Despite a shortage of quality product investment managers are gearing up for a spending spree after securing new funds and mandates over the summer.
Korea is staking a claim to one of the largest single-asset real estate deals in Germany this year as a group led by Samsung SRA emerged over the summer as the preferred bidder to acquire Commerzbank Tower in Frankfurt for €730 mln. It will, however, take several transactions of this calibre, or a plethora of mid-price deals, to make up some of the shortfall incurred by the muted investment activity in the first six months of the year. Savills reported volumes dropped 7% to €87 bn compared to the same period in 2015.
Germany's investment volumes ended H1 2016 on €18 bn, a 28% decrease on the same period the previous year. However, market watchers do not believe the slacking off was primarily caused by the investor uncertainty engendered by the Brexit referendum in the UK. Indeed, now that Brexit is a reality Germany should be able to capitalise on its enhanced ‘safe haven’ status. The main drag on volumes has been a shortage of the kind of core product institutional investors want rather than any weakening of demand.
Capital speed-dating
It may seem perverse to respond to a lack of product by throwing more capital into the mix, but that’s what’s happening this month as a large number of investment managers converge on Expo Real with an assortment of new funds and mandates that they need to fill. The mother of all cash pots is Blackstone’s new fund BREP V Europe. It has reportedly raised €5.7 bn but has a target north of €7 bn. Though Blackstone is keeping mum, observers expect the majority of the capital will end up in the five largest western European markets: the UK, France, Italy, Spain and Germany.
UBS Asset Management will no doubt also have Germany in mind as it seeks to place the €300-500 mln pan-European office mandate awarded over the summer by Posta Vita, part of the Poste Italiane Group. Paris-based asset manager La Française has a €400 mln German retail real estate fund to invest, while Quantum Immobilien has launched a €500 mln German residential property fund.
Domestic dominance
It will be interesting to see whether these funds manage to shake more product loose from their current owners. The evidence of recent months indicates that domestic investors have so far done best at matching capital to bricks and mortar. Their broader palette in terms of asset type and quality, as well as geographic location may go some way towards accounting for the fact that this group claimed almost 60% of the H1 volume.
Pan-European investors are having a better run in Italy, specifically the northern Italian city of Milan. Samsung SRA arrived on the scene in 2014 by acquiring one of the so-called ‘Diamantini’ office schemes in the Porta Nuova development, which is largely owned by Qatar Investment Authority.
Two years on the Lombard capital keeps giving, with no let-up over the summer. In late July, AXA Investment Managers – Real Assets completed the acquisition of Via della Chiusa 2, an office complex in Milan’s historical city centre, via a share deal, for €120 mln. Weeks earlier, US developer-investor Hines completed the acquisition of a retail and office building on Milan’s central Piazza Cordusio for a fund managed on behalf of German pension giant BVK. At the start of the month Coima Res, the new Italian REIT, completed the planned acquisition of Milan's so-called Vodafone Village for €200 mln, while US developer-investor Hines secured its fourth investment in Italy this year with the €50 mln off-market purchase of an asset at Via Broletto.
Pan-European portfolios
Encouragingly, the deal data for the summer also shows that large multi-country portfolios are coming to market and are trading. In July French asset manager Amundi emerged as the buyer of a European office portfolio from the KanAm grundinvest Fonds in liquidation for €875 mln. The story doesn’t end there, as the fund – which is due to be transferred to the custodian banks for liquidation by the end of the year – still owned 11 assets after the completion of the deal. A US fund acquired Tour Europe in La Defense from KanAm in recent days and two more properties are under negotiation.
And, also in July, Eurazeo Patrimoine – another French investor – closed the purchase of a portfolio of 85 European hotels from Accor.
No doubt investors will be on the look out for more choice deals at Expo Real in Munich. Should they succeed, there may well be a rally in terms of investment volumes by the end of the year.
The full Deal Analysis appears in the October edition of PropertyEU Magazine
