Irish investors target German warehouses via Luxembourg funds

Dublin-based Greenman Investments is seeking to tap into the German retail property market in its search for stable returns.

Since 2011, the Irish investment company has acquired 18 warehouses in Germany with its Greenman Retail Fund for a sum just short of €50 mln. Now, however, it is planning a buying spree with two new closed-end funds structured as a SICAV in Luxembourg. ‘We are planing to invest up to €400 mln in the next couple of years,’ John Wilkinson, CEO and co-founder of Greenman Investments, told PropertyEU.

German retail property is currently hot in Ireland and not just because of the high returns another Irish investor - Signature Capital - has managed to generate for its participants. In 2008, the Dublin-based property investment group offloaded the Zeilgalerie, a prime shopping centre in Frankfurt it had acquired just 18 months previously, for €52 mln, earning a return of 70%. And earlier this year, the Irish company agreed the sale of Neumarkt Galerie in Cologne, acquired in 2011 for about €130 mln, to German real estate fund provider Deka Immobilien for €295 mln, generating a return of 127%. ‘The sale is expected to close by mid-2014,’ Signature Capital stated in a press release.

‘Irish investors want security and are therefore turning to the retail market in the strongest economy in Europe,’ Wilkinson said. German retailers are very strong compared to their counterparts in other European countries like France, Italy or Spain, he added.

In Ireland, there is speculation that two more real estate investment trusts (REITs) will be launched this year on the Irish stock market to target property in Ireland as well as other European countries, including Germany. According to estimates by tax consultant KPMG, €1.5 bn to €2 bn could be available for investments in REITs in Ireland.

Greenman’s current fund has been funded by self-administered pensions from small and mid-size businesses in Ireland. Now, Greenman aims to use its new AIFM-licence to set up the two new funds under a SICAV-structure in Luxembourg. ‘That will give us the opportunity to also target investors in other countries like the UK, Switzerland, France and even Germany,' Wilkinson said. ‘Investors from those countries are not familiar with Irish fund structures, but they are familiar with SICAV structures.’ While Greenman’s new Retail+ fund will only target Irish investors, the Income Pro fund will also target professional investors like family offices, private banks and high wealth individuals in other countries.

The funds will focus on ‘Fachmarktzentren’, small to medium-sized retail parks offering daily shopping requirements. They are rented out to a mix of retailers ranging from food discounters like Aldi, Lidl and Penny to upmarket food retailers like Edeka and Rewe and drugstore operators like Rossmann.

However, competition is fierce for these assets. German listed Hahn Immobilien and a number of other closed-end fund providers like Habona und ILG are also specialised in Fachmarktzentren and have easy access to capital through their long track records. ‘Some 94% of our 164 warehouse funds set up in the last 30 years have yielded investors returns above target,’ Marc Weisener, head of investor relations at Hahn Immobilien, told PropertyEU.
‘Hahn and ILG have been able to raise the necessary capital for new acquisitions within just a few weeks over the last years after netting investors returns of 6% and more per year in the past,’ noted Diana Lovrekovic, analyst at rating agency Scope in Berlin.

Wilkinson says Greenman is ready to do battle with the dominant German players. ‘In the past couple of years, we have established close relations to developers erecting new or modernising established warehouses,’ he said. ‘That puts us in a position to get our hands first on new projects coming onto the market.’

However, strong demand has significantly driven prices up in the last couple of years. Retail parks with 10 to 15-year leases in large cities like Berlin, Hamburg and Munich are trading currently for multiples of 15, in smaller cities for multiples of 11 to 12, noted Sandra Ludwig, team leader retail property in northern Germany at Jones Lang LaSalle.

That rules out the double-digit returns that were possible within a short space of time for Signature Capital with its Zeilgalerie and Neumarkt Galerie in the retail park market. But that is not what Greenman is after. ‘We are planning to sell the retail parks in five years for the current acquisition price,’ he said. ‘With gearing of up to 50% the funds will be able to earn returns of 5% plus per year through rental income.’ That, he believes, is still a very attractive yield for investors from Ireland - as well as other countries - facing minimal yields in bonds and volatile stock markets.

Richard Haimann
German correspondent