Ulrich Höller, CEO of DIC Asset AG, talks to PropertyEU about launching his company's first fund and why Germany is the most promising market in Europe.

Ulrich Höller, CEO of DIC Asset AG, talks to PropertyEU about launching his company's first fund and why Germany is the most promising market in Europe.

PropertyEU: DIC is already an active investor and developer. Why did you decide to launch your first fund at this time?
Höller: We launched our DIC Office Balance 1 fund in response to several business partners and investors who were interested in investing in a spezialfond like this. It’s a logical and suitable extension of our business strategy. We have a deep knowledge of the German real estate market and if investors are looking for a new product, we will look into offering it. Also, such a fund extends our secure cash-flow base.

PropertyEU: You have already raised more than 75% of the EUR117mln target - who are the main investors in the fund?
Höller: Our investors are mainly German institutional investors such as pension funds and insurance companies. DIC Asset AG also holds - as a strong alignment of interest - a 20% stake in the fund which has a target annual return of 6%.

To kick-start the fund, we have already placed five of our existing assets into it, which comprise five offices in Berlin, Düsseldorf, Munich, Wiesbaden and Mannheim. The assets have a market value of EUR 210 mln. Lease terms are around six years and LTVs are in the region of 50%. Our KAG service partner is Warburg-Henderson/IntReal.

Going forward, the fund segment will invest in around 15 locations within Germany, including the 'Big Five' and regional centres with excellent economic performance such as Nuremberg or Mannheim.

PropertyEU: Do you plan to launch further funds?
Höller: Yes, we are exploring two possibilities for next year as we already have a ‘family of investors’ in the first fund. We could either grow the current fund to EUR300 mln or above or we could launch a new fund that would likely also be around 80% offices with a retail component. We will take a reasonable ‘step-by-step’ approach to this.

PropertyEU: You have real estate assets under management of around EUR3.2bn - how is this broken down?
Höller: Yes, we have three core segments: our core plus portfolio which represents around 45% of the total portfolio, with high-yield leases which are held over the longer term; our value-added portfolio (around 40%) which offers value growth potential and then our opportunistic co-investments, which also includes product development and represents around 12% to 15% of our business. In total, we have 300 assets.

PropertyEU: How would you describe the German market at the moment?
Höller: I genuinely think it’s the most promising property market in Europe, hence our focus. The real estate market is without any doubt in better shape than this time last year and is definitely bottoming out. The German economy is also performing well. That said, I think the market needs another 12 months to recover and see sustainable rental growth to improve and for vacancy rates to fall. The real estate sector also lags behind the economy, so we find that it takes 12 to 18 months for the real estate sector to catch up.

PropertyEU: You are developing the MainTor project in the heart of Frankfurt’s financial district, which comprises 100,000 square meters. How important a project is this for DIC?
Höller: MainTor is our most ambitious development to date, an exciting urban city quarter which comprises eight buildings, including three high-rises. The development volume is roughly EUR 500 mln, starting next year. We anticipate that construction will take around four years. In addition to offices, we are developing flats and shops as part of the project. We will develop 200 to 250 flats, which will account for about 20% of the development. The aim is also for MainTor to be certified as a ‘green’ building to the highest standards. Previously, chemical company Degussa (Evonik) occupied the site for the past 50 years.

We tend to develop two-to-three projects a year. Next year, construction on our Hamburg 'Opera Offices' project also starts, which is, as the name suggests, an office development close to the 'Hamburger Staatsoper'. It will total 13,000 m2 and cost up to EUR 60 mln to develop. Construction is due to be completed by the end of 2013.