Interview: James Bauer, Managing Director, REAG - Five reasons to ...

Volume 2, Issue 29, October 4th 2007 

Inside REFIRE 

REFIRE is a twice-monthly report focused 

on providing market intelligence and back- 

ground analysis to finance professionals in 

German and continental European real es- 

tate investment. 

Whatever your particular area of specialisa- 

tion, we think you’ll find timely, incisive infor- 

mation within our pages, helping to inform 

you of the key deals, the numbers, the mar- 

kets, the players and the people. 

The areas we focus on are: 

US Funds in Europe 

European REITs 

German Real Estate Finance 

German Non-Performing Loans (NPLs) 

Retail Property Funds 

Mortgage Securitisation 

CMBS/RMBS 

French SIIC’s 

Refinancing 

Euro-zone Property Financing 

REFIRE has an extensive network of con- 

tacts in the field of continental European real- 

estate finance, which enables us to bring you 

the latest and most relevant news. However, 

we always want to know more about what’s 

going on in this booming sector, so make 

sure your company is keeping us informed 

of your moves. Send your media communi- 

cations to news@refire-online.com for our 

consideration. 

CONTENTS in this Issue: 

DEALS ROUNDUP / from page 3 

EDITORIAL / page 4 

REPORT - / LOGISTICS page 10 

UPCOMING EVENTS / page 13 

PEOPLE…JOBS…MOVES / page 20 

SUBSCRIPTION FORM / page 22 

Austria’s conwert Immobilien in 

major vertical expansion move 

The Vienna-listed residential property investor conwert Immobilien, who has been expanding 

rapidly in Germany through joint ventures and acquisitions over the past year, 

took a major step last week to becoming a substantial European real estate group. It is 

buying 25 property management companies and service providers throughout Austria 

and Germany, including buying its German asset management partner, the Heilbronnbased 

Alt & Kelber Group. It also announced plans to convert itself into a European SE 

(Societas Europaea) to simplify its managment structure. 

This is a very significant move for the 

Austrian company, which will extend its 

business from pure real estate investment 

into property management and real estate 

services. In this vertical move up the 

value chain, conwert is buying 25 Austrian 

management and service providers, the 

management company conwert Management 

GmbH, Vienna-based ECO 

Management GmbH and Germany’s Alt 

& Kelber Group. All in all, conwert is paying 

about €216m for the acquired companies. 

The Austrian management companies 

are being bought from the Wiener 

Privatbank Immobilien Invest AG, with 

the other Austrian service providers being 

bought directly. In Germany, Alt & Kelber 

founder and chief executive Jürgen Kelber 

is also selling his company directly to 

conwert, but like the Austrian companies 

apart from the Wiener Privatbank group, 

plans to reinvest all after-tax proceeds 

(about 70% of gross proceeds) into conwert 

shares. A syndicate of all the selling 

shareholders are expected to table an offer 

of �€15.00 per share for a stake of about 

10% in conwert, about 16% above the 

current share price. 

The deal is subject to an extraordinary 

shareholders meeting scheduled for October 

25th, at which shareholders will also 

vote to approve conwert’s change of legal 

status into that of a European SE (Societas 

Europaea). This new form of European 

incorporation will also mean sweeping 

changes in conwert’s management structure, 

with a one-tier board system with one 

...page 2 

Hypo Real Estate €�5bn takeover 

of Depfa now complete 

In the long-awaited takeover of Dublinbased 

Depfa Bank by Hypo Real Estate, 

the European Commission last week gave 

the all-clear for the �€5.0 billion deal, saying 

the transaction would not significantly 

impede effective competition in the EU. A 

final hearing in the Irish courts this week 

ratified the merger deal..... see page 2 

Merger scrapped between 

DG Hyp and Münchener Hyp 

In what came as a surprise to the markets 

last week, the two co-operative mortgage 

banks, the Hamburg-based DG 

Hyp, a subsidiary of DZ Bank, and the 

Munich-based Münchener Hyp, called 

off their planned merger. see page 4 

German business confidence 

takes another dive 

The IFO Institute’s Business Climate Index 

for Germany has fallen again in September, 

for the fourth month in a row, from 

105.8 in August to 104.2. The index is 

now at its lowest level since February 

2006. see page 17 

German banks seek talks 

with Ministry to make 

Pfandbrief more attractive 

Gerrmany’s Pfandbrief-issuing banks are 

seeking talks with Berlin’s Ministry of Finance 

to make amendments to the law 

governing the issuing of Pfandbriefe,one of 

Germany’s most successful financial innovations. 

see page 10

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board of directors made up of executive 

and non-executive directors. The radical 

new structure aims to pool all real estate, 

investment and management expertise 

in one board, which will include current 

board members conwert founder Günter 

Kerbler, current CEO Johann Kowar, 

ECO Business Immobilien AG CEO Friedrich 

Scheck, existing management board 

members Franz Zwickl, Andreas Nittel 

and Alexander Zartl, Jürgen Kelber of 

Alt & Kelber, and others. 

Conwert and ECO Management have 

already worked on several Austrian projects 

together. Conwert, with 105 employees, 

leads the market in Austria in the 

re-development of older residential properties, 

while ECO is specialised in commercial 

real estate, with a staff of 24. All 

of the other property service providers are 

already working with conwert in the areas 

of property management, insurance, brokerage 

and construction. They total about 

74 employees, who will now all move inhouse. 

Alt & Kelber has a staff of 220 in its 

wide-ranging offices throughout Germany, 

and has long years of experience in residential 

privatisation, asset management 

and property broking. 

The move to the new status of European 

SE is also a major step (but likely to 

be followed in the coming years by several 

other German and Austrian companies, we 

think). The conversion from a joint-stock 

corporation under Austrian law (an “AG”, 

or Aktiengesellschaft) does not involve a 

material change in the legal identity of the 

company, and headquarters will remain 

in Vienna. Nor does it involve changes in 

shareholders’ rights, publication requirements 

under stock exchange law or shareholders’ 

particiapation in the company, but 

it will have sole administrative body (the 

“Verwaltungsrat”), in accordance with international 

standards. This is in contrast 

to the normal structure of an “AG”, with its 

two-tier board structure, consisting of the 

Aufsichtsrat (Supervisory Board) and the 

Vorstand (Management Board). 

2 

REFIRE: All of this restructuring is aimed 

at improving the total year’s profit figures, 

from its currently expected �€110m to 

�€138m. conwert also plans to start paying 

dividends in 2008 to its shareholders, 

and also said it plans a share buyback 

program. Conwert CEO Johan Kowar 

said that undoubtably the current market 

situation had played a part in forcing the 

company’s hand to make major changes, 

and that it was less likely that companies 

such as conwert could in future rely on 

capital increases, as in the past, to finance 

expansion. 

Whispers circulating in sceptical circles 

in Vienna, that the selling partners might 

drag their feet in investing all the proceeds 

back into conwert stock, were rejected 

by Kowar as groundless. He said that, 

while he couldn’t speak for the group as a 

whole about accepting a “lock-up” period 

for their shares, he himself as a beneficiary 

(as owner of conwert Management GmbH) 

certainly would have no problems with the 

stipulation. 

Germany/Mergers & Acquisitions 

Hypo Real Estate �€5bn takeover 

of Depfa gets green 

light 

In the second- last hurdle remaining in 

the long-awaited takeover of Dublin-based 

Depfa Bank by Hypo Real Estate, the 

European Commission last week gave the 

all-clear for the �€5.0 billion deal, saying the 

transaction would not significantly impede 

effective competition in the EU. A final 

hearing in the Irish courts this week ratified 

the merger deal. 

The EU authority said that the combined 

entity would still face sufficient competition 

from a number of operators in its 

key business segments, but said that its 

examination showed that there were only 

limited overlaps between Hypo Real Estate 

and Depfa, particularly in the area of 

jumbo covered bonds issued under German 

law. These jumbo bonds are highly

3 

................................................. 

DEALS ROUNDUP 

standardised and liquid, with an issuing 

volume of at least �€1 billion. 

Hypo Real Estate is offering �€6.80 

and 0.189 new Hypo Real Estate shares 

for each Depfa share, valuing each share 

of Depfa at about �€14.20. Depfa Bank, 

which specialises in financing public sector 

projects, will remain based in Dublin, and 

the total number of employees of Depfa 

and Hypo Real Estate will remain the 

same, with 180 Hypo public sector financing 

staff moving to Dublin to join the 300 

Depfa staff there. Dublin will become the 

new centre for the enlarged Hypo’s public 

sector financing division. 

Last week, more than 90% of the shareholders 

in Depfa agreed to the merger with 

Hypo, despite the value of the deal falling 

by 12% in the last two months. The outgoing 

deputy CEO of Depfa, Matthias 

Mosler, said that despite the fall in Ger- 

man financial stocks, the merger still represented 

a premium of 17-18% to Depfa 

shareholders, with its share price having 

risen by 2% because of the interest in the 

proposed merger. “We think the premium 

is still close to the premium we saw at the 

time of the (original) announcement, because 

we would have lost value as well”, 

he said. 

