Financial partnerships are becoming increasingly important for developers as they struggle to realise development schemes amid tough financial and economic conditions, according to real estate adviser Savills. The firm notes that credits are often granted on condition a development is at least 50% pre-let and the developer provides sufficient equity, a major challenge for many medium-sized and small developers.
Financial partnerships are becoming increasingly important for developers as they struggle to realise development schemes amid tough financial and economic conditions, according to real estate adviser Savills. The firm notes that credits are often granted on condition a development is at least 50% pre-let and the developer provides sufficient equity, a major challenge for many medium-sized and small developers.
At the same time, there are currently many highly capitalised investors looking without success for suitable investment opportunities beyond the core segment. In the German investment market prices are exceptionally stable by international comparison and there is frequently a gap between buyers' and sellers' price expectations, Savills said. As a consequence, investors may not achieve their target yield.
Lars-Oliver Breuer, Managing Director of Savills Germany and Head of Investment commented: 'Due to this situation financial partnerships have become increasingly important for development schemes. The financial partner provides the developer with the necessary capital and in turn has the chance of earning double-digit yields.' Annual yields typically amount to 10-20% and in some instances even exceed this figure, offering a response to the currently rather opportunistic demand.
The majority of investors are funds, family offices and private investors but in principle any highly capitalised investor looking for investment opportunities beyond the core segment is a potential partner. The firm therefore expects the importance of financial partnerships to increase further throughout the year as alternative funding options will be difficult to identify in the foreseeable future.
Last year developers invested around EUR 1.1 bn in the German commercial property market. Despite this figure representing a decrease in excess of 30% compared to 2008, developers increased their share of the total investment volume to around 10% with only property funds and private investors holding a higher share.
