Editor’s Choice: Global investors become more adventurous

That global capital flows into European real estate continue unabated is old news by now. What is new is that global sources of capital are becoming more adventurous.

This week PropertyEU reported that Chinese investors have touched down in northern England where they will invest in mixed-use projects with a total end value of £1.2 bn (€1.6 bn). China’s Xinjiang Hualing Industry & Trade Group is backing three real estate projects in Leeds, Salford and Sheffield, which are being led by Kevin McCabe’s Scarborough Group.

The projects, which are being developed by a joint venture of Scarborough, Hong Kong developer Top Spring International and Singapore’s Metro Holdings, were announced last week during a visit by George Osborne, the UK chancellor of the exchequer, to the north-western Chinese province of Xinjiang.

Osborne said that the three development projects would create 18,000 jobs and 10,000 homes. ‘We are building an ever closer relationship with China. It’s a partnership that is set to unleash growth and help regions like Xinjiang where we know investment can make a real difference, as well as unleash new growth back home, in places like our own Northern Powerhouse.’

Off the beaten track
Global investors are not only going off the beaten track in the UK. Also this week, PropertyEU reported that Falcon Private Bank, a Swiss lender owned by an Abu Dhabi state investment fund, has taken a 24.9% stake in Signa Holding, the Austrian property group.

Signa, which is majority-owned by businessman Rene Benko with just over 65%, said the Swiss bank is already an investor in the Signa Development Selection and Prime Selection subsidiaries but it is now reinforcing its support by taking a quarter of the group's holding group.

Founded in 1999 by Benko, Signa claims to be Austria’s largest privately owned real estate company. Over the years, it has broadened its initial focus on classic real estate development to become a pan-European real estate group with more than 150 employees and offices in Vienna, Innsbruck, Munich, Düsseldorf, Zurich and Luxembourg.

The company hit the headlines in late 2012 when it acquired majority stakes in German sporting goods specialist Karstadt Sports and in Karstadt Premium. In the summer of 2014, Signa took over Germany’s leading department store chain Karstadt Warenhaus from the Highstreet consortium consisting of Goldman Sachs’ Whitehall Funds, Deutsche Bank’s RREEF unit, Prelios and Generali Real Estate. The portfolio includes the Kaufhaus des Westens (KaDeWe) department store in Berlin, an iconic retail destination which has been described as the largest department store in continental Europe, second in size only to Harrods in London.

Europe’s top developer Hines Europe is also straying further afield. The Houston-based company has a long track record in new major master-planned developments in Europe including Diagonal Mar in Barcelona, the former Renault site near Paris and the central Porta Nuova district in Milan which it developed together with Italian partner Catella and which is now eyeing a flotation of the bulk of the assets following a recent buyout.

Earlier this year, Hines announced it is now betting on Dublin which, after years in the doldrums, has recently become one of Europe’s fastest recovering property markets, showing both strong rental growth potential and very limited supply.

In its latest venture, the US developer – which emerged as the leading developer in Europe based on the investment volume of projects completed between 2012-14 according to PropertyEU’s latest survey - is embarking on a new town ‘the size of Hyde Park’ in Cherrywood, South Dublin. It acquired the 390-acre site last year from receivers working for the National Asset Management Agency and a number of banks including Danske Bank and Lloyds Banking Group.

Russian venture
Hines also dares to go where others do not. Over the summer the company cemented its longstanding presence in Russia to acquire Buildings I and III in the Metropolis office complex in Moscow in one of the largest property deals in Russia this year. The deal was transacted in a joint venture between Hines’ Russia & Poland Fund and PPF Real Estate Holding, part of Czech billionaire Petr Kellner’s Amsterdam-based privately-held financial firm. The vendor of the 56,000 m2 of almost fully-let office space in the Russian capital was Kazakh private developer Capital Partners.

More deals in Russia are on the cards, according to Jiri Tosek, CEO of PPF Real Estate Holding.
‘We view this transaction as a first step in establishing a long-term partnership between PPF Real Estate and Hines, and exploring other investment opportunities within the Russian real estate sector,’ he said at the time.

Hines already had a 50% stake in the mammoth Metropolis shopping centre which it bought from a fund managed by Morgan Stanley Real Estate Investing in 2013 via its Hines CalPERS Russia Long Term Hold Fund. But its latest deal – which market sources put at around €330 mln - is possibly even more noteworthy given that financings remain scarce and expensive in the country, making the closing of large-ticket transactions very difficult.

Some of Europe’s home-grown investors are also seeking development opportunities further afield. Last week, Paris-based AXA Real Estate Investment Managers – one of Europe’s leading financiers of new projects with a portfolio of almost €10 bn under development - announced it is undertaking an extensive redevelopment of over half of the 60,000 m2 Prado office complex in Madrid, acquired in 2005 as part of its development strategy.

No-go area
Constrained supply in many major capitals and regions across Europe following a dearth of new developments in the aftermath of the global financial crisis is creating favourable conditions for buyers of new schemes. But one no-go area has emerged in Germany: this week PropertyEU revealed that there is growing evidence that nursing homes may not be such a safe bet now that insolvencies are on the rise as supply outpaces demand.

In the last couple of years, investors from in and outside the country have encouraged developers to construct new nursing homes with multi-billion euro investments. Pension funds, insurance companies and private equity funds have ploughed into the sector, in addition to swathes of private money. INP, a public closed-ended fund provider in Hamburg, has just launched its 22nd fund for private investors focussing solely on homes for the elderly.

The wave of money is pushing up prices. Two years ago, institutional investors were paying a maximum multiple of 12 times the annual rent for a senior home, equivalent to a gross yield of 8%. In 2014, the multiples went up to 13.5. Now, institutional investors are paying multiples of more than 14 times the annual rent and some private investors are accepting even higher multiples of up to 18 times the annual rent, resulting in gross yields of less than 5.5%, Markus Bienentreu, managing director of Terranus Real Estate, a Cologne-based consultant company for healthcare investments, told PropertyEU.

While senior citizens are the fastest growing population group in Germany, the number of elderly in need of constant care within a facility has risen by only 26.5% to 764,000. The gap of almost 30% between supply and demand is now forcing more and more senior homes into bankruptcy, according to a study by EY Real Estate. Indeed, the situation is so dire, EY said, that in the next couple years one in seven nursing homes in the country could be threatened by insolvency.

By contrast, the German residential sector continues to offer opportunities for investors, especially in less obvious areas like student housing, micro-housing and affordable housing, experts agreed at PropertyEU’s Germany Investment Briefing held earlier this week in London. The massive influx of migrants from outside Europe will also change the dynamics of the market, the briefing heard. ‘The refugee crisis will have a huge impact on the residential sector in Germany,’ said Rainer Nonnengässer, CEO of Münchmeyer Petersen Capital.

As Thomas Beyerle, managing director and group head of research at Catella, pointed out, there is a growing demand from different sectors of the population for affordable housing. ‘Only development can meet this demand.’

Foreign investors accounted for 53% of investment in Germany in the first half of 2015, according to figures from Catella. No doubt, some of these investors will also be looking with interest at the opportunities in the country's residential market.

Judi Seebus
Editor in chief