INTERVIEW: Union Investment set to accelerate its selling spree

German fund and asset management giant Union Investment Real Estate is poised to accelerate its disposals in the coming 18 to 24 months, the company’s top executives have told PropertyEU.

‘Over the next 1 ½ years, there will be more demand for real estate given the current economic environment and low interest rates,’ board member Reinhard Kutscher said. ‘We’re seeing more and more demand from big institutions from the US and Asia. The increasing competition means it will become even more difficult to find assets at a reasonable price which is key to our strategy.’

Overall, however, the company will remain a net buyer, he added. ‘We will still be more active on the buyer than on the seller side.’

COMPETITION
While Chinese investors have been sighted looking at deals in mainland Europe, Kutscher claims the biggest competitors for the assets Union Investment typically looks at have been its German peers. ‘We haven’t come across any Chinese competitors yet, but it’s just a matter of time. The Chinese typically start in UK and are looking at the Continent, but they haven’t done a lot yet.’

Nevertheless, Union Investment is bracing itself for increased competition from China and other emerging sources of capital and in the coming period, the focus will increasingly be on selling, chief investment officer Frank Billand added. ‘We may do a little less investment in 2014 than last year. But when we purchase, we make good buys that help us to modernise our portfolio. It’s not our aim to be one of the biggest investors in Europe. Our aim is to be a smart investor. The biggest investors may be paying the highest prices and that’s not a difficult game. You can always try and raise more capital and queue up to bid with the highest price. What we’re focusing on is are the smarter deals like development projects or assets with slight flaws’.

SMART INVESTMENT
One of Billand’s definitions of ‘smart investment’ is buying into a scheme in the early phase of its development. ‘That does not mean jumping into a 100% speculative project, but entering at a stage when pricing is only one parameter and there is not a queue of numerous competitors eager to get on board.’ While Union Investment initially targeted office investments in London, it is now turning its focus to the UK regions in its search for higher yields. A case in point is an office scheme it acquired in Cardiff at end-2011 which is pre-leased to the leading car insurance company from a small local developer. Billand: ‘We feel comfortable with this because we have the technical expertise and understand the asset management issues. Developers typically have a short-term view, but as a long-term investor we are able to provide a different perspective, for example on the fit-out of the building, climate control, green building elements…all things that tenants love to have. In that way, we can also support the developer.’

Across Europe and the UK, Billand believes pricing levels for core assets in prime locations will rise slightly in the coming 18 months, to a level comparable to the situation before the financial crisis or even more. ‘We are getting more selective if there is a chance that we will be overbid by other investors. We’re trying to find other ways to invest our money through development and situations where active asset management is needed.’