Sustainability credentials and tenant mix were key factors behind the decision by two Finnish pension funds to invest in Frankfurt’s landmark TaunusTurm, PropertyEU's Deal of the Month published in February 2017.
Finnish pension funds Varma and Elo have joined forces with Qatari sovereign wealth fund Qatar Investment Authority (QIA) and US investor-developer Tishman Speyer to acquire the TaunusTurm complex in Frankfurt’s banking district for an estimated €650 mln.
The TaunusTurm comprises 65,400 m2 and was developed by Tishman Speyer and CommerzReal. The 40-storey tower, which also boasts a residential component, was completed in 2014. Tenants include lenders JP Morgan, Credit Suisse, Barclays, Unicredit and management consultancy McKinsey & Company. The TaunusTurm also accommodates MMK 2, a branch of the Frankfurt Museum of Modern Art.
‘The sale of the TaunusTurm is one of a total of eight large multi-million-euro deals in 2016 and reflects the great interest international investors have in Germany, especially in the financial centre in Frankfurt,’ said Ralph Schonder, managing partner at Knight Frank in Germany. ‘It also underlines that the banking metropolis continues to be the most popular target market for high-rise building transactions in Germany, having provided a healthy and fungible market for decades.’ Knight Frank did not advise on the deal.
Further details surrounding the transaction have not been disclosed. For private Finnish pension fund Elo, which manages a €2.7 bn property portfolio, the deal marked its first single-asset transaction outside the Nordic market, according to the fund’s portfolio manager, Miika Kotaniemi. ‘We liked the TaunusTurm because it’s LEED platinum-certified and we really care about the environment and a building’s social impact – that’s in our DNA. The design is brilliant and timeless, so we wanted to make a long-term investment in it. Deals like this don’t come around very often but we are prepared to be opportunistic when they do.’
The TaunusTurm’s tenant mix was a big draw for Varma, according to Ilkka Tomperi, director of real estate at Varma: ‘The TaunusTurm is a good example of what we’re looking for. It’s a long-term asset which is multi-tenanted, so we’re not exposed to just one tenant. There’s a great mix of tenants and lease lengths, which allows for active leasing and asset management.’
More than 80% of the office space at TaunusTurm has been leased. For Florian Reiff, senior managing director and regional director for Tishman Speyer’s German portfolio, the tower represents the jewel in the crown: ‘We consider TaunusTurm to be one of the best assets in Germany, possibly in Europe, something that you always want to have in your portfolio because it’s one of the very few latest-generation LEED Platinum properties. It’s in a great location in Frankfurt and it has an outstanding tenant mix,’ he said. The complex is also mixed-use, which is becoming increasingly important, according to Reiff.
When Tishman Speyer initially developed TaunusTurm it didn’t plan to hold a stake after completion, Reiff said, but now a fund managed by Tishman Speyer is the biggest stakeholder in TaunusTurm. The size of the individual shares has not been disclosed. QIA could not be reached for comment.
Nordic exposure to Germany
Nordic investors pumped €775 mln into the German real estate market in 2016, an increase of 65% on the previous year and up from just €97.9 mln in 2010, according to Savills. One investor which has been very active is Norway’s Norges Bank Investment Management (NBIM) which acquired around €700 mln of real estate assets in Germany between 2009 and 2016, according to Savills.
NBIM acquired a 50% stake in a logistics portfolio comprising eight buildings and developable land in Poland, the Czech Republic and Hungary in a joint venture with Prologis last October. NBIM paid €55.3 mln for its 50% stake. The portfolio included eight buildings with a total area of 148,000 m2 and land with development potential of 173,000 m2. The properties are located in Wroclaw, Prague and Budapest.
NBIM deployed NOK44 bn (€4.85 bn) on behalf of the state pension scheme Norwegian Pension Fund Global in 2015, up from NOK36.7 bn a year earlier, a company spokesperson said. ‘At the moment, 3.1% of the portfolio is invested in real estate. The goal is for that to be 5%, although no time frame has been set.’ For its part, property accounts for 12.6% of Elo’s portfolio.
‘There has been a lot of interest from Norwegian, Danish, Swedish and Finnish pension funds in European real estate in recent months,’ Reiff said. ‘Germany is one of their target markets because it is a natural fit and is expected to remain a strong market despite uncertainty in the eurozone. Also, Germany is not far away, geographically speaking.’
Varma diversifies further
Varma has significantly boosted its exposure to real estate outside its home market in the past three years. Today, around 15% of its €3.7 bn real estate portfolio is located outside Finland, up from just 5% three years ago. ‘We’d like to diversify further and we’re very much opportunity-driven,’ said Tomperi. ‘Last year, we invested or committed €200 mln in property outside Finland.’
Varma’s first asset-specific JV investment outside Finland took place in 2014, when it teamed up with Swedish developer Aros Bostadsutveckling to acquire residential developments in the Stockholm area. This was followed by French and UK investments in 2015 and with two German investments in 2016, one of which was the TaunusTurm.
Danish pension fund ATP Group didn’t invest in Germany last year, although it acquired the Waterfront shopping centre in Bremen in August 2015 for €215 mln from Resolution Property and LNC Property Group. The deal marked the group’s first investment in a shopping centre outside Denmark. ATP holds a 95% stake, with Germany’s ECE taking the remaining 5%.
Also in August 2015, US investor TIAA-CREF teamed up with Swedish pension funds AP1, Stockholm, and AP2, Gothenburg, to create a pan-European office investment platform called Cityhold Office Partnership, which intends to compile an office portfolio of at least €4 bn. The joint venture is managed by TIAA-CREF-owned TH Real Estate and was initially seeded with 15 existing properties in the UK, France and Germany owned by the TIAA general account and an existing joint venture between AP1 and AP2. TIAA-CREF holds a 50% interest in the new platform, while AP1 and AP2 each hold 25%.
Elo is now eyeing further investment in Germany, although Kotaniemi admitted that competition for key assets is fierce. ‘We’d also like to invest in comparable assets in other European cities. We like Germany’s “Big Six”, but also the Netherlands. Frankfurt interests us because we think it could benefit positively from the Brexit, if there is an exodus from London.’
Varma is also ‘absolutely interested in other deals in Germany’, Tomperi said, although he recognised that pricing is a challenge. ‘We’re looking at all major Western Europe markets but we are particularly interested in Paris, Germany’s “Big Six”, London, Stockholm and Copenhagen. We like deep and liquid markets that can survive across the property cycles.’
Record Year for German offices
Last year has been hailed as a ‘year of records’ for Germany’s office market, according to research published by Savills in December. Rents reached peak levels and vacancy rates fell to lows last witnessed over 20 years ago, according to the report. In addition, take-up across Germany’s ‘Big Six’, including Frankfurt and Berlin, rose again, even compared with the strong previous year, to reach 3.46 million m2, the highest figure recorded since 2007, according to Savills. Last year, there were €23.7 bn of office deals in Germany, up 2% on 2015, according to Savills, which is forecasting around €20 bn of deals this year.
The interview appears in the February 2017 edition of PropertyEU Magazine
