Cordea Savills targets big seven German cities with first special fund

Property investment manager Cordea Savills is gearing up for a second Spezialfonds after launching its first fund last week.

Cordea Savills Real Invest 1 is an open-ended fund for German institutional investors and will invest in Germany’s top seven cities, including Frankfurt, Hamburg, Munich and Berlin.

In an interview with PropertyEU, managing director Hans Dieter Martin of Cordea Savills Invest in Düsseldorf explains why the time is right to enter the Spezialfonds sector and why institutional investors are targeting the German office market.

PropertyEU: Why is Cordea Savills launching its first Spezialfonds in Germany at this time?
Martin: ‘BaFin (Germany’s financial markets regulator, ed.) gave us permission to launch the fund earlier this year. We think the German market is performing well and is very stable. It therefore seemed like an opportune time to launch such a fund. We decided to target institutional investors, such as insurers, because they typically share the same investment goals and are long-term investors. So far, we have three German insurers who have committed to the fund.’

PropertyEU: Are you mulling any follow-on funds?
Martin: ‘Yes, we are currently speaking to institutional investors about the possibility of launching a second Spezialfonds later this year or early next year. The new fund is more likely to have a European focus, although the details concerning its investment remit still have to be worked out.’

PropertyEU: Your Cordea Savills Real Invest 1 fund will focus on offices/mixed-use properties in Germany’s top 7 cities. What are the reasons behind this?
Martin: ‘Our investors were very keen on the office sector, which is performing well. However, there is some room to manoeuvre. We can, for example, also invest in assets such as mixed-use properties with a focus on students, which we have already done (see below). Generally, we see a lot of opportunities in the German market, especially in the top seven cities. These markets are the most stable and also offer flexible investment locations for the lot size we are targeting, which will be between €30 mln and €70 mln per asset.’

PropertyEU: What are the main attractions of the German property market?
Martin: 'Firstly, institutional investors feel very comfortable here, due to the stable development of the market in recent years, offering an attractive investment combined with good returns. Moreover, investors consider the decentralised structure of the German real estate market to be very attractive. They have the ‘top seven’ cities in which to invest but there are also a lot more cities to choose from. This makes investment opportunities in the German market very diverse and, therefore, helps with portfolio diversification.’

PropertyEU: You raised €65 mln in the first closing last month. When will the next closing be and what is your target size for this fund?
Martin: 'We are already considering a second closing later this year because our investors have signalled that they are interested in committing more capital to the fund. We’ve already agreed to forward purchase the ‘Dortmunder-U – Das Viertel’, a student project in Dortmund, which is due to be completed by the end of 2015. It mainly comprises two colleges that combined will offer places for around 6,000 students. We acquired it from developer Hochtief for an undisclosed sum. Gearing will likely change on a project basis, but typically we’ll be looking at committing at least half in equity. This is in line with the maximum level of 50% leverage that is allowed by German investment law for the Spezialfonds. In addition, we feel that around 40% of leverage is a good ratio. We’d like to do another deal by the year-end but we don’t have a target size for the fund.’