vestor Level One files for insolvency - Intelligence Report - REFIRE

Volume 3, Issue 47, September 17th 2008 

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 dynamic 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 - /Market Report page 6 

UPCOMING EVENTS / page 12 

PEOPLE…JOBS…MOVES / pae 14 

SUBSCRIPTION FORM / page 20 

Over-extended €1.5bn residential investor 

Level One files for insolvency 

Germany saw its first major bankruptcy of the recent wave of highly-leveraged 

investment in residential housing last week, when Level One Asset Management 

filed for insolvency in the district court in Charlottenburg in Berlin. The 

company owns more than 28,000 residential units and about 700 commercial 

properties, mainly in eastern Germany, with total holdings valued at �€1.5 billion. 

Insolvency administrators are already in discussion with potential buyers 

of assets from Level One’s property holdings, one of the largest residential 

investors on the market. 

The company’s biggest creditor is Credit 

Suisse. Level One is thought to have 

debt finance on its properties of �€1.3bn, 

of which �€1.1bn was financed by Credit 

Suisse. Of this, �€300m is believed to be 

still on Credit Suisse’s books, with the rest 

having been securitised. Level One also 

has mezzanine financing of �€200m, partly 

also owed to Credit Suisse, which was arranged 

in 2007 as part of a planned IPO. 

The stock market listing, due to be underwritten 

by Credit Suisse, was subsequently 

aborted. Level One had problems 

refinancing in March this year, while the 

bank imposed stricter conditions including 

the appointment of a new, independent 

CEO and further asset collateralisation. 

The Blackstone Group is also helping 

Credit Suisse to reorganise the debt. 

Level One is the holding company of 

Kurdish-born Austrian entrepreneur Cevdet 

Caner, with the company registered 

in Jersey in the Channel Islands. The main 

office is in London, while its over 200 German 

companies report to the Berlin-based 

Level One Asset Management, with 

back office support based in Linz in Austria. 

According to Hartwig Albers for the 

insolvency administrator, the Level One 

properties will now be bundled into smaller 

portfolios and sold. “According to management, 

the properties cover their costs, 

but are collectively financed at more than 

100% of the purchase price. It’s clear that 

the creditors have been trying to get rid of 

the influence of Mr Caner in the ongoing 

Invista report ranks German 

property ‘top’ for growth 

The German real estate market is expected 

to deliver “above-trend” growth over the 

next five years despite fears the economy 

will be impacted by the more restrictive 

credit climate, according to a report by Invista 

Real Estate Investment Management, 

.....see page 2 

Property purchase tax set to 

rise in Hamburg 

Hamburg looks set to follow Berlin in raising 

the property acquisition tax rate from 

its current 3.5% to 4.5%. The proposal 

is currently before the Hamburg senate, 

and if enacted, would likely mean the immediate 

imposition of the tax on all property 

and land purchases see page11 

Henderson sees 60bps rise 

in German yields by 2009 

British fund manager Henderson Global Investors 

sees property yields in Germany rising 

by a further 60 basis points by the end 

of 2009, as the German market continues to 

adapt to the market of increased cross-border 

investment in Europe. .....see page 11 

TLG Immobilien moves ahead 

with privatisation plans 

The Berlin-based TLG Immobilien, the 

federally-owned property company specialising 

in property in the eastern states 

of Germany, is pressing on with its plans 

to privatise itself by the end of this year, 

with several bidders.... .......see page 15

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restructuring negotiations. The key thing 

now is to establish properly-functioning 

administration to assuage tenants fears 

and secure the rental stream.” 

Level One started buying low-cost and 

social residential housing in 2005 and 

2006 in cities including Frankfurt, Berlin, 

Dresden and Halle. It planned to sell the 

properties to tenants or other investors at 

a higher price. With interest rates low and 

leverage finance freely available, the company 

was able to rapidly build its portfolio. 

According to Dr. Thomas Beyerle, 

head of research at Frankfurt-based property 

fund manager Degi, the administrators 

are likely to sell off the portfolio in tranches 

of �€10-15m, at a steep discount to original 

purchase prices. Many investors, calculating 

on continuing spreads between rental 

income and financing costs, had paid over 

�€800 per sq.m. for average-quality housing. 

“Very few of the active investors in 

residential property, with adequate equity 

capital, would be in a position to buy major 

portfolios now”, he said. “Numerous 

investors, those who are shortly due to 

refinance their borrowings, are going to 

be forced into distressed sales.” This will 

have the inevitable effect of falling prices 

and ultimately lower property valuations, 

he added. 

Some of the better properties are likely 

to prove attractive to major listed and private 

residential companies such as Germany’s 

largest residential landlord Deutsche 

Annington, part of the UK’s Terra Firma 

group, and the listed Deutsche Wohnen 

AG. Many smaller groups are also likely to 

be interested, including municipal housing 

associations who may be able to achieve 

benefits of scale and efficiency in adding to 

their holdings, if they can buy at the right 

price. 

Wijnand Donkers, CEO of Deutsche 

Annington, was quoted in reports as saying 

his company may be interested in certain 

of the Level One properties. “We are 

also interested in smaller portfolios from 

any companies that have to withdraw from 

the market”, he said. 

2 

Michael Zahn, CEO of Berlin-based 

Deutsche Wohnen, said that they would 

be interested in distressed portfolios that 

came on the market, particularly if they 

were the right sort of properties to boost 

the company’s holdings in the Berlin area. 

But, referring to the quality of the Level 

One properties, he added, “However, given 

what we know of the Level One properties, 

they are unlikely to have the development 

potential that we are looking for in our portfolios.” 

Commenting on the collapse of Level 

One, the Deutsche Mieterbund, (the 

German Tenants Association) reiterated 

their long-term opposition to the acquisition 

of over 700,000 apartments by private 

equity groups during the low interest-rate 

era. Spokesman Ulrich Ropertz said, 

“Level One’s insolvency just confirms our 

stand that residential housing is not a trading 

commodity for private equity investors.” 

Within days of Level One’s insolvency 

filing, a further victim of higher financing 

costs also filed for insolvency in the same 

Berlin court. Three subsidiary companies 

of the British-owned, Berlin-based Titan 

Holdings found themselves with the same 

problems as Level One. The companies 

own and manage about 3,000 residential 

and commercial properties in eastern 

Germany. Rising vacancy rates and higher 

interest repayments on leveraged borrowings 

on poor-quality properties meant that 

the sums no longer added up. 

REFIRE: The Level One insolvency is 

a high-profile case, due to the size of the 

holdings and the geographic location of 

most of the residential property so quickly 

acquired by the group. But it is not untypical 

in its structure of how so many of 

these deal were stitched together at a time 

of plenty, using minimal equity and heavy 

borrowings at low interest rates. Most 

of the deals were based on assumptions 

that were always optimistic about rates of 

privatisation, achievable rent levels, and indeed 

the future demand for the quality of

3 

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

DEALS ROUNDUP 

these apartments, without serious further 

investment in upgrading and renovation. 

The investments depended frequently on 

the Greater Fool theory as an exit strategy, 

but for most later investors the chickens 

are now coming home to roost. 

