german-hawk-group
Opportunity funds invade German real estate
Market Letter #3 '05
Almost daily there is news about American and English opportunity funds’ acquisitions of huge residential real estate portfolios. These are major funds such as Cerberus, Fortress, Blackstone or Morgan Stanley.
The motivation behind these investments is (not surprisingly) to profit from the German real estate bear market.
A few examples:
- Fortress bought 80,000 residential units for 3.5 billion euro in August 200
- Cerberus/ Goldmann Sachs bought 66,000 units for 2.1 billion euro in 2004
- Morgan Stanley/ Corpus bought 48,000 units for 2.1 billion euro in 2004
- Blackstone bought 31,000 units for 1.4 billion euro
- Cerberus bought 7,500 units in December 2004 (price not published)
- Fortress bought real estate from the Deutsche Bank worth 300 million euro
- Cerberus bought 3,000 units in April 2005 (price not published)
- UK-investor (name not published) bought 2.658 units from Vivacon AG in November 2005.
- et.al.
It’s not just the major opportunistic funds which are coming over into the German real estate market, even core investors with a 10 year investment horizon and modest yield expectation of 10% are valuing the market as optimistic.
How to take advantage: it’s not necessary to invest in large portfolios to profit from the situation. What’s important is to invest in residentials rather than in office. This is simply because the chance of high vacancy rates is very low, as long as people in growing German cities like Munich continue to prefer to live in apartments. But retail is nonetheless en vogue and still very attractive. However, because of very high international demand, prices are increasing and the market is experiencing yield compression.