Mr Mosler said the deal should allow 

for the cross-selling of real estate products 

into the private sector market, and could 

also lead to the “monetisation of huge 

public sector holdings”. After the shareholder 

vote, Mosler said, “The deal went 

through all the kinds of asset tests you can 

imagine. It stayed firm from day one to voting. 

Depfa is a public sector bank. We‘re 

lucky that our portfolio is involved in safe 

assets.” 

On general market conditions, Mr Mosler 

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said the bank was still raising finance and 

generating new business despite the market 

turbulence. On its refinancing costs, 

he said, “We are very comfortable in terms 

of funding and we are comfortable in terms 

of new business. For trading operations 

the market environment has been more 

difficult, as for any other bank”. 

To fund the purchase, Hypo Real Estate 

will increase its capital by about 50% by issuing 

67 million new shares, meaning some 

58% of the purchase price will be covered 

by new equity. The remaining share of 

the purchase price will be in cash, which 

Hypo Real Estate plans to raise through a 

�€450 million mandatory convertible bond. 

The takeover is Germany’s biggest financial 

services deal since Allianz took over 

Dresdner Bank six years ago. 

Last week Hypo said a German shareholder 

has filed a court case against the 

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EDITORIAL 

Banks: Mea Culpa, Mea Maxima Culpa 

The collective outpouring of relief on the 

markets this week was audible, as one 

after another the big banks lined up to 

confess the extent 

of the damage suffered 

by their balance 

sheets in the 

third quarter. All 

were rewarded with 

a prompt rise in their 

share prices, as the 

markets concluded 

that, if the worst is now known, the extent 

of the overall carnage is therefore measurable. 

So, back to business as usual then? 

Not quite. While the world is still awash 

with cash, the global market for mortgage 

credit is going to remain extremely sticky 

for the next several quarters, as things 

work themselves out. Borrowers will pay 

more, and will have to provide more equity, 

than in the past. The previous ‘normality’, 

that borrowers and lenders hope to return 

to, is no more. 

In Germany, prices for commercial 

properties are already headed downwards, 

particularly for assets of average to 

medium quality. While a time lag is to be 

expected for sellers to adjust to the new 

harsher scenario, we believe that the market 

is now reflecting the reality of price reductions 

amounting to two years’ annual 

rental income, and sometimes more. 

A common feature of real estate conferences 

in Germany is for the speakers 

to analyse Germany’s modern real estate 

history, finishing their presentations as 

they bring us up to the present date. Understandable, 

perhaps, in light of the tectonic 

changes the once-sleepy industry 

has been undergoing in Germany over the 

past three years. But it was refreshing to 

listen to Ralph Winter, managing director 

of the Swiss-based Corestate Capital and 

an ex-Cerberus man, urging his audience 

at a gathering in Berlin recently to take a 

more forward view on the German market, 

and draw a line under the recent past. 

All is changed, changed utterly, he said. 

The big deals of more than €500m using 

high levels of leverage are barely possible 

any more, he added, echoing the current 

experience of several big market participants. 

By contrast with the earlier group of 

‘locust’ investors, the new wave of investors 

in Germany, made up of smaller groups, 

no longer have a clear exit strategy. The 

previous exit route favoured by the opportunistic 

groups, of stock exchange listings, 

REITs or privatisation, are now blocked off. 

Privatisation hasn’t worked, as companies 

have been unwilling to show that they can 

only achieve a price of �€1,500 per sq.m, 

rather than the hoped-for �€2,000. We 

don’t need financial geniuses any more, he 

said, we just need people who can do the 

daily work of adding sustainable value to 

their acquired assets. 

We couldn’t agree more. Visitors to 

next week’s EXPO REAL in Munich are 

likely to find that Asset Management is 

the key issue in German real estate now. 

In this issue we report on two significant 

deals which are symptomatic of this new 

reality. The first is the move by the Austrian 

conwert Immobilien to expand up the real 

estate value chain by acquiring a stable 

of asset management partners with local 

financial and property expertise. The second 

is the swift action being taken, under 

the watchful eye of US investor Oaktree 

Capital Management, by Berlin’s GEHAG, 

to consolidate control over its properties 

from the boardroom financing right down 

to the level of the janitors clearing the paths 

of winter snow. All in the interests of keeping 

customers (tenants) happy, and thus 

more willing to extend their lease contracts, 

sign a contract in the first place, or accept 

rent increases for a higher value service. 

That’s the route ahead. 

Charles Kingston, Editor 

from page 3 

4 

company to challenge the legality of the 

acquisition, but added in a statement that 

a court in Munich will only rule upon this 

suit after completion of the transaction. It 

said it “believes the announced proceedings 

have no merits.” 

REFIRE: Whatever the merits of the miffed 

German shareholder’s case, the entire 

deal was somewhat unconventional, and 

circumvented the German regulation authorities’ 

having a say in the process under 

EU takeover rules. Had the deal gone 

ahead under the conventional offer process, 

Germany’s BaFin (financial regulator) 

would have had jurisdiction between two 

essentially German companies. 

But with Depfa being located in Ireland, 

it is the Irish regulator who has sole jurisdiction 

because the parties chose to operate 

under a ‘scheme of arrangement’, a legal 

procedure in Ireland and the UK whereby 

the target company’s shares are cancelled 

and then re-issued to the bidder in return 

for which the bidder pays the consideration 

to the target company’s shareholders. 

Such a scheme of arrangement also 

enables the bidder to be exempted from 

stamp duty, which would be sizeable on a 

deal like this. 

Germany/Banking 

Merger between DG Hyp 

and Münchener Hyp is 

called off 

In what came as a surprise to the markets 

last week, the two co-operative mortgage 

banks, the Hamburg-based DG Hyp, a 

subsidiary of DZ Bank, and the Munichbased 

Münchener Hyp, called off their 

planned merger. 

We reported in the July 18th issue 

of REFIRE that the two companies had 

signed a Memorandum of Understanding 

for their two firms to merge, creating 

a new bank called Münchener Hypothekenbank, 

which would become Germany’s 

third-largest mortgage bank and would be

5 

based in Munich. The majority of the new 

shares in the new entity were to be held by 

the larger DG Hyp, with major clients continuing 

to be the co-operative Volksbank 

and Raiffeisen banks. Even a few weeks 

ago DG Hyp was expressing confidence 

that their stable would soon be strengthened 

by Münchener Hyp’s strong position 

in residential property finance. 

However, the deal now seems to have 

been definitively called off. DG Hyp is now 

to be restructured within the DZ Bank 

group and its traditional strengths in commercial 

property finance are to be the new 

focus. Its new residential mortgage finance 

business is being ceded to fellow-DZ Bank 

subsidiary Bausparkasse Schwäbisch 

Hall, although DG Hyp will continue to 

handle the 250,000 private mortgages fi- 

............................................................ 

DEALS...DEALS... 

The Danish fund group Kristensen, 

Aalborg brought its German holdings 

to over �€1 billion by buying a further retail 

centre, this time in Wuppertal-Barmen. 

The latest project has 11,000 

sq.m. and is rented out to retailers such 

as Drogerie Müller, New Yorker, 

Reno, and electronic store Saturn 

Hansa. Kristensen now has over 50 

prime properties on main shopping 

streets in large and mid-sized towns, 

eight office buildings and over 18,000 

residential apartments. 

Merrill Lynch has set up a new joint 

venture with the Frankfurt-based Wertgrund 

Immobilien to buy residential 

properties in German growth locations, 

for later privatisation to tenants. The 

joint venture, of which Merrill Lynch will 

be 85% partner, plans to invest up to 

€�400m buying either individual properties 

or taking over smaller companies. 

Wertgrund is a privatisation specialist in 

the Rhine-Main area, and asset man- 

nanced by it through the Volksbanken and 

Raiffeisen banks. Münchener Hyp will remain 

independent and will aim to expand 

its domestic and international commercial 

property business on its own. 

In a joint statement, the two banks said 

they had been unable to agree on “certain 

fundamental aspects of the merger”. This 

is likely to have been the stake each bank 

would have held in the new entity, with the 

smaller but financially stronger Münchener 

Hyp pulling the plug on the deal. 

The scrapping of the merger will not 

prevent big change at DG Hyp in Hamburg, 

however. Referring to the residential 

mortgage market, DG Hyp’s CEO Hans- 

Theo Macke said, “Private mortgage finance 

has become such a brutally tough 

business that it doesn’t make sense for us 


to be doing this business in several parts 

of our group. Our new strategy will, however, 

cost jobs.” DG Hyp would now concentrate 

on commercial property, he said, 

which “has been showing great growth 

recently. Our international business has 

nearly doubled compared to last year”. 

The Treasury division (refinancing loans 

via Pfandbriefe) and Credit Treasury (buying 

and selling loan portfolios) will remain 

in Hamburg, where the bank has 400 of its 

600 employees. 

Germany/Securitisation 

DTZ Germany launches new 

German securitisation vehicle 

Against a backdrop of tightening and more 

ages over 3,000 properties throughout Germany. Their partners include Comes Real 

and the Buchanan Capital Group. 