There are many investors weeks or 

months away from a similar fate as Level 

One. Many deals will be done behind 

closed doors, as the last thing the banks 

want right now is to flood the market with 

property portfolios, driving the price down 

even further. The utopian prices paid by 

eager buyers are likely to become the stuff 

of legend, all the more so since recent 

large portfolio deals such as the Whitehall 

Funds purchase of the LEG in North 

Rhine-Westphalia triggered a spate of 

markdowns in the realistic value of listed 

companies’ residential holdings. 

Germany/Study 

Invista report ranks German 

property ‘top’ for growth 

The German real estate market is expected 

to deliver “above-trend” growth over the 

next five years despite fears the economy 

will be impacted by the more restrictive 

credit climate, according to a report by Invista 

Real Estate Investment Management, 

the UK’s largest listed real estate 

fund management group. 

In its annual European Property Market 

Relative Attractiveness report published last 

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week, Invista ranks countries in Europe according 

to risk-adjusted performance prospects 

over the next five years. The top performer 

was Germany, which moved up from 

seventh place last year, displacing the UK 

market from its first place ranking last year. 

Italy came second, moving up from 11th 

place. Netherlands retained the same third 

place ranking from 2007 while Belgium 

moved up four places from eighth place last 

year and France, which dropped one place 

from fourth place last year. 

In its quarterly investment report, which 

included the Relative Attractiveness report, 

Invista said that investors should look beyond 

the short-term volatility of the property market 

and concentrate on larger, longer-term 

issues of economic growth, liquidity and per-

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

EDITORIAL 

A bird’s-eye view of the Frankfurt commercial property market 

Two weeks ago REFIRE was granted the 

privilege of the latest bird’s eye view of the 

Frankfurt office market. Literally. As a 

guest of global project developer Tishman 

Speyer, we donned our hard hats, 

stepped artfully through the mud of the 

city’s largest building-site, and rattled 

our way 150m skywards in the rickety 

cage elevator used by construction 

workers to schlep materials up to the 

higher floors of the Opernturm, Frankfurt’s 

newest skyscraper. 

The views from the 38th floor of the raw 

concrete edifice were naturally spectacular, 

although we clutched tightly to any protruding 

rail that looked as if it was firmly set and 

dried in concrete Despite our dizziness, it 

was obvious that this will be a magnificent 

bank headquarters when the building is finally 

finished in a year’s time, and a worthy 

addition to Frankfurt’s corporate skyline. 

The project is a joint venture between 

Tishman Speyer and the Swiss bank UBS, 

who has also committed to leasing half the 

property for their new Frankfurt headquarters. 

The rents payable will be the highest 

in the city – as befits the quality and location 

of the property. But there’s still time to 

rent the other half of the property, and share 

a prestige address with Switzerland’s leading 

bank. Assuming, of course, that it still 

is Switzerland’s leading bank by the time it 

comes to move in. 

Whatever the two partners see from the 

windy heights of their latest creation, they’ve 

come to the conclusion that now is a good 

time to sell. They’ve put the property on the 

market, reputedly for between €�550m and 

€�650m, which would make it Frankfurt’s biggest 

property deal of the year, should it find 

a buyer soon. 

While the investment market in Frankfurt 

has collapsed by 90% this year, the rental 

market has performed strongly. In the first 

half of this year more new space was rented 

out than over the same period last year, credit 

crisis notwithstanding. The figures for the full 

year are likely to hold up well and compare 

favourably with 2007 – in contrast with cities 

like London, which are bearing the full brunt 

of the deepening financial crisis. 

Peak rents in Frankfurt have risen, and in 

theory will be pushed even 

higher by the lucky new tenants 

of the Opernturm. This 

positions Frankfurt as the 

indisputable leader for office 

rents in German commercial 

centres, despite a stubborn 

vacancy rate which hovers 

at around 11%, depending 

on how tolerant you are of the various definitions 

of ‘vacancy’. Another Tishman Speyer 

creation just down the road from the Opernturm, 

the 17-year-old Messeturm, once 

Europe’s tallest building, is also occupied by 

prestigious banking clients – but stands half 

empty. 

Commerzbank, whose headquarters 

building overtook the Messeturm as Germany’s 

highest, has now bought out Dresdner 

Bank, also based in Frankfurt. This will have 

consequences for employment and demand 

for office space in the city. Thousands of jobs 

will be rationalised once Commerzbank has 

fulfilled its social charter obligations to its new 

employees over the next three years. 

On the plus side, there are less new shortterm 

office projects in the pipeline in Frankfurt 

than in any major German city except for 

Berlin. This should provide some protective 

buffer against the downside. But Frankfurt’s 

property market, which has remained relatively 

immune to the drastically-changing 

global financial landscape, will soon start to 

feel the chill winds that are turning the banking 

world on its head elsewhere. 

The stability and ‘staidness’ of the banking 

industry in Frankfurt, seen by its defendants 

as a healthy counterweight to its boomand-bust 

cousins in the more dynamic and 

free-wheeling London and New York, cannot 

in itself provide the motor for new banking 

developments in Europe. London’s pre-eminent 

position in Europe will remain unchallenged, 

despite the forthcoming layoffs and 

the shrinkage in the banking industry which 

will be a feature of the coming years. 

4 

But stability and staidness are good for property 

investors who take the trouble to understand 

the local pillars on which German prosperity 

is based. Germany still manufactures 

products of quality which have stood the test 

of time. The regional nature of the country disperses 

these economic fruits into the smaller 

towns and provincial areas, where people enjoy 

stability of employment and good incomes. 

And live and work in good properties that provide 

solid yields to their investors. 

There may still be some ‘juice’ left in the 

trophy properties in the busier central business 

districts of Germany’s large cities. But 

there is now also a lot more risk. For stable 

and above-average returns, the German 

regions continue to provide healthy opportunities 

for shrewd investors. Read our interview 

in this issue with Pino Sergio of WGF 

AG, a Düsseldorf property trading company. 

In our view, WGF remains earth-bound, innovative, 

and focused on adding value to its 

properties, its enterprise, its investors and its 

partners. By issuing bonds (Hypothekenanleihe) 

to finance its investments, it taps into a 

broad base of risk-averse investors who are 

nonetheless guaranteed a superior return on 

funds, while enabling WGF to avoid going 

cap-in-hand to bankers to finance its projects. 

This is a sustainable business model, 

and we expect to see more companies 

adopting a similar model. 

We have often exhorted REFIRE readers 

to jump in their cars and go foraging around 

the smaller German towns looking for value 

in property. These properties may not make 

the headlines, but with the help of a strong 

local partner, they can provide attractive returns 

with low risk. Watching investments 

in Fannie or Freddie, or Lehman or Merrill 

or AIG or Washington Mutual or a host of 

other companies, supposedly as safe as the 

houses that they back, being flushed down 

the pan, we know how the unthinkable can 

quickly become the horror of the unforgettable. 

We’d sooner settle for a staid 7% return 

on our money over the leaner years ahead. 

Charles Kingston, Editor

5 

.....from page 3 

formance. 

It concluded that Germany was “well positioned” to deliver 

above-trend growth over the next five years, benefiting from tax 

and labour market reforms, improvements to productivity and 

competitiveness, and the relaxation of immigration laws to alleviate 

skills shortages. 

