Austrian investors remain cautious when it comes to re-investing their money into any asset class, including real estate. But some see opportunities arising from the crisis and hope it served as a ‘cleansing thunderstorm'. Barbara Ottawa reports

Austrian investors are by and large biding their time in the current market uncertainty - and not just when it comes to investing outside their home country.

"Since the sub-prime crisis, real estate has come under scrutiny as a safe investment haven. And this development does not stop at borders, so
it also affects Austria", says Bruno Ettenauer, member of the management board at real estate company CA Immo.

"We are not brave enough yet for a large increase in our allocation," Christian Böhm, head of Austria's APK Pensionskasse admits.

However, Böhm is keen to take advantage of opportunities when they do arise. "We are keeping our eyes open for distressed opportunities - mostly outside of Austria because the domestic real estate market has remained quite constant compared with other markets," he says.

Walter Schmoiger, head of asset allocation at the ÖPAG Pensionskasse, agrees that there "was no huge crash in the Austrian market". This has resulted in a certain amount of cautiousness, but investors have not fled the market outright.

"Real estate has remained attractive but we will see a few price drops over the next months - but investors must not read too much into this," says Günther Schiendl, CIO at VBV Pensionskasse.

Schiendl says he expected to see the evolution of a secondary market for real estate products, as investors attempt to dispose of their unlisted fund holdings. But many investors remain wary and many do not have the means to invest, meaning there is scarcity of potential buyers. But eventually he expects to see a clearing effect on the investors' side as "those who bought everything before are now selling off a lot of their holdings including the best bits".

Schiendl also thinks Austrian pension funds are in a strong position given their cautiousness and relative modest exposure to illiquid investments like real estate.

"Austrian Pensionskassen, unlike large endowments in the US or other pension funds, never had a lot of their money in illiquid assets," he says. "So we can move into the market and I think the market will be quite stable."

For the time being, VBV has not added any new real estate investment products to its portfolio. "There are signs that the ice is thickening but it is not safe enough yet," explains Schiendl.

For Schmoiger, the crisis, "as painful as it is", should lead to a normalisation in the real estate sector, which he describes as being "like a cleansing thunderstorm" across all property markets. "I am not only talking about the price levels in the UK and Spain, but there will be a return on to a more reasonable track in many regions,"
he explains.

Schmoiger believes that real estate "will once again live up to its reputation of being a portfolio stabiliser", something which it has been in danger of losing in the recent bull run. "Verbally it had that image, but in fact it was used to gain higher returns and it was used speculatively," he suggests.

Ettenauer adds: "What is also getting more important is the reputation of a company with its partners - an existing basis of trust will influence the business positively."
However, it is likely that some real estate investment products will remain hard to sell even for the best companies - such as listed real estate. "Listed real estate is definitely a sector without joy at the moment," confirms Böhm.

For example, CA Immo's proposal to launch a real estate investment trust was postponed last year, and it still remains on ice in the current market environment. "It is currently not recommendable and will therefore most likely not happen in 2009," Ettenauer says.

What will happen this year, all market players agree, is a careful screening of all vehicles and offers by the investors. "Location and quality are more important," Böhm notes. He warns not to "diversify a portfolio for diversification's sake", but to focus on the merits of individual investments.

"If you build a portfolio just according to a benchmark then you might end up being invested in regions where you had better not be invested," he notes. For instance, APK will look at distressed opportunities in sectors outside the current economic cycle, steering clear of banking offices. ÖPAG's self-seeded real estate fund, which focuses on Europe ex-Austria, has returned 4%, which Schmoiger describes as being "relatively okay".

The investment focus of the pension fund for this year will remain the same: Germany, France and Netherlands in Western Europe, as well as neighbouring Eastern European countries like the Czech Republic, Slovakia or Hungary. The fund is invested in the logistics sector (50%), retail and office property (25% each).

"We still only invest around 2% of our portfolio in real estate and this year we will not make it to our target of 5%," says Schmoiger. While he sees opportunities in the current market environment, because of low pricing levels, he stresses investors must be more selective in choosing vehicles, markets and target allocations.

Meanwhile, at VBV, Schiendl wants to revisit some plans made about nine months ago about new commitments to real estate. "We might be looking at the US, Scandinavia and emerging markets such as Asia - a major crisis got in the way, but our basic considerations regarding investments have not changed," he stresses.

Outside the classic property sector, Austrian pensionskassen remain interested in infrastructure investments, but are again cautious in choosing the vehicles. "We will not invest in infrastructure just to have it in the portfolio," says Böhm.

Similarly, Schiendl sees opportunities in the sector, but has not noticed any interesting products as yet. "What is happening a lot at the moment is old products with new labels, but I am waiting for new ideas to be brought forward," he says.

Schmoiger adds: "Economic measures by various states will include infrastructure projects and we will have a look where sensible investments are made which offer good returns." But Schmoiger is convinced that, as with real estate, infrastructure prices, which started to boom around three years ago, will come down to a sensible level and become a real diversification opportunity.

Ettenauer: ‘real estate has come under scrutiny since the
sub-prime crisis'