ve certainly reallocated my time in favor of the US,” he said. For its part, Union Investment has recruited more people in its Singapore office, which oversees the firm’s Asia investments, to free up more time for Brühl to spend stateside. Whereas he previously devoted about one-third of his time to the US, he will be spending at least half of his working days in the country going forward.
Union Investment also plans to add more staff to its New York office, which opened five years ago and currently comprises three employees. It is expected to announce the hiring of another investment professional at its US base within the next two months. From New York, the firm also oversees its investments in the rest of the Americas and is seeking opportunities in Mexico, Chile, Colombia and Canada as well.
Union Investment had a simple rationale for making the US its main real estate market outside of Europe, according to Brühl. “If you apply the criteria of maturity of market, liquidity – because we want to get in, but we want to get out as well – transparency and business conduct, there aren’t that many markets in the investment universe in which I can confidently be investing retail money,” he said. “The US very quickly becomes the prime destination for us.”
Union Investment, which is Germany’s largest manager of open-ended core real estate funds, invests in the US on behalf of two vehicles. One is the €10 billion UniImmo: Europa, which allows up to 40 percent of its capital to be deployed outside Europe and through which the firm acquired 555 Mission Street in San Francisco in 2012 and Research Park Plaza III and IV in Austin in 2013. The other is the €1.7 billion UniImmo: Global, which targets smaller transactions between $50 million and $100 million.
Through these two funds, Union Investment will be pursuing office and urban retail investments in 15 to 20 key US markets, including 24-hour gateway cities and secondary markets such as Denver and Austin. At the moment, the firm is evaluating a pipeline of $500 million worth of deals in the country.
Brühl, however, is not blind to the “severe competition” in the US core real estate market. “In hindsight, we should have invested more in 2009 and 2010, when cash was king after the global financial crisis,” he said. “Now, having cash and lots of equity is no longer a differentiating factor because so many people have that.”
Partly because of this, Union Investment is striving to achieve its $2 billion target in the US on a more accelerated timeframe. “Five years is a long time,” said Brühl. “I think the window will actually get narrower and narrower when it comes to yield compression, so we’d rather do it quicker.”
Still, Brühl noted that Union Investment could have an edge over other core bidders because of its larger risk appetite. For one thing, many other European investors are not willing to consider US secondary markets.
In addition, Union Investment has become more active in “forward-funding” deals, where it commits money to a development project that has a significant amount of pre-leasing and will yield a core asset upon completion. Such transactions have accounted for two-thirds of the firm’s real estate investments globally over the past 13 to 14 months, although it has yet to strike such a deal in the US.
Union Investment also is keeping its options open relative to its US investments. “You can’t just top-down decide on a strategy and then not look left or right,” said Brühl. “You also have to be flexible.”