Go-ahead Irish property company Ballymore Properties, headed by Sean Mulryan, 

has made its first major move into Germany by buying the prestigious Ku’damm-Karree 

complex on Berlin’s Kurfürstendamm for �€155 million. The complex was bought 

from Eurocastle Investments, a subsidiary of the US private equity group Fortress, 

who said that it had made a �€23m profit on the deal, after all expenses, since buying 

the property at the end of 2006 from DB Real Estate. The property which has had a 

chequered past, has over 63,000 sq.m. of prime lettable space, a 23-story office block 

16,000 sq.m of retail space, and 1,150 parking spaces in its garage, but will require 

major re-development. Ballymore, which specializes in mixed-use developments, has 

recently been involved in major development projects in Prague and Bratislava. 

Cologne-based Vivacon AG has increased its property holdings by a further 1,850 residential 

and commercial units in a variety of off-market deals involving subsidiary companies. 

The residential units are mainly in Bremen, Schleswig-Holstein, Lower Saxony and 

North Rhine-Westphalia. The purchased properties, which amount to a total area of over 

118,000 sq.m., have overall tenancy rates of around 95%. The deals bring Vivacon’s 

residential holdings to over 10,300 units, which does not include a further 4,400 units 

which are held through WIAG, Vivacon’s joint venture with Forum Partners. 

Troubled Austrian Bank BAWAG P.S.K., a subsidiary of American private equity firm 

Cerberus, intends to raise around �€500 million through the sale of some of its real 

estate holdings in Vienna, Graz and Innsbruck by the end of this year. A portfolio of 

15 buildings, which has a total area of about 140,000 sq.m. and includes the bank’s 

headquarters, is to be sold. Bawag intends to lease back the Viennese buildings which 

it currently occupies and also plans a sale of further properties in 2008.

expensive credit lines in Germany as elsewhere, 

international property advisor DTZ 

launched a new securitisation vehicle in 

Frankfurt last week, to enable property 

companies and individuals to convert future 

rental income in their properties into 

cash. 

DTZ is working with Albis Securitisation 

AG and specialist financial law firm 

Nordhues & Cie to offer the new financing 

instrument, which will securitise the cash 

flow on future rental income independent 

of lending banks. The three partners will 

handle the complete process, from portfolio 

valuation, tax and legal due diligence, 

structuring and rating the paper and placing 

it on the capital markets. The paper will 

be sold using the Albis platform which has 

already handled securitisation volumes of 

over �€1 billion, since initially being set up 

in 2005. The partners are estimating the 

volume for the new niche security product 

at between €�5bn and �€10bn over the next 

two years. 

According to Raffaele Lino, the CEO 

of DTZ Corporate Finance in Frankfurt, 

the partners are already in discussion with 

property companies to put together the 

first portfolios, with the first paper scheduled 

for placement on the capital markets 

by the end of March 2008. Lino sees the 

product as being an alternative to sale-andleaseback, 

but with the difference being 

that, instead of selling their properties and 

renting them back, they sell them to their 

own company and bundle the rents into a 

bond, but remain the owner of the property. 

Lino also sees the product as being 

interesting for Germany municipalities, who 

are keen to privatise property holdings but 

are increasingly wary of resistance from 

their communities, in what has become a 

thorny political issue in Germany. 

What is certainly clear is that investors 

are going to look much more closely in future 

at the quality and the origin of securitisations, 

and they will have to be priced 

over Euribor accordingly. While the DTZ 

product is similar to a CMBS, (and nobody 

is denying that the market for CMBS products 

is not exactly rosy right now), it does 

seem to have a lot more risk-transparency 

for the capital markets investor. Whereas 

with a CMBS, the investor is reliant on the 

originator’s due diligence and the assessment 

of the rating agencies, the DTZ product 

permits investors to scrutinise the rent 

receivables and access information on the 

commercial tenants making up the rentroll, 

in a way not possible with the traditional 

CMBS product. 

Dr Claus-Rainer Wagenknecht, the 

chairman of Albis Securitisation AG, over 

whose platform the products will be sold, 

said he sees increasing demand for financial 

products independent of the lending 

banks. “It’s not just the current credit 

crunch that will cause the cost of credit to 

6 

rise in the future. Bank mergers in Germany 

and elsewhere will also lead to lowered 

lines of credit in the medium- to longer 

term….We think this is an interesting 

niche market, which should establish itself 

quickly.” 

Germany/Asset Management 

Sweeping changes at GEHAG 

in Berlin following merger 

with Deutsche Wohnen 

It seems to be all go at the Berlin housing 

company GEHAG since we reported 

on the company in our July 18th issue of 

REFIRE. 

At that time, listed German residential 

property specialist Deutsche Wohnen 

AG merged with GEHAG to create the second-largest 

German listed housing company, 

with over 50,000 residential units. 

About 85% of GEHAG was owned by US 

private equity investor Oaktree Capital 

Management, with German bank HSH 

Nordbank owning the remaining 15%. 

Deutsche Wohnen bought the company 

for a combination of cash, shares and 

convertible bonds which valued GEHAG 

at about €1.84 billion, with Oaktree ending 

up with nearly 25% of Deutsche Wohnen’s 

shares. 

Hermann Dambach, Oaktree’s business 

manager for Germany said, follow- 

...see page 10

7 

www.refire-online.com

REFIRE Series 

German Market Report: 

Storage and Logistics 

Property 

Storage and logistics properties account 

for around 840 million sq.m. 

of Germany’s 1.9 billion 

sq.m. of commercial and 

industrial space, and demand 

for logistics facilities 

has increased strongly in 

recent years, according to a report by 

Düsseldorf-based AENGEVELT-RE- 

SEARCH. Around 8.5 million sq.m. 

of space is added to the sector each 

year. 

Investor demand for logistics properties 

has continued to increase in recent 

years. The total transaction volume for 

commercial and industrial properties 

reached about �€8.9 billion in 2006, up 

around 60% on the previous year, with 

approximately a third of this figure being 

accounted for by logistics properties. 

AENGEVELT predict that the total 

transaction volume in the commercial/ 

industrial sector will be around €�12 

billion in 2007 but, while 2006 was a 

boom year in logistics property, 2007 

will see more modest 

advances. 

About 1.8 million 

sq.m. of shed space 

was let or sold in 

the “Big Seven” regions 

(Berlin, Düsseldorf, 

Frankfurt, 

Hamburg, Cologne, 

Stuttgart and Munich) in 2006. Hamburg 

showed itself to be the most important 

of these regions, with around 

514,000 sq.m. of space being turned 

over in 2006, though this figure is set 

to fall to around 280,000 sq.m. in 

2007. This will be marginally ahead of 

Frankfurt, where turnover of 270,000 

sq.m. is predicted for 2007, down from 

296,000 in 2006, and Munich, where 

turnover will remain at last year’s levels 

(240,000 sq.m.). Turnover in Berlin 

will almost halve to 150,000 sq.m. in 

2007, while a big drop will also be seen 

in Düsseldorf (down to 130,000 sq.m.). 

A marginal increase in turnover, 

to 210,000 sq.m., is 

predicted for Cologne. The 

report predicts that around 

�€1.8 billion will change hands 

in commercial/industrial property deals 

in these seven regions in 2007. 

Rents for logistics space declined 

in Germany between 2001 and 2004, 

before making a slight recovery since 

2005. Average rents across Germany 

are now around �€5.40 per sq.m. for 

new facilities and €�4.00 per sq.m. for 

existing properties. Of the “Big Seven” 

regions, rents for new logistics space 

are highest in Hamburg (around �€6.50 

per sq.m.) and lowest in Berlin (around 

€4.50 per sq.m.). The report indicates 

that increased building costs are a factor 

behind the rent rises for newly built 

facilities. 

Purchase prices for commercial land 

remains relatively 

stable, though are 

rising in selected 

regions: peak prices 

are �€500 per 

sq.m. in Munich 

(�€400 per sq.m. 

in 2006), �€310 per 

sq.m. in Hamburg 

(�€300 per sq.m. in 

2006) and �€100 per sq.m. in Leipzig 

(�€60 per sq.m. in 2006). Purchase prices 

for commercial and industrial property, 

which had been in decline until 

around 2003, added considerably more 

than one year’s net rent to the multiple 

in the period from 2005 to 2007. Yields 

have become correspondingly compressed, 

though are still high compared 

to other types of property. According to 

the report, yields for top logistics properties 

are currently around 7.0%, while 

median gross initial yields in the sector 

as a whole are 8.9%. However, AEN- 

GEVELT have been recently encountering 

cases where the current market turbulence, 

the rising interest rate climate, 

higher capital requirements and other 

factors, such as asset class or location, 

have resulted in price reductions of up 

to two years rent. 

Despite the overall lower turnover 

figures in 2007, the report indicates average 

vacancy rates of around 5%, with 

the highest vacancy rates to be found in 

Frankfurt and Munich. In both these 

locations, the pace of development of 

new space has been, and continues to 

be, well above average. 

AENGEVELT are confident that the 

coming years will see a growth in demand 

for high value production facilities 

and multifunctional logistics space, as 

a result of an improved economic outlook 

and increased flow of commodities 

across international borders. Hamburg 

is set to remain one of the most important 

areas in the logistics market and 

the medium term will also see considerable 

growth in the sector in Bremen, 

Halle-Leipzig and the Kassel/North 

Hesse regions. 

