The €210 mln takeover of Germany's property service provider Corpus Sireo by Swiss pension and insurance group Swiss Life could spark new cross-border real estate ventures by Swiss retirement provision providers, says Fredy Hasenmaile, Head of Real Estate & Regional Research at Credit Suisse.

The €210 mln takeover of Germany's property service provider Corpus Sireo by Swiss pension and insurance group Swiss Life could spark new cross-border real estate ventures by Swiss retirement provision providers, says Fredy Hasenmaile, Head of Real Estate & Regional Research at Credit Suisse.

'The deal is a sign for pension funds to expand their real estate investments across the borders,' Hasenmaile told PropertyEU in an interview. The 2,073 pension funds in the Alpine country account for 19.5% of the €553 bn combined assets under management allocated to the property sector and have the largest real estate exposure of all European retirement funds. However, a big chunk of the €104 bn allocated to property - around €98.7 bn – is invested within Switzerland.

In other words, the combined portfolio of Swiss pension funds has no less than 94% of total investment in real estate tied up in the home country. That can hardly be described as diversified, concurred Hasenmaile. ‘Indeed, it can't. The portfolio is not even diversified within Switzerland since most allocations have been directed towards the residential market. However, Swiss pension funds have fared very well with that strategy in the last 10 years. Since vacancy rates hover around 1%, residential apartments provide a constant and an attractive cash flow. Also, market values have increased from year to year, even more so after the outbreak of the global financial crisis, with Swiss private investors seeking shelter for their money in the residential market.

PropertyEU: In a public referendum earlier this year a narrow majority voted in favour of restrictions on immigration. Will this lead to reduced demand on the residential market in the years to come?

Hasenmaile: The Swiss government has until 2017 to cast the result of the referendum into legislation. I am certain that the government will do this in a well-balanced manner and weigh appropriately the interests of the Swiss economy versus an adequate supply of workers. However, demand will shrink slightly in the next years as immigration is restricted. Nevertheless, we do not expect a major negative impact on the residential market because developers have plenty of time to slow down the pace of construction in the intervening period. Rents may come down a bit, but not in a serious way.

PropertyEU: Are you implying that Swiss pension funds should stay their course?

Hasenmaile: No. Property markets are not a one-way street. Sooner or later, the current boom in the Swiss market will come to an end. Pension funds would be well- advised to prepare for this time by diversifying their property allocations across international markets.

PropertyEU: The Oberaufsichtskommission, the government watchdog, has been urging Swiss pension funds to do just that for years. But it has not been very successful. Why is that?

Hasenmaile: The investment decision-making process within Swiss pension funds is long and complicated. By law, employee representatives have quite a say in setting out the strategy. For the most part, they favour investments in their familiar national residential market and consider excursions into foreign markets as risky. It is hard, time-consuming work to convince all parties involved in strategy committees that cross-border investments actually create more stability and not more risk within a portfolio.

PropertyEU: But it can be done?

Hasenmaile: Yes. In the long run we will see more and more pension funds moving into foreign real estate. The €5.3 bn already invested across the Swiss borders are evidence of that. So is our own closed-ended fund CSA Real Estate Germany which we launched this spring. Spread over different funds we have invested totally around €3.8 bn in Germany, a country very much like Switzerland with a strong economy and a property market with rather conservative national players just like the Swiss are.

PropertyEU: Insurance giant Swiss Life recently took over Corpus Sireo in Germany. Do you think that could trigger more real estate investments by pension funds in foreign markets or at least in Germany?

Hasenmaile: Swiss Life has made a very smart move. As a property service provider Corpus Sireo generates cash flow in all market cycles including a downturn. So with the takeover, Swiss Life has sent a clear signal to other retirement provision providers that investments in foreign markets can improve the stability of the overall portfolio. The deal will therefore act as an incentive for pension funds to expand their real estate exposure across the borders. Germany is a good market to start with.

Richard Haimann
Correspondent Germany