The Google effect

Silicon Valley real estate has probably felt more than its fair share of fallout from the boom, bust and slow rebuilding process of the tech industry, with the growth in property values hitting an all-time low in 2004. However, due in part to the end of the Google stock lockup, real estate prices seem to be on the rise again.

According to the Mercury News,the value of all Silicon Valley property has grown about 8 percent year to date, nearly four times last year's rate and the fastest pace since 2001. Much of this increase has been attributed to a hot local housing market, which has seen median prices shoot up approximately 14 percent in 2004 after several years of little to no growth.

Certainly, part of the pick-up in residential property values is due to the overall strength of the California housing market, which over the past few years has seen housing prices rise, well, like an oldfashioned tech IPO. But some of the current frenzy can also be attributed to the newfound riches of many Google employees, who have recently sold their shares in the Mountain View, California-based search engine that went public in August 2004.

One of the communities “Googlers” are specifically looking at is the exclusive 4.6 square-mile town of Atherton, located between San Fransisco and San Jose. More than half a dozen of the search engine's employees have bought houses in America's most expensive ZIP Code, at prices ranging between $3.5 million and $17.8 million, according to the Pittsburgh Post Gazette, and approximately twelve more are looking to buy in the town. Real estate agents in the area estimate somewhere between 25 percent and 35 percent of recent home sales over $7 million are from Googleemployees. Among the residents some Googlers now call neighbors is the company's chief executive officer, Eric Schmidt, an already established Atherton homeowner.

Commercial and industrial property values are also improving. Although they fell about 10 percent this year, it is a marked improvement over last year's 40 percent plunge. Like many of the private equity real estate firms now prowling the area, Google reportedly plans to take advantage of current pricing. MSNBC reported that Google representatives are researching the development of a new one million-square-foot headquarters-like campus.

The boost that Google provided to the venture capital industry appears to be trickling down to the real estate market as well. — TORREY KLEINMAN

FUNDS & INVESTORS

DB rebrands
DB Real Estate, the property arm of Deutsche Bank, is re-branding its European operations RREEF. The name, taken from a US fund management business which the group acquired in 2002, will apply initially only to the UK business, formerly known as Deutsche Property Asset Management. However, it will later be extended to the group's German and Italian fund management groups, and its London-based Real Estate Opportunities Group.

Nordbank sets up RE arm
HSH Nordbank, the publiclyowned German regional bank, has set up a subsidiary to invest in the country's private equity market for residential property, according to local press reports. HSHN Real Estate will arrange joint investments with institutional investors and provide asset management services for wealthy private customers. It also plans to set up private equity funds. Marc Weinstock, who will head the subsidiary, told Die Welt that it would focus on smaller portfolios and would hold them for between five and seven years. It is reported to be bidding for the Baubecon property company, currently owned by the trade union holding BGAG, and hopes to carry out transactions worth €1 billion ($1.2 billion) in its first year.

Croatian developer raises fund
First Croatia Properties, a UK-based commercial real estate developer, has raised $100 million (€83 million) from a US private equity fund for investment in the Croatian property market. The identity of the fund was not disclosed. The company has also raised around €120 million from banks, giving it firepower of approximately €200 million. The company abandoned plans to raise €70 million through an IPO on AIM due to the success of its private placements. First Croatia, which will be managed by Swiss commercial property company Midia, will invest in commercial property and infrastructure developments in the former Yugoslav Republic.

Morley heads east
UK-based property investor Morley Fund Management has launched a new fund to invest in industrial properties in Eastern Europe. The Central European Industrial Fund, a joint venture with London-listed asset manager Teesland iOG, is aiming to raise €160 million ($197 million) of equity for investment in industrial sites in Poland, the Czech Republic and Hungary. It will target a return of at least 12 percent a year. The fund currently has €54 million of commitments from institutional investors, and already has four sites under offer. This move is part of Morley's plans to invest £1 billion in continental European property.

Irish fund looks to Berlin
Elgin Capital, an investment company controlled by Irish entrepreneur Tony Kilduff, is raising a new fund for €50 million ($41 million) of investment in the Berlin residential market. The firm hopes to raise between €5 million and €10 million from Irish investors for the German limited liability partnership, which has an investment threshold of €100,000. It will also borrow up to €40 million from a number of German banks. Elgin plans to purchase and manage between 350 and 1,000 apartments in the city, as well as some retail properties on the ground floors of acquired blocks.

Curzon holds first close
Curzon Global Partners (CGP), a London-based affiliate of Parisian fund manager IXIS AEW Europe, has held a €187 million first close on its value added commercial property fund. Curzon Capital Partners II will acquire and refurbish or redevelop office and logistics properties in Eurozone countries. The fund is aiming to achieve a return of 13 percent; a final close is expected by the end of the third quarter. In early August, CGP announced that the fund had made its first acquisition, a twobuilding logistics platform located in the Nord-Pas-de-Calais region of northern France. The value of the transaction was not disclosed.