Invista said it favoured ‘low-beta’ markets such as Germany 

and Italy as they offered diversified investment opportunities and 

returns can be enhanced over the medium term through active 

asset management. 

Poorer performers were the smaller, less-liquid property markets, 

such as Portugal, Czech Republic and Hungary, which fell in 

the rankings with higher levels of expected pricing volatility. 

Tim Francis, head of continental European research at Invista, 

said: ‘The global economic events of the last 12 months 

have forced investors to reassess their attitudes towards property 

risk and pricing. 

‘Our research indicates which markets are expected to fare 

better over the medium term, and in our opinion, low-beta markets 

are better positioned to deliver attractive risk-adjusted returns. 

Despite recent weak economic data, we believe the German 

property market should consolidate its position as a key 

investment target for diversified investors.’ 

Germany/Banking 

Private equity funds may bid for Düsseldorfer 

Hypothekenbank 

A number of private equity funds are showing interest in buying 

the stricken Düsseldorfer Hypothekenbank (Düsselhyp), 

and are thought to have carried out due diligence on the 

bank with a possible sale of the bank before the end of the 

year, according to the bank’s interim report. 

Düsselhyp ran into trouble in April as a result of the financial 

market crisis, with its then owners, the Schuppli family, forced to 

sell the bank to the German Banking Association’s depositor 

guarantee fund. The bank, although a minnow in the area of 

public and municipal financing compared to the dominant players 

Eurohypo and Hypo Real Estate, was not directly in danger of 

collapse at the time, but the emergency sale was thought critical 

to protect a loss of confidence in the German Pfandbrief, of which 

Düsselhyp is a licensed issuer. 

The bank had been in the process of refocusing its activities 

on property financing and away from the lower-margin public 

sector financing, but volatility on the markets earlier this year had 

stretched the bank beyond its risk limits. Despite a further injection 

of �€100m by the Schuppli family and with a further �€50m 

on call, the new higher costs of refinancing ultimately made the 

bank’s new plan unfeasible. The German Banking Association 

CC-10-8036_AD_RIFIRE.qxp:97 x 258 mm online 12.09.2008 10:33 U 


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REFIRE INTERVIEW: 

Pino Sergio, CEO of WGF AG 

REFIRE sat down recently with the 

top management team at WGF AG, 

Westfälische Grundbesitz und Finanzverwaltung 

AG, to discuss the company’s 

regional investment strategy, 

and its views on the direction of the 

German real estate market. 

We have reported a number of 

times on the unusual approach WGF 

takes in both partnering with investors 

and in refinancing its own holdings. 

The company has placed three 

residential mortgage-backed securities 

(Hypothekenanleihe) on the market, 

the most recent in May this year, 

that are freely tradeable on the Düsseldorf 

stock exchange. The bonds, 

which have investment-grade status, 

guarantee an interest return of 6.5% 

and are closely monitored by Creditreform 

Rating AG. 

WGF can therefore avoid bank financing 

on its holdings, while taking 

advantage of market conditions to 

buy undervalued properties at highly 

competitive prices. 

Below are some excerpts from our 

talk with Mr Pino Sergio (pictured), 

WGF’s forthright CEO : 

REFIRE: WGF’s strengths are in regional investing. 

What’s wrong with Germany’s major 

cities? 

Pino Sergio: It irritates me to see how the 

whole German real estate industry seems to 

be so focused on the five or 6 major city locations. 

Naturally for much commercial property 

investment this makes sense – to be close 

to the centres of administration and business. 

But the prospects in the regional centres are 

grossly under-estimated, both for residential 

and commercial investments. We had an international 

investor recently who was turned 

off by the idea of investing in an office building 

in the city of Essen, because he was afraid he 

wouldn’t be able to exit in ten years. He was 

drawn to a similar-quality property in Düsseldorf 

that offered 6%, instead of the 9% in 

Essen, because he was convinced that Düsseldorf 

would remain financially stronger than 

Essen. But if you take the higher returns on 

your leveraged investment 

in Essen over a 

ten year period, on a 

modern building in a 

good location with a 

solid tenant, the returns 

will more than 

compensate for any 

perceived extra risk 

by going outside the 

major office centres. 

The same applies to a whole host of smaller 

towns, where quality properties won’t simply 

disappear or face competition from newer 

smarter properties a few streets away. 

“The returns in regional centres 

will more than compensate for 

any perceived extra risk in going 

outside Germany’s major urban 

centres” 

Where do you look to find value? 

As an investor, you can find good value even 

on the outskirts of the larger towns, in business 

parks and less fashionable properties. 

Even in outlying areas of Düsseldorf I can buy 

a property for �€4.50 (per sq.m. per month 

equivalent) and find solid tenants for whom 

the stability factor of an affordable rent is key 

to their calculations. They’re likely to stay 

longer, hire more staff, and cost me as an 

investor less in advertising, agency fees, asset 

managing, and absorbing vacancy losses 

than in a more high-profile location. The net 

overall yield can be much higher. 

Does this just apply to the office sector? 

The same applies to residential. The higher 

up the rental chain I go as an investor, the 

more problems I’m potentially going to have 

from well-heeled tenants, who because of the 

high rent they’re paying, will call me up to solve 

6 

every little problem they have with their apartment. 

They may be paying top rent, but they’re 

also likely to move on more frequently, leaving 

me with higher administration costs. I’ve also 

had to pay (and finance) a lot more to buy the 

property. The difference in yield can be 1.5- 

2.0% by going outside 

the desirable city-centre 

locations. Frankly, I can 

afford a higher volume of 

investment outside the 

core centres. There is 

fear among investors that 

their exit is less assured 

in lesser-known regions, 

and they’ll sacrifice yield 

for the comfort of feeling 

they’ll be able to sell later. 

This applies even to regional centres 

that have seen their industrial infrastructures 

change rapidly over the last ten years. Maybe 

yields have come down from 12% to 8% 

or even 7.5%, in line with incomes and business 

prospects, but these are factored in to 

the lower price level for investors. The yields 

are still better than in many larger urban centres. 

The risk-reward ratio is higher. And if I 

can afford three properties in smaller towns 

as against just one in a city like Frankfurt, then 

I can more easily sell a part of my holdings 

if I need to quickly adapt to adverse circumstances. 

Hence I probably have a more secure 

exit for my investment, with less overall 

risk. 

You’re talking of investing in small towns, like 

Steinfurt, Oer-Erkenschwick, Moers...? 

I can give you an example of a major British 

investor, who hardly anybody has heard of. 

This group has aggressively invested �€2.3 billion 

over the last three years in mainly residential 

property in small regional German towns, 

like Oer-Erkenschwick, since you mention it. 

They did so solely for the better performance 

for their fund. They have an average yield at 

the moment of 8.6%, despite a vacancy rate 

of 15%. When they lower the vacancy rate, 

the returns will be even higher. Show me 

many other funds that are returning this level 

of yield. You won’t find many.

7 

You’ve got to remember that for most 

Germans, the idea of buying an apartment 

as an investment for their pension 

fund, if they don’t already own the four 

walls in which they live, just wouldn’t enter 

their heads. Buying their own place is, of 

course, a dream for many. But this is the 

great strength and attraction of the German 

residential market for investors – the 

tenant who wouldn’t buy the place he rents 

is himself largely protected by the German 

social market economy, and represents a 

steady stream of safe rental income. 

