INTERVIEW: Bouwfonds tackles German telecommunication infrastructure

Dutch fund manager Bouwfonds is replicating its successful Dutch communication infrastructure fund and setting up a new vehicle to invest up to €400 mln in German mobile phone transfer masts and fibre optics cables.

Driving on the motorway from Amsterdam's international airport, Schiphol, to the Dutch capital The Hague, motorists have access to an excellent mobile phone connection thanks to a series of transmitter masts spread at short distances. What hardly anybody knows is that most of theses masts are not in the hands of any of the eight mobile phone carriers active in the Netherlands, but by an entity that most cellphone users would not have heard of: the Bouwfonds Communication Infrastructure Fund.

Launched in 2008, the fund with €720 mln assets under management has acquired 50% of all transmitter masts on the 2,360 kilometres of motorways criss-crossing this small country of 17 million inhabitants. With the fund, Bouwfonds Investment Management, the property investment arm of Dutch Rabobank, has successfully ventured into unknown territory. 'Since its start, the fund has provided its institutional investors with returns of 7% to 9% on equity capital per year,' says Martin Eberhardt, Managing Director at Bouwfonds IM Germany.

However, what the fund has accomplished so far is just a blueprint for an even more daring move.

Beginning in the second half of this year, Bouwfonds wants to tackle the market for telecommunications infrastructure in Europe's largest economy: Germany. 'We are eyeing transmitter masts as well as cabling infrastructure,' Eberhardt told PropertyEU in an exclusive interview. After more than a year of talks with telecommunications and cable companies as well as potential institutional investors in Germany and Switzerland the feasibility study for the new fund is in its final phase, he added. 'We are currently preparing our pipeline.'

Infrastructure is a major theme for the German government. Under its austerity policy, the federal government in Berlin, as well as the states and the municipalities are calling for private capital for the construction and maintenance of roads and public buildings. At the same time, institutional investors are looking for investments generating higher returns than government bonds. According to a study by the Research Center for Financial Services at the Steinbeis institute in Berlin, 72% of institutional investors in Germany want to expand infrastructure investments in their portfolios from a figure lower than 2% at present to 2.7% in the coming years.

Already, closed-ended fund providers have set up funds for real estate infrastructure investments in Germany. For example, Hannover Leasing has acquired a new fire station in Mülheim for €65 mln for one of its funds. AviaRent and Habona have set up funds to build and rent out new kindergardens in cities. Childcare centres are in high demand since the introduction of a new law entitling parents in Germany to a place in a kindergarden for every child aged three years and older.

But some of those investments are not without risks. With only 8.2 children born per 1,000 inhabitants, Germany has the lowest birth rate in the world, according to a new study by the Hamburg Institute of International Economics. 'Not all childcare centres that are built today will be needed tomorrow,' says Thomas Beyerle, Head of Research at real estate advisory firm Catella. Privately built and operated toll roads like the Trave-Tunnel in Lübeck and the Warnow-Tunnel in Rostock have so far failed to generate the expected profits due to cost-conscious motorists taking detours on longer, but toll-free alternative routes.

Investments in telecommunications infrastructure avoid both those risks, says Eberhardt. 'Given that the volume of data transferred via mobile communications is growing rapidly due to new technologies and the increasing number of users, demand for transfer masts and fibre optics cables as the backbone of those systems is also expanding.'

According to a study by US networking equipment provider Cisco Systems, mobile data in Europe is mushrooming at an annual growth rate of 60%. That is forcing providers to ramp up investments in new transfer technologies such as the upcoming 5G, which is leaving them strapped for capital. 'Telecommunication companies are therefore interested in long-term sale-and-lease-back deals for their masts and cables,' says Eberhardt.

The new Bouwfonds fund will start with a volume of €100 mln, a sum equivalent to 500 transmitter masts, each valued at €200,000, or the fibre optics cables needed to provide 120,000 households with high-speed internet. 'In the years to come, we want to grow the fund to a total of up to €400 mln,' Eberhardt said.

A second German fund is likely to follow in the future, he added. 'First though, we have to show investors that we can adapt the concept from the Netherlands to Germany.'

One thing Bouwfonds cannot transfer are the returns its Dutch fund are generating. The German fund will yield lower returns on equity capital, Eberhardt predicted. 'Since yields on the capital markets have fallen considerably since 2008, the new fund will not be able to provide the same return as the first one.'

Richard Haimann
Germany correspondent