While the report predicts that logistics 

will remain the most important sector 

for many domestic and international 

investors in the coming years, it warns 

that the upside potential in this area may 

be quite limited, given the current high 

purchase price multipliers and relatively 

stable rents. It also warns that the continuing 

trend for shorter contract durations 

for logistics properties increases 

the risk of loss of revenues. 

8

9 

REFIRE Regional Report 

TLG Immobilien Report: - 

Eastern German property 

market on the up. 

The real estate market in eastern Germany 

has been showing healthy growth, paralleling 

the economic upturn of the region, according 

to a recent report from Berlin-based 

property investor TLG Immobilien. 

With the growth in GDP of eastern Germany 

at 3.0% in 2006, compared to 2.6% 

in western Germany, the number of real estate 

transactions in the east rose by 16% 

in 2006, though cash turnover was up a 

massive 63% to �€22.23 billion. Around 

two-thirds (€�14.38 billion) of this figure was 

spent in Berlin. The GDP gap is set to 

widen further in 2007 (3.3% growth in the 

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east versus 2.5% in the west). 

Turnover in the Berlin property market was 

up 51% in 2006. Office prices were up in 

central, suburban and fringe areas, with rents 

of €�20-€23 per sq.m. being achieved for well 

appointed premises in A1 locations. Rents 

for retail properties were largely stable, though 

rents for small premises (up to 100 sq.m.) in 

the city centre were up. Residential rents in 

2006 were up by around 5.8% in the city. 

Prices for development land in commercial 

and industrial areas are rising in many 

parts of the region, with the highest values 

outside of Berlin being Dresden (�€190 per 

sq.m.), Potsdam (�€175 per sq.m.) and 

Leipzig (�€130 per sq.m.). Top rents for retail 

properties rose in Leipzig and Dresden 

to �€120 per sq.m. (per month) and €�90 


per sq.m. respectively. In addition, 2006 

saw the office market in eastern Germany 

achieve its highest turnover since 2000, 

with 105,000 sq.m. changing hands, a 

17% increase on the previous year. 

The report notes the effect of sinking 

unemployment and a state-backed urban 

regeneration program on the residential 

property market. The highest prices for detached 

homes were in Potsdam (�€150,000- 

€450,000), where rents for modernized 

and newly built homes were around �€8 per 

sq.m. The office market is also recovering, 

with vacancy rates markedly down in 

Leipzig, Magdeburg and Rostock. The 

report attributes much of the increase to the 

involvement of foreign investors attracted 

by reasonable prices and upside potential 

for the coming years.

.......from page 6 

ing the deal, “The merger of GEHAG into 

Deutsche Wohnen gives rise to a platform 

that will help shape the consolidation of the 

German housing market, and from which 

we will profit in the long term.” 

Since then, GEHAG’s people seem to 

be sweeping into control at the newlymerged 

company. Just this week, Andreas 

Lehner, CEO of Deutsche Wohnen 

since 2004, resigned to be replaced by 

Michael Zahn, previously the sole CEO 

at GEHAG. Other personnel changes are 

also in full swing. 

GEHAG also announced a new partnership 

with Berlin-based Gegenbauer Property 

Services GmbH to handle the asset 

and facility management of the group’s 

expanded property holdings throughout 

Germany, a task previously handled by 

thirty-one of GEHAG’s own people. The 

GEHAG team will now be integrated into 

Gegenbauer’s operations from January 

2008. 

The decision to go with Gegenbauer 

was made after several months’ negotiating 

with potential asset and facility management 

partners. GEHAG’s CEO Michael 

Zahn said the choice of partner was “above 

all, for our tenants, a major win in terms 

of sustainable quality and service…In addition, 

by working with external partners 

we can lower our costs by an average of 

20%.” 

Germany/Financing 

IVG Immobilien opens �€1.35 

billion new line of credit 

The Bonn-based IVG Immobilien, 

Germany’s second-largest listed property 

company, has established a new 7-year 

line of term loans and revolving credit with 

17 banks, which it said would improve its 

liquidity by more than �€1 billion. 

The new line of credit replaces existing 

arrangements of �750m put in place in 

July 2005 as well as other bilateral lines of 

credit. Interest payable on the new credit 

lines, which were issued by a consortium 

of IVG’s own house banks, is tied in with 

the company’s overall level of debt. IVG 

said that with lenders oversubscribing to 

lend it money, it was able to increase its 

credit line to �€1.35 bn from the originally 

planned �€1.2bn. The company said that 

the term loan was attracting an initial interest 

rate margin of 0.60% above Euribor, 

while the revolving loans were charging a 

margin of 0.50% above LIBOR. 

IVG recently confirmed financing of 

��€1bn 

from Hypo Real Estate for its acquisition 

of an office building portfolio from 

insurance group Allianz (see REFIRE issue 

August 31st), a ‘core portfolio’ for one of 

its special purpose vehicles, consisting of 

a long-term loan and an equity purchase 

bridging loan. 

Separately, IVG said it had sold its tank 

storage division, part of its �€1.4 billion underground 

caverns business, to TanQuid 

Zweite GmbH, a private equity group 

belonging to the Australian investor Macquarie 

Group. IVG got �€58 million for 

the sale of the division, which has a storage 

capacity of over 1.1m cubic metres. 

TanQuid Zweite is one of the largest independent 

tank storage service providers in 

Germany. IVG plans to expand its large 

volume underground caverns operations, 

in which it stores oil and gas, by a further 

90 caverns. 

Germany/Disposals 

DaimlerChrysler and Sony 

selling prestige Berlin properties 

Industrial firms DaimlerChrysler and 

Sony were reported this week to putting 

their trophy properties on Berlin’s Potsdamer 

Platz up for sale. The Daimler 

complex is said to be worth about �€1.5 

billion, and Sony’s next door building is 

estimated at about �€700m, according to a 

report in the business daily FTD. 

The properties are likely to attract major 

investor interest given their key prestigious 

locations, although in light of the difficulty 

10 

that some investors are experiencing in leveraging 

large sums, the sales prices are 

likely to be lower than what they could have 

achieved several months ago. The Daimler 

complex, built in the mid-1990’s and 

completed in 1998, consists of 17 different 

buildings including offices, the Grand 

Hyatt Hotel, shopping centres, theatre 

and cinemas. There may be some legal 

restrictions on the sale of the property with 

the report suggesting that the State of 

Berlin had stipulated no early sale within 

ten years of the building’s completion. 

Daimler has mandated Merrill Lynch 

and property services group Angermann 

with finding a suitable buyer, while Sony 

have asked the Frankfurt investment bank 

Drueker to handle the marketing of its 

property. 

Germany/Pfandbriefe 

German banks seek talks to 

make Pfandbrief more competitive 

Gerrmany’s Pfandbrief-issuing banks are 

seeking talks with Berlin’s Ministry of Finance 

to make amendments to the law 

governing the issuing of Pfandbriefe, one 

of Germany’s most successful financial innovations. 

Louis Hagen, head of the Verband 

deutscher Pfandbriefbanken (VDP), 

which represents the 32 member institutes 

licensed to issue Pfandbriefe, said last 

week that the Pfandbrief in its current form 

could be improved, and the VDP would 

welcome some fine-tuning to the Pfandbrief 

law within the current legislative period. 

The instrument, in contrast to covered 

bonds in the US and elsewhere, is protected 

by law in the event of insolvency and 

is subject to its own regulatory authority, 

which examines each Pfandbrief in detail 

for its constituent make-up in a rigorous 

process every two years. 

Despite the extremely sound track record 

of the German Pfandbrief, the instru-

11 

As financial advisor and assisted in the 

private placement of the above interests 

This announcement appears as a matter of record only 

The undersigned acted 

September 2007 


As exclusive placement agent 

in Asia, Australia, and the Middle East 

�� 

�� 

��


ment is facing competition from changes 

in the law in other jurisdictions regarding 

similar securities, and the rising popularity 

of structured securities based on contracts 

rather than state law. 

As it stands, the only foreign jurisdictions 

whose mortgages may be included 

in a German-issued Pfandbrief are the 

US, Canada and Japan, even though their 

share is very small (at the end of 2006, for 

example, US-based mortgages on condominiums 

made up a total of 0.015%, on 

multi-family homes 0.066%, with singlefamily 

homes not eligible for inclusion in 

Pfandbriefe). The current German limit of 

60% of the value of the underlying property 

(Beleihungswert) is thought by the VDP to 

be too restrictive, and it is looking to increase 

this to 80%. 

Germany/Asset Management 

Pirelli RE joins with HSH 

Nordbank in asset management 

deal 

Germany/Privatisation 

Italy’s Anzeige_030506 Pirelli Real Estate 03.05.2006 has set 20:55 up a Uhr Seite 1 

partnership with the German bank HSH 

GRAF VON WEDEL & SCHULZE OECHTERING IMMOBILIENBERATUNG KG 

IS A LOCAL MANAGEMENT PARTNER FOR LARGE INTERNATIONAL INVESTORS 

WISHING TO TAKE ADVANTAGE OF THE ATTRACTIVE CURRENT GERMAN 

COMMERCIAL AND RESIDENTIAL PROPERTY MARKET. 