“Show me many other funds 

that are returning an average 

yield of over 8.6%. You won’t 

find many.” 

So what’s changed in the German investment 

climate? 

Here’s my advice to foreign investors. By all 

means look at core locations for part of your 

investment. But if you’re interested in larger 

volume, go to the B1 and C1 locations where 

you can invest in more volume and have less 

competition. Work with a good local partner 

who knows the local market and can provide 

your local facility management. Foreign investors 

still fall into the trap of working with 

a major asset manager here who will have to 

send staff up to outlying regions where they 

can’t possibly get to grips with local realities. 

What’s the future for portfolio sales? 

There may be some mergers of the biggest 

housing associations, but in this financial climate 

bigger deals like the LEG sale to Whitehall 

Funds are probably unrealistic. The future 

is in smaller portfolio deals. In the past, with 

high due diligence and legal and other costs, 

investments under �€�20m didn’t make much 

sense. Investors had to cover all their costs 

from the 1-2% spread above their refinancing 

costs. The big corporate lawyers don’t 

come cheap. A smaller regional lawyer has 

the same expertise and offers the same insurance, 

so the lowered due diligence costs 

can make smaller investments worthwhile. 

The British investor with the �2.3 billion portfolio 

built it up just like this, using a smaller legal 

practice, local accountants, and valuers with 

offices throughout Germany, so they could 

buy portfolios under �€�5m. This is the area we 

like to operate in at WGF, portfolios between 

�€�1m and up to �€�20m. 

You’ve clearly got strong views on what trips 

up international investors… How does WGF 

do this better? 

Reporting is German, and should remain 

German. We can interpret all the key figures 

for international partners. Bigger international 

investors became obsessed with getting their 

German partners to adapt to Anglo-Saxon 

reporting systems, and this has caused no 

end of problems. Investors should stop trying 

to get their local German partners to jump 

through hoops so they get standardised 

reporting. It costs time and money, and 

doesn’t work. 

“Investors should stop trying to 

get their local German partners 

to jump through hoops so they 

get standardised reporting. It 

costs time and money, and it 

doesn’t work.” 

You’re not just offering advice, then? 

We’re not brokers, we’re essentially property 

traders. We take an opportunistic approach 

to property, but with a focus on the 

exit. If investors want us to put together a 

portfolio for �1m with a yield of 8%, we’ll go 

out and do it. We’ll assemble the portfolio 

in between 6 and 24 months, and we’ll 

hold the stock on our own books till the 

client is ready. We’ll offer a basic, a standard, 

and a premium package to meet the 

investor’s needs. 

Here’s what’s interesting for international 

investors, and we’ve done this with 

our last couple of deals. We offer investors 

a rental guarantee, underwritten by us 

with a bank guarantee. This helps investors 

overcome their fears of loss of rental 

income, or uncertainty about the location. 


We’ll carry the risk, handle all the asset and 

property management, and at the end of 

the guarantee period, we’ll have done all 

the work that will ensure the properties are 

well primed for a profitable exit. Our investor 

knows that our mutual interests are 

aligned. The investor gets his 7.5% or 8% 

yield without all the headache of managing 

the properties locally, and the fear of 

getting swamped in properties or locations 

that he doesn’t really understand. 

“It’s not that there’s a shortage 

of capital. It’s that the basic 

premise underpinning such investments 

in the German market 

has changed.” 

So what’s your Unique Selling Proposition? 

We see ourselves as being partners, without 

having to go setting up a joint venture 

and allocate share participations. We don’t 

want to have to call board meetings for every 

minor decision. The roles are clearly 

defined. You’re the investor, and we’re the 

service provider. But we’ve got our money 

invested in the deal too, and we’ve provided 

the investor with a strategy that he 

otherwise wouldn’t have. 

Investors have come to understand that 

without a strong subsidiary in the country, 

or a reliable partner, it’s not going to work 

for them in Germany. If they’ve got money, 

and work with companies like WGF, 

they’ve got both. 

How is the financial crisis affecting foreign 

investment in Germany? 

It’s not that there’s a shortage of capital. 

It’s that the premise underpinning such 

investments in the German market has 

changed. Two years ago most investors 

didn’t care about a regional strategy, a 

strong local partner, what the costs of due 

diligence and other professional charges 

were. Questions of quality in property or 

asset management were brushed aside. 

Now he wants a partner who is just as 

committed to achieving the yield targets

that he has set as he is, a partner who’s 

got his own skin in the game. When you 

as an investor have to stump up 25-30% 

equity capital just to keep your existing 

lines of credit open and not go bankrupt, 

then you want to work with people who 

put their own money on the line. That’s 

what we do. 

Can the recent popularity of investing in 

retail continue? 

Thousands of investors have piled into 

this sector in the last couple of years, often 

happy to buy a big box property with 

a 20-year lease with Aldi, Lidl, or other 

out-of-town retailers. But a lot of these 

are in places where people wouldn’t build 

any more, which may suffer from the trend 

back into the cities. I think a lot of this kind 

of retail investment is suspect, we won’t 

see the same frantic building of these kind 

of shopping centres again for a while. 

What’ll happen with retail rents? 

Take a leading retailer like H&M, whom you 

might find in several locations in a city centre. 

They’ll pay a higher price for their presence 

on the top shopping streets and to invest in 

their brand, but meanwhile they’ll shun 20year 

lease contracts in favour of 5-year leases 

with a option to extend, and an option to sublet. 

On balance, in the larger cities, I don’t 

think rents will fall significantly in the prime 

shopping locations. In secondary cities and 

smaller towns they may even rise, as retailers 

shy away from moving into the bigger cities 

until the economic storm clouds that threaten 

us with doom and gloom slowly disappear. 

You’re very outspoken on the issue of sustainability... 

This is not just a passing fad, but a seriously 

important aspect of our real estate investment. 

America, and particularly Britain, are 

Exclusively for commercial properties 

Marketplace. Know-How. Europe. 

8 

very much at the forefront of developments 

here, while here in Germany there is a lack 

of a unified approach in its application to the 

residential sector. The recognised quality 

certification in other markets is reflected directly 

in prices, and our lack of this in Germany 

can lead to confusion when informed 

investors wonder if they will be hit with ecological 

upgrading and improvement costs 

later. But when have this certification in 5-10 

years here, the burden will fall more on the 

tenants than the investors, as the tenants will 

favour the sustainable properties . The drastic 

increases in charges over the last few years, 

which every tenant has to pay in addition to 

his ‘cold’ or basic rent, have led to sweeping 

changes in tenants’ attitudes to their energy 

charges, and this is proving to be the catalyst. 

Remember, this is Germany and most 

disputes in our social market economy are 

resolved in favour of the tenant. Smart investors 

take this into account and plan and 

budget accordingly. (END)

9 

...from Page 5 

then stepped in to protect the bank, pending 

a sale to a new owner (see REFIRE issue May 

5th 2008). 

Although it is thought there were originally 

about eight interested candidates, this has 

since been whittled down to two or three. 

