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

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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