SERVICES OFFERED INCLUDE HIGHLY QUALIFIED TECHNICAL 

AND BUSINESS PERSONNEL, DUE DILIGENCE, FINANCING, PROJECT 

DEVELOPMENT AND SALES. ESTABLISHED CONTACTS EXIST 

TO THE IMPORTANT MARKET PARTICIPANTS AS WELL AS A BROAD 

KNOWLEDGE OF THIS POTENTIAL MARKET. 

OUR GOAL IS TO CONTINUE TO BUILD A STRONG ASSET 

MANAGEMENT PORTFOLIO THAT PROVIDES ATTRACTIVE RETURNS 

FOR OUR INTERNATIONAL PARTNERS. 

CONTACT: CHRISTIAN GRAF VON WEDEL 

GRAF VON WEDEL & SCHULZE OECHTERING IMMOBILIENBERATUNG KG 

MIERENDORFFSTRASSE 3 D-60320 FRANKFURT GERMANY 

TEL.: +49-69-9 59 17 20 FAX: +49-69-95 91 72 40 

WWW.WSO-IMMOBILIEN.DE 

EMAIL GRAF-VON-WEDEL@WSO-IMMOBILIEN.DE 

Nordbank specifically to manage property 

assets. The deal involves HSH Nordbank‘s 

unit HSH Real Estate AG buying a 20% 

stake in Pirelli RE Asset Management 

GmbH from Pirelli RE for �€14 million. 

Pirelli’s asset management subsidiary 

handles the properties acquired in January’s 

acquisition of the northern German 

group DGAG, as well as the BauBeCon 

properties bought from US investor Cerberus 

in July of this year (see REFIRE issue 

July 25th). The asset management 

company aims to build up properties under 

management to about �€10 billion, including 

but not restricted to its parent company’s 

own holdings. 

HSH Nordbank director Marc Weinstock 

said of his bank’s joint venture step 

with Pirelli, “We expect a decent dividend 

from our share in the business. We can 

certainly expect to learn a lot from Pirelli’s 

international expertise and experience in 

asset management.” 

German Tenants Association 

demands more protection 

from ‘financial 

jugglers’ 

The International Union 

of Tenants’ congress, 

held last week in Berlin, 

heard the German Tenants 

Association demand 

greater protection 

from ‘financial jugglers’ 

only interested in the 

pursuit of higher returns. 

Franz-Georg Rips, 

the feisty president of 

the Deutscher Mieterbund, 

which represents 

tenants associations 

throughout Germany, 

told delegates from 25 

countries that housing 

is not a tradeable commodity 

for profit-hungry 

12 

speculators, and that consumers cannot 

be driven to undertake financial obligations 

that they cannot fulfil. “What we are currently 

witnessing in irresponsible behaviour 

by Anglo-American mortgage banks cannot 

be repeated in Germany”, he warned. 

Specifically, Mr. Rips demanded that the 

increasingly common practice of mortgage 

finance banks selling their loan book on 

to third parties be outlawed, unless specific 

permission has been obtained by the 

creditor or mortgage holder. Rips said that 

the practice of passing the loan book over, 

particularly to international financial providers, 

was threatening particularly to creditors 

who were often required to extend the 

loan payback period, often at new, crippling 

interest rates. 

“The result is often foreclosure, with the 

creditor becoming the plaything of the financial 

jugglers. We are strongly against 

the abuse of housing as a mere financial 

vehicle for speculators”, admonished Mr. 

Rips. He urged a more sustainable approach 

to housing, in which local housing 

authorities held a substantial amount of 

social housing for lower earners and had 

adequate resources to maintain the housing 

to an acceptable standard. 

Between 1999 and 2007, a total of 1.7 

million apartments in Germany were sold 

in large portfolios, of which international 

investors bought about half. 

Germany/Acquisitions 

UK’s Edinburgh House 

brings German portfolio to 

over �€1 billion 

The privately-held British property investor 

Edinburgh House added to its German 

property portfolio by paying around �€30 

million for 14 retail properties in the eastern 

German city of Wismar. This brings its total 

German holdings to over �€1 billion. The 

properties are rented out to well-known 

German retail names such as Edeka, 

Peek & Cloppenburg, Vodafone and 

Reno. 

.......see page 15

13 

........................................... 

...... 

UPCOMING EVENTS 

EVENTS/ CONFERENCES 

October-November 2007 

October 1st, Monday 

FT Conference on Property, Dorchester 

Hotel, London 

The property cycle in the UK is turning and 

harder times may lie ahead. After a period 

of rising property prices, the yield floor may 

now have been reached. Learn about the 

strategies investors and developers should 

adopt to raise their returns in tougher times. 

More at: www.ftconferences.co.uk 

October 4th-5th, Thursday-Friday 

Eurocatalyst 2007, Madrid, Spain 

This five-year anniversary for the Eurocata- 

lyst group features a day on the Spanish 

mortgage market, discussions on the 

effects of globalisation, including brand- 

ing across borders, leveraging distribution, 

product expansion from super-prime to 

sub-prime and funding convergence. 

More at: www.eurocatalyst.com 

October 8th-10th, Monday-Wednesday 

EXPO REAL, Munich, Germany 

The central platform for 

investment, business and 

real estate projects in Europe. 

The EXPO REAL has now 

become one of the two largest 

and most important events on the European 

calendar. 

More at: www.exporeal.net 

October 11th-13th, Thursday-Saturday 

13th CEREAN Conference, Bucharest, 

Romania 

The annual meeting of central, eastern and 

south-eastern european real estate associa- 

tions. 

More at: www.cerean.com 

October 17th-19th, Wednesday-Friday 

Global Real Estate Finance Summit, 

Monaco 

Opal Financial Group’s 3rd annual Global Real 

Estate Finance Summit focuses on the most 

relevant issues of CMBS, RMBS and Covered 

Bonds in European, US and emerging markets. 

More at: www.opalgroup.net 

October 17th-19th, Wednesday-Friday 

International Hotel Conference 2007, 

Rome 

The event brings the international hotel industry 

together, and also sees the inaugural Hotelier’s 

Global Citizen Award presented in recognition 

of leadership in the hotel industry 

More at: www.internationalhotelconference. 

com 

October 18th, Thursday 

IEIF Colloquium, Paris 

This is a one-day colloquium (in French lan- 

guage) by the IEIF group on the French real 

estate market, and the group’s associated 

indices. 

More at: www.ieif.fr 

October 23rd-26th, Tuesday-Friday 

NCREIF Annual Conference 2007, Palm 

Beach, Florida, USA 

The annual conference of the US non-listed real 

estate funds associiation 

More at: www.ncreif.com 

October 25th-26th, Thursday-Friday 

7th German Share Initiative Conference, 

Frankfurt, Germany 

After positive feedback from similar events in 

the last two years, the event this year again 

brings together the major German listed real 


estate companies to present their strategies 

to investors and answer questions. 

More at: www.initiative-immobilien-aktie.de 

November 1-2, Thursday-Friday 

8th European Real Estate Opportunity & 

Private Fund Investing Forum, Islington, 

London, UK 

With over 700 delegates attending last 

year’s Seventh Annual European event, this 

Forum is one of the largest of its kind. This 

year’s programme will explore such relevant 

topics as winning investment strategies, 

institutional investor perspectives and hot 

regions for investing. 

More at: www.imn.org 

November 14th-16th, Wed.-Friday 

MAPIC, Cannes, France 

Over 1,900 retailers and almost 900 exhibi- 

tors with a range of projects for the retail 

real estate industry 

More at: www.mapic.com 

November 27th-29th, Tuesday-Thursday 

Real Estate Investment World Nordic, 

Stockholm, Sweden 

Organised by Terrapinn, the annual confer- 

ence to analyse real estate investment 

opportunities in Denmark, Finland, Iceland, 

Norway, and Sweden 

More at: www.terrapinn.com 

December 3-5th , Monday-Wednesday 

REIT World Germany 2007, Frankfurt 

Terrapinn’s third annual investment confer- 

ence to look at the latest developments in 

the German REIT market and the real estate 

industry. 

More at: www.terrapinn.com

REFIRE INTERVIEW: 

Interview: James Bauer, 

Managing Director, REAG 

On the global landscape of national property markets, the German 

commercial property market sticks out like a sore thumb for 

the stability of the returns that it has produced over a 

long period. This stability is extraordinary, given the 

backdrop of such volatility in other world markets, 

and has led to widespread scepticism about the veracity 

and reliability of German property valuations. 

What enables Germany to have such a smooth volatility 

curve? Has the German open-ended funds industry 

been using valuations to hide the true volatility 

in performance measures? 

In a recent paper on this subject, Professor Neil Crosby 

of the UK’s University of Reading Business School 

suggested strongly that, while no definitive conclusions can be 

reached, evidence suggests that the true level of volatility in Germany 

may have been smoothed over by both valuation policies 

and the possibility of client influence over German valuers. While 

stable property returns would be the likely logical outcome of a 

political system which prizes a stable economic system and the 

avoidance of boom-and-bust volatility, corporate and individual 

investors increasingly place great store on establishing the actual 

current ‘worth’ of a property asset, whether for purchase or for 

sale. REFIRE went to discuss this with James Bauer, managing 

director of REAG (Real Estate Advisory Group), the German 

division of the privately-held American Appraisal group. 