We reported at the time that Deutsche Bank 

had turned down a possible purchase, while 

Hypovereinsbank had also declined. Eurohypo 

is busy digesting its own fellow- Commerzbank 

subsidiary Essen Hyp, while Hypo 

Real Estate last year absorbed Depfa. The 

remaining bidders are thought to be private 

equity funds, although it’s not clear whether 

any purchase would include the Pfandbriefissuing 

business, a sensitive issue in domestic 

banking circles. 

Louis Hagen, the head of the Verband 

Deutscher Pfandbriefbanken, the association 

of Pfandbrief-issuing banks, said at the 

time of the custodianship, “Whoever takes 

over the bank would have to guarantee that 

they could sustainably handle the Pfandbrief 

business. This would place big demands on 

anybody taking over the whole bank. Obviously 

we want to avoid a bank who couldn’t 

see this through.” 

Germany/Acquisitions 

GPT Halverton presses 

ahead in Germany, but parent 

group planning disposals 

The London-based pan European fund 

manager GPT Halverton is pressing 

ahead with investments in Germany despite 

heavy write-downs at its Australian 

parent company GPT Group, amid plans 

for other European disposals of assets held 

by GPT Halverton and its other European 

fund, Hamburg Trust. 

GPT Halverton has just bought 11 retail 

park properties in Germany for its �€136.5m 

retail fund German Retail Partnership 

(GRP). The fund, which expects to be fully 

invested in early 2009, invests mainly in foodanchored 

retail properties, including those 

leased by discount food store Aldi. It paid 

�€27.8m for the properties from nine separate 

sellers, with a total sales area of 19,000 sq.m. 

Two of the properties are based in North 

Rhine-Westphalia, Germany’s most populous 

state, four in Bavaria, three in Rhineland 

Palatinate, and a further two in the eastern 

states. All the properties were fully let to tenants 

including discount store chains Aldi, 

Netto, Edeka, Rewe and Lidl. 

GPT’s German Retail Fund closed in December 

last year, having raised capital from 

institutional European investors including clients 

of CBRE Investors, ING Real Estate 

Select and Henderson Global Investors. 

The latest buys bring the value of the fund up 

to �€136.5m, with a further �€50m of purchases 

currently under due diligence. It aims to 

acquire around €�285 million of real estate and 

expects to be fully invested by the first quarter 

of 2009, according to the company. 

Matthew Walker, director of the GPT 

fund, said current market conditions were 

proving a boost to GPT, adding: “All these 

assets have the potential to add short-term 

value through active asset management. 


The majority of the income from these properties 

is from high-quality German retail tenants, 

offering excellent covenant strength…. 

We expect to see more attractively-priced 

opportunities such as these, as many foreign 

investors in Germany have withdrawn due to 

the lack of suitably-priced debt.” 

The parent company in Australia, real estate 

investment trust GPT Group, has come 

under heavy pressure recently after reporting 

a first-half loss and taking write-downs of 

A$344m on its property holdings worldwide. 

CEO Nic Lyons said recently that it may sell 

up to a third of it’s A$14bn of assets due to 

the impact of the credit crisis, and to “create 

a more conservative financial structure reflective 

of the current climate.” 

GPT Group has already identified A$1.3bn 

of Australian assets to sell, and plans further 

sales in Europe of assets held by its Europebased 

funds GPT Halverton and Hamburg 

Trust. It also plans to sell all A$1.9bn of the 

European assets it holds in a joint venture 

with fellow-Australian investor Babcock & 

EUROHYPO The leading specialist bank for commercial 

real estate and public sector fi nance 

Had we been around 

then, this would have 

been fi nanced by us. 

a passion for solutions.

.....from page 9 

Brown, starting from December 2009. The 

two partners were early investors in the German 

market, building up residential and commercial 

property holdings since the beginning 

of the decade. 

Germany/Financing 

IVG sells caverns into fund 

for �€1.7bn, CEO resigns 

After months-long speculation as to the 

fate of the Bonn-based IVG Immobilien- 

AG’s specialty caverns division, the die 

was finally cast when IVG, Germany’s largest 

listed real estate company, opted to sell 

70 of its underground storage caverns into 

a newly set-up Special Fund for �€1.7bn. It 

will use the proceeds to reduce debt. 

IVG said the new fund would acquire 40 

operational caverns at Etzel near the northern 

German port of Bremerhaven which are let 

out to third parties. It will also acquire 30 additional 

underground facilities that are still under 

construction but for which long-term tenancy 

agreements have been reached. Under the 

terms of the deal, IVG will sell the properties 

between 2008 and 2014 as they become 

complete. IVG will receive €�836m from the 

fund in the current fiscal year. 

The fund acquiring the caverns will be 

the largest established by the company to 

date. IVG will invest �€50 million in the vehicle, 

while institutional investors have subscribed 

for €�680 million, leaving another �€120 million 

still to be raised. However, the company 

said talks with investors had reached „an advanced 

stage“ and that the vehicle should be 

fully invested by the middle of November. 

IVG began examining the realisation of 

value from its subsidiary IVG Caverns back in 

February this year, when it weighed up either 

selling the entire business or only a part of it to 

an investor or to a fund developed by IVG. It 



10 

said selling to a fund guaranteed earnings 

and long-term cash contributions. Rental 

income from the caverns should produce 

about �€50m annually, or 6.1%. 

The deal is expected to lead to earnings 

before interest of �€261 million in 2008 and 

�€574 million between 2009 and 2014. 

IVG chief executive Wolfhard Leichnitz 

said that the company had solid earnings 

potential by developing at least 60 additional 

caverns. “The demand for secure deposit 

facilities for the short as well as long-term 

storage of oil and gas will increase further,” 

he said. 

IVG recently reported a 72% decline in net 

profits and a likely halving of profits for the full 

year (see REFIRE issue August 26th 2008), 

with earnings being hit by falling asset values 

and rising debt. The share price has fallen by 

over 50% this year on investor fears of high 

debt levels and low equity. After the caverns 

deal was announced, the share price plunged 

further, with analysts saying that the way the 

deal was structured will provide IVG with little 

immediate cash flow to service debt. IVG has 

separately said that it plans further non-core 

asset sales of �€500m to cut back on debt 

levels. 

This week the company announced that 

Mr Leichnitz is resigning as CEO effective end 

of the month. 


Deutsche Bank buys 30% of 

Postbank 

After much to-ing and fro-ing, Deutsche 

Bank finally agreed last week to buy 

29.75% of Postbank, Germany’s largest 

retail bank. Parent company, Deutsche 

Post, has been in talks for weeks with 

potential buyers for its majority stake in 

Postbank and Spanish group, Banco 

Santander, which has a long involvement 

with German retail banking through 

its credit card operations, also arrived to 

express last minute interest in the sale. 

The deal has now been done with 

Deutsche Bank paying �€2.8 billion for one-

11 

third of Postbank. The move is in line with 

Deutsche Bank’s strategy of furthering its 

consumer banking businesses to balance its 

investment banking operations. 

The attraction of Postbank for Deutsche 

Bank is its 14.5 million retail customers and 

850 branches, and the acquisition will allow 

Deutsche Bank to sell its real estate and investment 

services through the retail network. 

