GERMANY - Top-down portfolio diversification has lost its value in real estate portfolios, Stephan Bone-Winkel, chairman of the board at German project developer Beos has said.
Speaking with IP Real Estate, the chairman said: "I lost faith in portfolio diversification as markets, sectors and tenants are highly correlated."
Bone-Winkel, who also does academic research on real estate asset allocation, added that the "top-down approach" did not work and that it was a "delusion that one object is representative of market behaviour".
Beos itself has gone from developing offices 15 years ago, which was "highly volatile", to specialising in mixed-used industry property.
"This means that any one object combines, for example, logistics, offices, industry production, offering risk diversification within one object," Bone-Winkel explained.
"We are never doing singe-use, single-tenant investments, as these bear the highest risks."
Bone-Winkel is convinced that the approach of picking good mixed-use properties was something institutional investors were becoming more and more interested in.
Bone-Winkel confirmed that an increasing number of foreign competitors are entering the German market in that field which was so far almost solely covered by Beos, based in Berlin.
The company decided in 2010 to become active in the long-term asset management of properties after completing their development, launching a Spezialfond that is now being followed with a second.
Both the Beos Corporate Real Estate Fund Germany I and its successor fund have a target volume of €400m - with €230m in capital and the remainder in loans. The target was achieved within six months by the first fund, with money from 10 institutional investors.
For the second fund, launched in April, Bone-Winkel confirmed that Beos has already received €152m from eight investors and was expecting to close the fund to inflows in autumn.
According to the chairman, mainly medium-sized German insurers and pension funds invested in their funds, as the larger institutional clients mostly opted for direct German real estate holdings.
"For us this investor structure is in keeping with our investments as we are also mainly investing in properties used by medium-sized companies," Bone-Winkel added.
As far as regions, Beos was concentrating on the leading seven cities in Germany, with a few exceptions such as Hannover and Karlsruhe reporting high job growth figures.