REAG specialises in providing real-estate services for incomeproducing 

properties, mainly offices, hotels, managed-care 

homes, logistics and retail. Bauer explains how his company’s 

departments – including investment, valuation, property consulting, 

and technical due diligence (including architects, engineers, 

and chartered surveyors) work for their client – and highlights the 

company’s Watchdog service, that ensures that new owners of 

property are getting everything that they bought. 

What makes REAG different from all the local and international 

property advisors, with their extensive branch networks throughout 

the country? “As an independent advisory and valuation 

company, our clients don’t have to worry about conflicts of in- 

terest”, says Bauer. “Any information remains confidential, and 

is specific to the assignment. Our clients don’t have to worry 

about Chinese walls between investment advisory and buying 

and selling departments, clients don’t have to declare their 

hand, particularly if they’re only considering selling a property. 

We mostly work for investors themselves, and we’re frequently 

charged with valuing properties where the investors don’t want it 

known that they’re either searching or selling, particularly if they 

want to sell before the property hits the market.” 

Who are REAG’s major clients? “Actually, we work 

right across the spectrum. The past two or three 

years have seen a lot of foreign investors coming into 

the market, with Germans mainly on the selling side. 

We’ve been doing a lot of market feasibility studies for 

clients looking to put together German portfolios. As a 

result of the strengths in our parent group, we’ve been 

working for a lot of investment banks from the US, the 

UK, France, Scandinavia and Italy. The geographic 

spread has probably been about 30/30/30 between 

the US, the UK and Europe.” 

This is in reference to REAG’s role as the real estate specialist 

within the American Appraisal group, founded in 1896 in Milwaukee 

as a valuation specialist and which has since followed 

its clients worldwide to Europe, South America and Asia. The 

group has built up expertise in valuation for mergers and acquisitions 

in manufacturing companies, focusing on machinery and 

equipment, and production real estate. Its operations in Italy, 

its oldest European operation, are about to celebrate their 40th 

anniversary. 

We discuss the thorny issue of foreigner’s perceptions of traditional 

German property valuations. In essence, the German understanding 

of the term ‘valuation’ has traditionally been closer 

to a conceptual assessment of worth, rather than the actual 

price that could be obtained for a property if it were put on the 

market now. What does Bauer think are the fundamental differences 

in approach? “Well, theoretically, the final results should 

be similar. International investors base their valuations on the 

market value on the date of appraisal. German valuations are 

based on sustainable rent, which is what caused the problems 

for the Germans (open-ended funds) in 2001, 2002, 2003, in 

that valuations were kept fairly high, although this no longer coincided 

with the market as rents had dropped. The valuations 

were saying that the rents were sustainable, although they had 

fallen frequently by 30-40%. Most of the open ended funds got 

into trouble as a result. Now the valuations and the market situ- 

14

15 

ation are closely monitored and observed by BaFin (the German financial watchdog). 

Both systems have advantages and disadvantages.” 

In a reference to recent debate about the reliability of the various German property indices 

and their accuracy in providing a true picture of price movements on the market, 

Bauer believes the indices have shortcomings. “The problem is that not a lot of properties 

are considered when reporting the indices. Generally they cover only the properties 

that would be suitable for the open-ended funds, mainly A-type properties, but these 

are not representative of the market as a whole. Hence the figures are only marginally 

useful for reporting market value.” And residential property? “Well, the Hypoport index 

(an index for reporting residential values based on actual prices achieved at sale) is an 

interesting service, although we havn’t based any valuations on their service yet, we’d 

prefer to wait and see how they progress in the market before relying to much on their 

information” 

Bauer has seen the German market develop over the years since arriving sixteen years 

ago from his native Chicago. “Traditionally the real estate industry in Germany was a 

very family-dominated industry. The last few years the whole industry has become much 

more open. Here in Germany graduates from the real estate faculty of the European 

Business School (in the Rheingau, near Wiesbaden) have had a big influence, raising 

the level of professionalism in the industry, dealing with institutions and the capital markets. 

But we still don’t have enough professionals in the industry.” 

So, where is the skills shortage? “Although things are definitely improving, there is still a 

lack of a service orientation. Everybody is now talking about asset management, but it’s 

true. Investors have to consider their customers and how to better serve them. Without 

their lease contracts and their money, there’ll be no investment and no profits. The key 

is to know very early on what’s happening with the client, know what his needs are.” 

Are foreign investors naïve in their expectations of the German market? Do they understand 

what’s involved in pushing through rent increases, or how easy it’s going to be to 

deal with the tenant base? Bauer considers the question, then says, “Well, this is true of 

residential. Many investors have underestimated these challenges. But it’s not the case 

in commercial. The German system presents a lot of restrictions, and cancelling lease 

contracts is handled very differently from in the US, but now most players have done 

their homework and are now fine-tuning their operations.” 

The issue of valuers and valuations has long been a concern in major real estate markets 

such as the US and the UK. A study in the year 2000 in the UK carried out for the RICS 

and the Investment Property Forum highlighted a number of anomalies in both the 

concentration of valuations in the hands of a small number of firms, and the relationship 

between the valuer and the client. In the UK, when a valuer does more than 5% of his 

work for one client, it can be seen as a conflict of interest. Germany permits valuers to 

carry out up to a third of their valuation work for one entity, with for example, funds within 

the same house being seen as separate entitites. Hence, a valuer could be dependent 

on one client for over 50% of their valuation work. On current trends, the question of 

concentration of work by valuers in the German system is likely to come under pressure 

for reform. 



Edinburgh House now has over 150 

properties in its German portfolio with 

a total lettable space of 620,000 sq.m. 

Most of the properties are located in Berlin, 

Düsseldorf, Wuppertal, Frankfurt am 

Main and Leipzig. The properties are asset-managed 

by Berlin-based Estama 

Real Estate Management, with 80% of 

the properties being retail, with 20% made 

up of logistics, office and some residential. 

Nearly all are wholly-owned by Edinburgh 

House, whose joint founder Tony Quayle 

said following this latest deal that it’s about 

to sign on a further �€200m worth of assets. 

Germany/Retail 

Arcandor still optimistic of 

closing property sale 

The German department store chain 

Arcandor AG (until July known as 

KarstadtQuelle AG) was last week still 

insisting that its planned property sale of its 

49% stake in Highstreet, a real estate investment 

vehicle majority-owned by Goldman 

Sachs subsidiary Whitehall, would 

be imminently going ahead. 

A company spokesman denied earlier 

press reports that it might be negatively 

affected by the turmoil in the financial 

markets and that potential bidders for the 

properties were having difficulties raising 

the bank finance. Arcandor said there 

were four bidders left in the bidding process 

who have now submitted binding offers 

for the Arcandor stake. The gloomy 

market situation “does not affect us” at the 

moment, said the company. 

In one of the largest property deals of 

2006, KarstadtQuelle sold its real estate 

holdings to the Highstreet investment vehicle 

in a sale-and-leaseback deal. Highstreet 

is reckoned to be worth about €�5.5 

billion, and Arcandor expects proceeds 

from the sale to amount to at least €�800m, 

along with a cash payment of �€3.7 billion 

as part of the original agreement with 

Whitehall. Late last week the company

said that three of the bidders for the real 

estate portfolio were also actively interested 

in taking a stake in the company’s 

department store operations. Separately, 

Arcandor said that it is in exclusive talks 

with one final bidder for its Neckermann 

mail order business, which it also hopes to 

close at the same time. 

Germany/Study 

German offices see fall in 

service charges in 2007 

Service charges in German offices have 

fallen slightly, according to Jones Lang 

LaSalle’s “Office Service Charge Analysis 

Report” (OSCAR) for 2007. While heating 

costs have increased, maintenance 

costs have decreased, leading to an average 

service charge decrease of around 

3%, compared to the previous year. Over 

the 12 years since the OSCAR report was 

German Real Estate Law: 

Competent. Concise. 

In your language. 

• All legal matters related to acquisitions 

• Background advice to investors 

• Legal Due Diligence checks 

• Residential and commercial leases 

Thomas Krümmel, Rechtsanwalt 

Kronenstraße 3 • D-10117 Berlin • Tel. +49 30 / 206 298 - 6 

e-mail: kruemmel@mkvdp.de • www.mkvdp.de/en 

first compiled, there were large falls in service 

charges between 1996 and 2001 – up 

to 22% in air-conditioned offices – before 

charges rose between 2002 and 2006 as 

a result of increased energy and insurance 

costs. Current service charge levels still lie 

below those of 1996, which the report attributes, 

at least in part, to continued professionalisation 

of facility management. 

The median service charge now lies at 

�€2.99 /m2/month, down 10 cents on the 

previous year. In offices with air-conditioning, 

the average service charge is �€3.21/ 

m2/month, about 13% above the figure for 

offices without the facility (around �€2.84/ 

m2/month). For air-conditioned offices, 

55% of the service charges are accounted 

for by insurance, maintenance, cleaning, 

security and administration, 28% are made 

up of electricity, heating and water charges, 

and 15% are accounted for by ground 

rent, rubbish collection charges and street 

cleaning contributions. 