The transaction values Postbank at 

�€57.25 per share and includes an option for 

Deutsche Bank to buy another 18% of Postbank 

within 36 months, at �€55 per share. In 

addition, Deutsche Post has an option to sell 

another 20.25% of Postbank to Deutsche 

Bank. Under Germany’s regulatory regime, 

taking a stake of over 30% in Postbank 

would require Deutsche Bank to make an offer 

for the entire business. 

The deal is the latest in a spate of M&A 

activity in the German banking sector over 

the past few months, and comes on top of 

Commerzbank’s �€9.8bn mega-merger with 

Allianz’s Dresdner Bank. After the deal, 

which will be done in two stages between 

now and end-2009, Allianz will hold a stake 

of nearly 30% in the combined bank. 

In mid-August, US investor Lone Star 

stepped in to take over troubled German 

bank IKB for an amount of �€80-100m. In 

July, Deutsche Bank was outbid by unlisted 

French bank Credit Mutuel for Citigroup’s 

German retail operations in a �€4.9bn cash 

deal. 

Germany/Legislation 

Property purchase tax set to 

rise in Hamburg 

Hamburg looks set to follow Berlin in raising 

the property acquisition tax rate from 

its current 3.5% to 4.5%. The proposal is 

currently before the Hamburg senate, and 

if enacted, would likely mean the immediate 

imposition of the tax on all property 

and land purchases. 

So far Berlin has been the only federal 

state in Germany to impose the higher rate of 

tax, once legislation had changed to permit 

the federal states to determine their own tax 

level. The tax in all other states is currently at 

3.5%. If Hamburg raises its rate, and hardpressed 

other states then follow suit, then the 

tax rate on property will have risen from 2% to 

4.5% over a period of 12 years. 

Meanwhile, Germany’s Upper House of 

Parliament (Bundesrat) is currently debating 

a separate proposal whereby the rate of 

property tax payable on existing buildings 

be subject to less generous write-offs where 

vacancy rates in a particular property have 

increased. As the current law stands, property 

owners can claim a property tax rebate 

where rental income falls by more than 20% 

due to factors beyond the owners’ control 

(e.g. unexpected departure of a tenant, with 

no successor). Typically this could be at a 

rate of four-fifths the rate of the reduced property 

income, or a tax reduction of 40% where 

rental income falls by 50%. 

The government’s Finance Committee is 

responding to demands from the states of 


Berlin and Bremen to abolish the tax rebate 

altogether, although what looks more likely is 

a new compromise whereby the tax rebate 

will kick in only when the loss of rental income 

reaches a threshold of 50%. In that case, 

according to government plans, the rebate 

would be set at 25%, and would reach the 

50% threshold only in the case of a 100% 

fall in rental income, i.e. complete vacancy. A 

decision by the Upper House is expected on 

September 19th, before being presented to 

the Lower House (Bundestag). 

Germany/Study 

Henderson sees 60bps rise 

in German yields by 2009 

British fund manager Henderson Global 

Investors sees property yields in Germany 

rising by a further 60 basis points by the 

end of 2009, as the German market continues 

to adapt to the market of increased 



Get to know our fi nancial 

expertise and contact us at 

www.eurohypo.com

.......from page 11 

cross-border investment in Europe. 

The volatility of Germany’s traditionally 

lower yield swings of about 50 bps over the 

economic cycle will increase to about 100 

bps, according to Stefan Wundrak, head of 

research at Henderson. “In an international 

context that’s still not a lot, but for Germany 

it’s a remarkable change”, he said. 

Henderson see initial yields in the office 

sector in Germany’s major commercial centres 

rising from their current 4.9% to 5.4- 

5.6%, while prices in secondary locations 

should fall further. Once prices have corrected 

a bit further, Wundrak sees the best Total 

Returns in Hamburg, Munich and a number 

of smaller regional cities, where returns of 7- 

10% should be achievable. “These sort of 

returns would have been marvellous over 

the last five years or indeed ever in Germany, 

where average Total Returns on commercial 

property (according to IPD’s definition) between 

2003 and 2007 have been about 2%”, 

he said. 

The increased volatility on the German 

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market would make the timing of entry and 

exit points more critical, he said. Plenty of 

buyers in 2006 and 2007 would likely become 

sellers soon, and he suggested that, 

if the German market adapts flexibly 

to the new more restrictive financial 

climate, a good entry point for investors 

would be the middle of 2009. 

Another positive aspect that Henderson 

refer to in their study is that Germany 

is still in a phase of rising rental 

prices, in contrast to France and the Netherlands 

which have reached the peak of their 

rental cycles. Britain and Spain were already 

in the downward phase, said Henderson. 

Europe/Sustainability 

JPMorgan sees share price 

benefits for ‘greener’ listed 

companies 

Green and sustainable building has obviously 

become a major issue for real estate 

12 

investors over the past year, and has certainly 

been occupying the minds of both 

property investors and government legislators. 

Nowhere more 

so than in Germany, 

traditionally strong in 

the areas of conservation, 

recycling, ecology 

and the environment. 

All the more surprising, 

therefore, that a new 

study by investment bank JPMorgan shows 

that German listed property companies get 

the poorest scores among European peers in 

their efforts to integrate sustainability in their 

property holdings. Anecdotal evidence suggests 

that ‘green’ buildings offering tenants 

much lower energy consumption can command 

premiums of up to 16% more than 

non-green properties in the current market, 

with a raft of new measures on environmental 

improvements due to come from Brussels in 

the coming years. 

Harm Meijer, an analyst at JPMorgan, 

studied the sustainability strategies of 32 

listed property companies across Europe. 

The winners were two British commercial 

property companies, British Land and 

Land Securities, both of whom converted 

to UK REIT status when the legislation was 

introduced at the beginning of last year. Both 

scored a maximum of five points (on a scale 

of zero to five) as a result of the high weighting 

given to green buildings in their existing 

portfolios and plans for further sustainability 

improvements. Within the eurozone, the best 

performers were the Spanish commercial 

property market leader Metrovacesa and 

the Franco-Dutch shopping-centre group 

Unibail-Rodamco, both with 3.5 points. 

There were poor scores for Germany’s 

listed contenders Alstria Office REIT AG, 

housing company Gagfah AG and IVG Immobilien 

AG, who all scored zero, along 

with the Italian company Beni Stabili and 

Switzerland’s largest property company PSP 

Swiss. In what sounded like a harsh assessment, 

Meijer commented, “None of these five 

companies showed any meaningful commitment 

to the issue of sustainability.” Ouch.

13 

Meijer believes that there is a correlation 

between a company’s commitment to sustainability 

and the performance of its share 

price. As an example within the eurozone he 

gives the share prices of Metrovacesa and 

Unibail-Rodamco over the last three years 

as having performed 26.11% better than the 

worst five performers. 

Germany/Privatisation 

East German specialist TLG 

moves closer to privatisation 

The Berlin-based TLG Immobilien, the 

federally-owned property company specialising 

in property in the eastern states 

of Germany, is pressing on with its plans to 

privatise itself by the end of this year. An 

IPO had originally been envisaged, but that 

www.reag-aa.com 

Frankfurt +49 (0) 69 24 75 26 7-0 

Berlin +49 (0) 30 20 00 605-50 

is now considered unrealistic in the current 

capital-raising climate. 