16 

Of Germany’s major cities, service 

charges in Frankfurt are highest, at 

�€3.19/m2/month, followed by Düsseldorf 

(�€3.05/m2/month), Munich (�€3.03/m2/ 

month) and Berlin (€�3.02/m2/month). Total 

costs (rent + service charges), were also 

highest in Frankfurt, at �€21.42/m2/month, 

an increase of 4% on the previous year, 

while total costs in Berlin and Hamburg 

were, respectively, 27% and 30% below 

this. Of the major cities, service charges in 

Hamburg were lowest at �€2.82/m2/month. 

As a percentage of total costs, service 

charges in Düsseldorf and Berlin are highest, 

at 19.8% and 19.3%, respectively. 

Germany/Energy 

RWE and Jones Lang LaSalle 

in new energy alliance 

Essen-based RWE Energy and Jones 

Lang LaSalle Deutschland are to team 

up to develop economical measures for 

improving the energy efficiency of commercial 

properties and portfolios. Deutsche 

Bank will take part in the first phase of this 

project, during which 1.3 million sq.m. of 

the bank’s offices will be subjected to energy 

assessment and a cost-benefit analysis 

of measures taken to reduce its carbon 

footprint. 

Jones Lang LaSalle recently set up a 

new global service, Energy & Sustainability 

Services (ESS), which integrates 

the firm’s energy management and environmental 

sustainability services. In September, 

energy giant RWE dedicated �€150 

million to its energy efficiency action package, 

which will include free energy audits 

for municipalities, hospitals and welfare 

institutions. 

Germany/Study 

German business confidence 

takes another dive 

The IFO Institute’s Business Climate 

Index for Germany has fallen again in Sep

17 

tember, for the fourth month in a row, from 

105.8 in August to 104.2. The index is now 

at its lowest level since February 2006. 

The Munich-based institute believes the 

global credit crunch is undoubtedly having 

an effect on respondents. The index is 

based on monthly survey responses from 

around 7,000 firms in manufacturing, construction, 

wholesaling and retailing, with 

the firms being asked to give their assessments 

of the current business situation and 

their expectations for the next six months. 

In manufacturing, moderate optimism 

currently prevails, with no big impact on future 

exporting business being feared, despite 

the high euro exchange rate. Hiring in 

the sector is expected to continue, though 

at slower rates. The climate indicator for 

wholesaling has improved, and business is 

currently better than in the preceding two 

months. However, the climate in the construction 

industry has cooled off again and 

the mood has markedly worsened in the 

Hear from THE best speaker 

list in the industry: 

Alexander Rychter 

Managing Director 

BFW Bund 

Stephan Huessen 

Managing Director 

FOM Real Estate GmbH 

Dr Oscar Kienzle 

Chief Executive Officer 

IC Immobilien Holding AG 

Christoph Hommerich 

Head of Property Business 

Fraport 

Herman Aukamp 

CIO Real Estate 

Nordrheinische 

Aerzteversorgung 

Simon Hedger 

Global Property Securities 

Principal Global Investors 

www.terrapinn.com/2007/reiteu 

retailing sector. 

IFO’s Business Climate Index for the 

German service sector, which assesses responses 

from around 2,000 firms, has also 

declined slightly: despite companies in the 

sector being more positive about their current 

business situation, they are less optimistic 

about the situation over the next six 

months, with expectations being the most 

depressed for almost two years. 

Germany/Hotel Investment 

German hotel transaction 

volume down on 2006 

A recent report from Ernst & Young 

has estimated that a total of �€1.4 billion 

changed hands in hotel transactions in 

Germany in the first half of 2007, though 

the final year’s total is likely to reach only 

to around the �€2 billion mark rather the record 

�€2.3 billion achieved in 2006 

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A substantial amount of these transactions 

are sale-and-leaseback arrangements 

involving hotel chains. According to 

the report, investors are showing considerable 

interest in medium-sized cities like 

Heidelberg, Würzburg and Nuremberg, 

which account for about a third of all individual 

transactions. 

International investors such as investment 

banks and private equity funds are 

now the dominant players in German hotel 

investment, having taken over from German 

property funds who were previously 

the strongest investors, and accounted 

for 84% of total hotel investment volume 

in 2002. This figure has sunk since due 

to heavy competition from private equity 

firms, and due to cash withdrawals by their 

own capital providers. 

However, there have recently been 

signs that domestic institutional investors 

are making a cautious return to the sector, 

and this could increase if the private eq- 

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uity companies are forced to reduce their 

investment activity. Many open-ended 

funds are now flush with cash and no high 

borrowing requirement. 

A good example of this is Hamburgbased 

LB Immo Invest, who has started 

to raise capital from institutional investors 

for a special open-ended German hotel 

fund. The fund, which was originally 

planned for the first quarter of this year, 

.................................... 

............. 

REFIRE - LEGAL 

REFIRE - LEGAL is the third in a series 

of ten guest columns in which we’ll be 

explaining some of the key aspects of 

law which confound, baffle, and even 

occasionally trip up investors in German 

real estate. 

Welcome to the Condo Club 

By: Thomas Krümmel, Rechtsanwalt 

Meyer-Köring v. Danwitz Privat, Berlin 

kruemmel@mkvdp.de 

It is safe to say that every self-respecting 

German is a member of at least 

one association or Verein. The choice 

is infinite. We congregate in not really 

football-playing football clubs, known 

as Thekenmannschaft (“team behind 

the bar“), public interest associations 

the name of which must be no shorter 

than at least twenty words, or clubs to 

cherish exotic pastimes like breeding 

Brieftauben (messenger pigeons) or 

re-enacting the Wild Wild West in the 

middle of Wuppertal. Most of them are 

tax exempt, very few of them are good 

fun, because all of them are dead serious 

business, with articles and by-laws 

reminiscent of a heavily pimped version 

of the Magna Carta, and annual 

assemblies in the proud tradition of the 

aims to invest �€300m, of which half will 

be equity, in about twenty two-to-four-star 

hotels in secondary cities in the western 

part of Germany. Letters of intent have 

already been signed for hotels managed 

by NH Hotels, Welcome Hotels and 

Holiday Inns in the towns of Erlangen, 

Paderborn, Essen and Neu-Isenburg near 

Frankfurt. The fund is targeting a dividend 

yield of 7%. 

18 

Europe/Funds 

New Star launches new European 

property hedge fund 

UK fund manager New Star Asset Management 

said that it had already raised 

equity commitments of $50m (�€35.7m) for 

its new real estate hedge fund, which will 

invest mainly in European listed property 

securities such as REITs. It aims to raise 

1815 Vienna Congress. In short: if you are not German 

and accustomed to these strange and wonderful things, 

you have to really, really want to become a member. 

However, there are clubs which even as a non-German 

you cannot avoid. They are called Wohnungseigentümergemeinschaft 

or residential co-owners‘ associations 

(WEG). If you choose not to acquire an entire 

plot of land with a detached house built on it, but rather 

to buy an individual (condominium) apartment, you forcibly 

become a member of a WEG. The club rules are… well, a little complicated. 

Here are a few basics you should be aware of before signing on: 

As with any sort of real property, title can only be acquired by registration in the 

Grundbuch (land register), where special entries show the subdivisions of ownership 

of property (normally in fractions of 10,000). The ownership of an apartment consists 

of individual absolute ownership of parts of a communal building (Teileigentum), with 

a co-ownership of the common property and facilities, such as the lifts, garaging, 

gardens, entrances etc. (Sondereigentum). Legally, ownership is created through 

the formation of a contract between the co-owners of the land (Teilungserklärung) 

which forms the statute of the WEG. Although not incorporated, the co-owners‘ 

community is a body which may sue and be sued in court, and which is managed 

and represented by a professional management agent (Verwalter der WEG). 

Under normal circumstances, you will not be required to participate too actively in 

the dealings of the WEG, other than pay your monthly share of Wohngeld (utilities 

charges and the management agent‘s fee). However, you may be interested to do 

so in specific cases, especially when the management agent proposes to make 

any investments such as extensions, exceptional repair works etc., to the property. 

While you usually do not have to expect any major surprises from the Teilungserklärung, 

you should ask to be able to review a complete copy of the document before 

closing the deal and thereby acceding to the contract. Watch out especially for possible 

limitations imposed by the co-owner‘s statute, such as restrictions on re-selling 

the apartment property or using it for specific purposes. Also, be sure that your 

seller has paid up all his Wohngeld because you might end up being made liable for 

outstanding amounts. If in any doubt, do seek the advice of a qualified legal advisor. 

Like membership in almost any German club, being a Wohnungseigentümer is by no 

means a matter for amateurs!

19 

up to $400m (€�285m) for the New Star 

Real Estate Hedge Fund, originally announced 

in July and launched last week. 

The fund will be able to go long and 

short on European REITs, and will also 

trade property sector-based equity derivatives, 

private real estate funds, and derivatives 

based on Investment Property Databank’s 

direct property indices. It said in 

a note that the fund will give itself a kickstart 

by having an initial net long exposure 

of +30% to capitalise on the recent sell-off 

of European property stocks and REITs. 

Europe/Research 

INREV launches NAV model 

for real estate funds and 

Fee Metrics Guidelines 

INREV, the European Association 

for Investors in Non-Listed Real Estate 

Vehicles, launched its new calculation 

methodology for presenting net asset value 

(NAV) at its INREV CFO/COO conference 

recently in Berlin. 

The new calculation will allow investors 

in Europe’s �€400 � billion non-listed real estate 

funds sector to compare the performance 

and valuations of funds for the first 

time, as well as offering new guidelines on 

the disclosure of fee structures for private 

institutional property funds, which aim to increase 

transparency and facilitate the comparison 

of fund structures. 

“Real estate is the investment asset class 

of this decade. The dramatic increase in 

capital flows into non-listed funds is driving 

the demand for standardization at a whole 

range of levels from major institutional investors 

such as ourselves,” said Matthias 

Stürmer, Head of Real Estate Management 

at Germany’s E.ON Energie and a 

member of INREV’s management board. 

“We have a �€2-billion mixed real estate 

portfolio with about 50 target funds worldwide. 

In order to reduce costs, benchmark 

property funds and compare their performance 

with other asset classes, we have 

to know how fund’s NAV are calculated and 

to guarantee either that all NAVs have the 

same basis or the differences are transparent 

-- so it’s clear what we’re paying for,” 

Stürmer added. 

INREV does not intend to try and dictate 

to managers how they should calculate the 

value of their assets, but is asking them to 

show in their reports how their NAVs differ 

from the association’s reference, which will 

then allow investors to easily work back to 

the market benchmark. 

One of the key elements is that acquisition 

costs, such as transfer taxes, lawyers, 

agents and accountant fees should be amortised 

over five years, to create a consistent 

smoothing of the numbers. Currently, 

under the fair value option of IFRS, acquisition 

expenses are capitalised as part of 

the property and charged to income as fair 

value changes in the first year. 

Germany/Study 

How long do YOU have to 

work to own your house? 

Germans require an average of 6.4 

years net annual income in order to 

completely own their own home, 

according to research from real estate 

search engine properazzi.com 

based on figures from their website 

and statistics from Eurostat. This is 

shorter than residents of most other 

countries in western Europe, due 

to the relatively high net annual incomes 

(�€34,620) in Germany and relatively low 

average property prices (�€220,000) in the 

country 

However, people in the Nordic countries 

can achieve the feat even more 

quickly: in 5.3 years in Denmark, 5.4 years 

in Sweden and 5.5 years in Finland. In 

western Europe, the Spaniards have it the 

toughest, requiring 11.8 years of average 

net annual income (�€21,000) to pay off an 

average property (�€250,000), though this 

is a blink of an eye in comparison to the 

Bulgarians, who require 29 years net annual 

income to buy an average home. 


“People have been using their own adjusted 

NAV and there has been no one 

single definition on how it should be calculated, 

which hinders market transparency 

and the comparability of funds,” said Jef 

Holland, INREV Reporting Committee 

Member and Senior Real Estate Manager 

for Deloitte in Amsterdam. 

“When, in the future, the new concept 

is widely accepted by the industry and the 

information can be easily collected, then 

the INREV NAV may be used as a basis 

for performance indices,” Holland concluded. 

INREV has made the INREV NAV guidelines 

available on the association’s website 

www.inrev.org and intends to promote 

them at its own and industry events, as 

well as make them an integral part of training 

and education courses. 

On the other hand, the Germans are 

chasing after a dwindling supply of new 

homes, according to Berlin-based Institut 

für Städtebau (IFS), who report 

that the number of planning permissions 

granted in the country 

may fall below 200,000 

for the first time since 

the Second World 

War. Last year around 

250,000 new homes 

were built, representing 

3 new homes per 1,000 people. Great 

Britain and Sweden also have comparable 

figures (respectively 3.3 and 3.5 new 

homes per 1,000 people), but all three 

lag well behind Spain (16.0 new homes 

per 1,000 people). 

Removal of the home buyer’s allowance 

and declining write-downs 

on rental apartments are now having a 

noticeable effect,” according to Stefan 

Jokl, head of IFS. Within Germany, the 

best building ratio is achieved in Bavaria, 

where 4.6 new homes are built per 1,000 

people. In Berlin, the ratio is a paltry 0.9 

new homes per 1,000 people.

Fee Metrics Guidelines 

“It would be fair to say that in the past 

property investment managers have perhaps 

not been as transparent 

in this area as some other 

asset classes. INREV has 

been working for two years to 

achieve the same professional 

standards for fee metrics as 

prevail in competing markets 

for capital such as equities as bonds,” said 

Neil Turner, Head of Property Investment 

at Schroder Property Investment Management 

and Chairman of INREV’s Fee 

Metrics Working Group. 

The guidelines provide for ratios and 

metrics to assist institutional investors and 

managers in comparing fees and other 

costs for nonlisted real estate funds. The 

Total Expense Ratio (TER) expresses annual 

operating costs borne by a fund over 

............................................................ 

PEOPLE.....JOBS.....MOVES..... 

Hermann T. Dambach, MD of Oaktree 

GmbH, has been appointed 

chairman of Deutsche Wohnen AG, 

in which Oaktree is the largest shareholder 

following the two companies’ recent 

merger. A second representative 

of Oaktree is to join Mr Dambach on the 

board at a later stage…..Oliver Stenzel 

is to be the MD of Realogis Immobilien‘s 

new office in Stuttgart….. 

Dr. Karl-Gerhard Eick has taken over 

the chair of the supervisory board at 

Düsseldorf-based Corpus Sireo, replacing 

Martin Zimmer who leaves the 

company. Lars von Lackum joins the 

company as CFO…..Michael Pfeiffer 

has become the CEO at the investment 

promotion agency Invest in Germany…..Eckhard 

Cordes, at present 

chairman of the Metro Group‘s supervisory 

board, is to become the company‘s 

CEO on November 1st, replac- 

one year as a proportion of average fund 

assets, in order to enable fairer comparisons 

of costs between funds than the 

management fee alone. The Real Estate 

Expense Ratio captures both the fundlevel 

expenses included in 

the TER, as well as other 

property-specific costs. 

The return reduction metric 

gives an estimate of the 

total ‘leakage’ of a fund, in 

other words the difference 

between its gross internal rate of return 

(IRR) and its net IRR. 

“The great achievement of the INREV 

fee metrics guidelines is that they establish 

a basis for everyone to use the same methodology 

for the first time. This is a big step 

forward in the evolution of the nonlisted real 

estate funds industry,” said Markus Koenigstein, 

Head of Real Estate at Germany’s 

R+V Insurance-Group and member 

of the INREV Management Board. 

20 

Investors have been coming from a situation 

where they have frequently been asked 

to make investments in a fund on very limited 

information – sometimes simply the annual 

asset management fee. From the manager’s 

viewpoint this was usually due to the 

complexity of assessing the fees at the point 

of investment, but investors still wanted far 

more details on the potential future costs 

and the associated reduction in yield. 

“An important element of the guidelines 

has been the inclusion - next to backwardlooking 

TER - of a forward-looking TER 

which is based on estimated costs and the 

future composition of assets in the fund’s 

portfolio,” Turner said. 

“We recognize that the assessment 

and forecasts of future costs are likely to 

turn out to be inaccurate, but we believe 

they form a solid basis on which further 

questions can be asked of the manager 

and will improve transparency in the industry,” 

he concluded. 

ing Hans-Joachim Körber, who now leaves the company after heading it up since 

2001…..Mary Harris and Alec Pelmore are to join the supervisory board at Unibail- 

Rodamco…..Christof W. Göldi, who has been CEO of AXA Liability Managers 

Deutschland since 2004, is to become managing director at Delta Lloyd Deutschland. 

He replaces Paul Medendorp who had held the role in a caretaker capacity 

since the death of Frans van der Veer earlier this year…..Erkin Köksal is to become 

head of Deutsche Annington Süd-West GmbH replacing Thomas Schlüß, who had 

been carrying out the role for some months alongside his position as CEO of Deutsche 

Annington Ruhr GmbH. Mr Köksal had previously been CEO of RED Real Estate 

Development, which he founded…..Marcus Erdtmann is to leave the management 

team at Mondura Liegenschaften of his own volition…..Frank Schaich, who has 

joined the management team at Fair Value Immobilien AG, has relinquished all his 

other positions within the IC Immobilien group. Fair Value is to be spun off from the 

IC group and plans a stock market flotation later this year…..Rami Zoltak has become 

the new CFO at Deutsche Real Estate AG, replacing Hans-Ulrich Sutter who has 

left the company…..Andreas Stücke will continue as secretary-general of residential 

property association Haus & Grund Deutschland for a second term, which expires 

in October 2013.....Christine Wegner, previously at EPM Assetis GmbH, has been 

appointed by Jones Lang LaSalle Asset Management GmbH to its Retail Asset 

Management division.....Lars Heese, previously Senior Portfolio Manager at Redevco 

Services Deutschland, has joined the management team at Hahn Asset Management.....Henderson 

Global Investors have appointed Andrew Friend to be the 

fund manager of its German Shopping Centre Fund, a 50/50 joint venture with mfi. 

He had previously managed Henderson‘s Retail Warehouse Fund.....

21 


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