TLG Immobilien was originally set up to 

manage non-core properties of the larger 

former industrial companies in East Germany, 

and has expanded its remit into a fullyfledged 

regional property company, with its 

focus on Berlin, the Dresden-Leipzig-Halle 

axis, and the Baltic coast. Originally owning 

and managing 27,000 properties, this 

had been reduced to under 1500 by early 

this year, valued at about �€1.5bn 

Known to be among those currently doing 

due diligence on the TLG’s books are 

the US financial investor groups Oaktree 

and Lone Star, with another American bidder 

also thought to be in the hunt. Binding 

offers have to be submitted by the end of 

September, while the deal is expected be 

concluded by the end of October. 


Germany/Results 

First-half profits tumble at 

HSH Nordbank 

Along with most of its fellow Landesbanken, 

the northern-German HSH Nordbank 

saw its first-half profits tumble after taking 

heavy write-downs, and announced 

a packet of measures including staff cutbacks 

of about 15% by 2010. 

Gross profit in the first half came in at 

�€129m, compared to �€727m for the same 

period last year. The bank wrote down a 

further �€511m after taking �€1.3bn in writedowns 

last year. Net pre-tax profit shrank 

from €�871m to �€99m. 

Bank CEO Hans Berger said, “The crisis 

will last at least another 18 months, into 2010, 

but our operating strength will enable us to 

see this through.” The bank’s business mod- 

� Investment Advisory 

� Due Diligence 

� Technical Services 

� Valuation 

(Red Book/ BelWertV) 

“The independent 

Real Estate Advisors“ 

REAG in EUROPA 

Czech Republic, France, Germany, Great Britain, 

Greece, Italy, Poland, Portugal, Romania, Russia, 

Spain, Turkey

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

UPCOMING EVENTS 

EVENTS/ CONFERENCES 

Sept-Oct-November 2008 

September 15th-16th, Monday-Tuesday 

2008 GRI Europe, Paris 

The annual European gathering of the 

Global Real Estate Institute, with the tradi- 

tional GRI format. 

More at: www.globalrealestate.org 

September 17th-18th, Wednesday- 

Thursday 

Business Arena, Nordic Real Estate 

Investment Conference, Stockholm 

The 8th annual two-day conference, organ- 

ised by the trade magazine Fastighetsnytt 

and arranged together with leading compa- 

nies from the region, the event has become 

the number 1 congress for the region, and 

offers a comprehensive programme. 

More at: www.businessarena.eu 

September 21st23rd, Sunday-Tuesday 

CoreNet Global Summit, Berlin 

This year’s summit, taking place for the first 

time in Germany this year, will focus on the 

theme Productivity Puzzle - Redefining the 

Work Environment. Among those sched- 

uled to speak is the Mayor of Berlin, Klaus 

Wowereit.More info at: www.corenet- 

global.org 

September 24th, Wednesday 

ICSC Baltic States Retail Real Estate 

Conference, Vilnius, Lithuania 

The International Council of Shopping 

Centres’ Baltic State National Committee is 

holding its first conference, entitled Baltics 

Retail - What Comes Next? It focuses on 

local trends, retail regeneration, and retailer 

panel discussions. 

.More info at: www.icsc.org 

September 25th-26th, Thursday-Friday 

EPIC European Property Italian Confer- 

ence, Rome 

Dedicated to Italian real estate relationships 

with international finance, EPIC is billed as an 

open house where all stakeholders can share 

ideas, buildand strengthen their networks, 

expand knowledge and develop strategies for 

new business. 

More info at: www.epic.it 

October 6th-8th, Monday-Wednesday 

Expo Real 2008, Munich 

Along with the MIPIM in Cannes in March, the 

EXPO REAL in Munich is one of the two largest 

real estate trade fairs in the European calendar, 

and considered a must by 1,823 exhibitors 

from 43 countries in 2007, along with 23,800 

visitors from 77 countries 

More info at: www.exporeal.net 

October 13th-15th, Wednesday-Friday 

14th Annual CEREAN Conference, Istan- 

bul, Turkey. 

The annual conference for the umbrella organi- 

sation for the emerging eastern Europe real 

estate associations. 

More info at: www.cerean2008istanbul.com 

October 20th-2st, Monday-Tuesday 

IIA Initiative Immobilien Aktie, Frankfurt, 

Germany 

Under 8th annual event where over 30 listed 

German property companies the theme pres- 

ent their strategies and provide opportunities to 

meet top management. 

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

October 23rd, Thursday 

IEIF Colloquium, Paris 

Under the theme Global Storm - What does it 

mean for real estate? A French-language event 

by the IEIF Institute for Real Estate and Prop- 

erty Company Savings brings together over 

250 professionals in a twice-yearly symposium. 

More info at: www.ieif.org 

October 27th-29th, Monday-Wednesday 

European Alternative & Institutional In- 

vesting Summit, Monte Carlo, Monaco 

Opal Financial Group’s 8th annual Summit 

brings together instituional investment and 

private wealth managment professionals for 

discussion on investment challenges and 

opportunities in alternative investments. 

More info at: jrose(at)opalgroup.net 

November 6th-7th, Thursday-Friday 

Property Investment Prospects, Hä- 

meenlinna, Finland 

The forum gathers major Finnish and 

international real estate professionals and 

investors in the Russian, Baltic and Finnish 

markets. Key themes are business fore- 

sights and potential in Russia and Europe 

and the potential impact of climate change. 

More info at: www.propertyinvest.fi 

November 19th-21st, Wednesday- 

Thursday 

NAREIT Annual Convention, San Diego, 

California 

The largest event on the NAREIT calendar, 

this year widening its focus with more inter- 

national discussion panels, to include some 

on the emerging REIT markets in Europe 

More at: www.nareit.com 

November 20th-21st, Thursday-Friday 

European Mortgage Federation annual 

conference, Brussels 

The annual event brings together a wide 

range of participants in Europe’s hous- 

ing finance industry. Themes this year will 

centre on the EU White Paper focused on 

the credit crisis, access to funding, and 

sustainability 

More at: www.emfconference.org 

14

15 

....from page 11 

el, based around shipping, real estate and renewable 

energy was still sound, he said, “but 

profitability and efficiency have to be sustainably 

improved.” He announced cuts in the 

bank’s overseas offices 

and the sale of non-core 

shareholdings to reduce 

the bank’s cost levels by 

�€100m, and remain on 

target for its state goal of 

an after-tax IRR of more 

than 10% by 2010. 

The bank’s announcement has caused a 

political outcry in Hamburg and the northern 

state of Schleswig-Holstein, due to feared 

lower dividend payments to the state, while 

labour unions have accused the bank of mismanagement. 

CEO Berger said the bank 

was sticking to its full-year gross profit forecast 

of �€400m, and assured his opponents 

of maintained dividend payments. The bank 

said it still aimed for a stock exchange listing 

once the market turbulence had subsided. 

Separately, the bank said that it had arranged 

and underwritten a sterling £325 

million, 5-year facility for 

Big Yellow, the market 

leader for self-storage 

facilities in the UK. The 

financing will replace a 

similar facility provided 

by a syndicate of bank 

led by Royal Bank of Scotland. 

The facility will be secured by fixed charges 

over Big Yellow’s portfolio of complete 

and open self storage properties which are 

almost all owned freehold. These stores 

provide nearly 250,000 sq.m. of space 

available for rental. Big Yellow has been 

expanding rapidly in recent years, with its 

centrally-located stores throughout London 

and other larger cities. 

Networking with real estate professionals on 

www.ourbania.com 

Design the global real estate network: 

• Create an informative profile. 

• Link your profile to real estate projects that excite you. 

• Describe your projects and link them with photos and 

interesting articles from professional journals. 

• Discover your colleagues’ projects. 

• Cultivate your contacts and expand your business network. 

Benefit from the real estate community on 




Germany/Funds 

German open-ended funds 

see strong net inflow 

Investor capital flowing into Germany’s 

43 open-ended property funds showed 

a strong net inflow in July of �€1.2bn, up 

from �376m in June, according to the BVI, 

the association of German funds and asset 

managers. The funds have seen their 

volumes rise to over �€87bn by August from 

�€79.5bn at the beginning of the year. 

DekaBank property funds were the biggest 

beneficiary in the first half of the year, 

adding a net �€1.3bn, followed by Axa IM 

with a net �€797m and Union Investment 

with �€742m. 

According to IPD in Germany, the funds 

produced a yield of 5.3% in the first half of 

2008, with some of the better performers 

reaching 6%. A recent study based

....from page 13 

on recent funds inflows by Martin Praum 

and John Perry, two London analysts at 

Deutsche Bank, suggested that with leverage, 

the funds now have at least �€16bn extra 

to invest, not counting the proceeds of sales 

made since May 2006. 

The open-ended funds are aggressively 

looking to take advantage of falling markets 

and a strong euro by investing in the UK, 

US and elsewhere. With yields in parts of 

the UK having risen from 3.75% last year 

to up to 6.5% at the moment, investors like 

Deka Immobilien Investment are re-entering 

the UK market which they abandoned three 

years ago, most recently buying two London 

properties for €240m. Schroders recently 

set up a �600m fund for German institutional 

investors to buy shopping centres, office 

and logistic properties in the UK, and reports 

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global property industry. 

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New Munich Trade Fair Centre 

that they’re now buying properties at up to a 

40% discount on pre-crunch prices. 

The mood among Germany’s closedended 

funds is nowhere near as optimistic, 

according to Scope Analysts in Berlin 

in their twice-yearly study of fund initiators 

and brokers. Pessimism is at its highest 

for five years, they reported, particularly 

among their brokers. 16% of their brokers 

described the selling environment as poor, 

up from 7% over the same period last year. 

The percentage of fund initiators taking such 

a gloomy outlook rose from 2% to 13% in 

the period. Apart from the credit crunch, the 

main reasons given are the still high prices 

and a shortage of suitable properties, plus 

the high interest rates for more liquid capital 

investments. Their focus is now more on 

German properties. 

Germany/Financing 

Belgian bank KBC expands 

German financing business 

16 

KBC Bank Deutschland AG, the German 

branch of Belgian KBC Bank, is making 

steady steps as a niche commercial property 

financier in Germany after starting up 

in the market at the beginning of 2007. 

The bank has specialised in financing small 

and mid-sized companies expanding on 

the German market, taking the financing 

risk onto its own books. 

Since setting up in Germany, KBC has 

financed 42 projects with a total credit volume 

of �€440m. In the first half of this year it 

financed about �€200m of property deals, and 

plans to open a new office in northern Germany. 

Given the climate, the bank has set

17 

modest goals for its German operations, but 

nonetheless board director Michael Wolber 

said last week, “We’re very satisfied. Our 

strategy of both accompanying international 

clients to Germany and at the same time to 

be a partner for German property companies 

is certainly working out well.” 

Germany/Disposals 

Hypo Real Estate sells Collineo 

to Sal. Oppenheim 

As part of its drive to focus on its core financing 

activities, Munich-based property 

finance bank Hypo Real Estate last week 

sold its asset management subsidiary 

Collineo Asset Management to Luxembourg-based, 

family-owned bank group 

Sal. Oppenheim jr. & Cie, in a deal expected 

to be completed by the end of the 

year. 

Collineo, based in Dortmund, provides 

specialist finance for structured finance prod- 

GPR 250 Europe 

GPR 250 Germany 

Graph of Total Return Performance of Europe and Germany in �€� currency over the past twelve months 

REFIRE charts courtesy of GPR 

ucts and manages MBS, ABS and CDO 

portfolios worth several billion euros in Europe 

and the US, several of which have come 

under pressure as a result of sub-prime exposure. 

A spokesman for Sal. Oppenheim 

said that the portfolios were of mixed quality, 

but the good ones had considerable value 

and would be of interest as alternative investments 

for several of the bank’s clients. No 

price for the sale of the company to Sal. Oppenheim 

was available. 

Separately, Hypo also said last week that 

it had provided a �€264m term loan facility to 

ProLogis European Properties Fund II 

to refinance 34 distribution facilities throughout 

central Europe. The facilities have more 

than �700,000 sq.m let to global customers of 

Prologis, in Poland, Czech Republic, Slovakia 

and Hungary. Aareal Bank, Deutsche 

Postbank and Helaba Landesbank Hessen-Thüringen 

co-managed the deal. 

Meanwhile, Hypo just barely managed to 

avoid being ejected from membership of the 

DAX 30 leading industrials in the latest shuffle 

GRAPH-3 

Total Return Performance GPR 250 Index (�� 

Page 1 


last week. The bank, whose market capitalisation 

has halved since the beginning of the 

year, was on the verge of relegation but was 

saved when steel manufacturer Salzgitter’s 

share price also tumbled. 

Europe/Financing 

Helaba finances office deals 

for Luxembourg and Norwegian 

partners 

Frankfurt-based Helaba’s unit “Real 

Estate Financing International Investors” 

was active over the past few weeks 

on two sizeable deals for international investors. 

The bank said it was providing a loan 

of �€71.5m for the Luxembourg-based 

fund Alpina Real Estate to finance two 

office buildings in Hamburg. Alpina is investing 

about �€300m in property deals in 

Germany, Austria and Switzerland, mainly 

in high-quality office projects. The first 

Sep-07 Oct-07 Nov-07 Dec-07 Jan-08 Feb-08 Mar-08 Apr-08 May-08 Jun-08 Jul-08 Aug-08 

Source: Global Property Research, 2008 

150 

125 

100 

75 

50 

25 

0

property, the Hansa Forum in the city centre, 

is a mixed-use office and retail centre 

with 14,000 sq.m. of lettable space, while 

the second, the seven-story Hansa Carree, 

consists of six buildings and about 

2 0 , 0 0 0 

sq.m of 

office and 

1 , 3 0 0 

sq.m of 

retail space. 

Helaba also acted as lead arranger, 

agent and underwriter in financing five 

properties worth €�125m bought by Norwegian 

investment company Prime Office 

Germany. The financed properties 

are two yet-to-be-constructed buildings 

and three others in the portfolio, with 

about 36,000 sq.m of lettable space, with 

a 91% occupancy rate. The Norwegian 

group, set up by the investment companies 

Bjömstad Skjerven Agerup (BSA) 

and Orkla Finans Kapitalforvaltning, is 

focused on investing in German commercial 

property funds and private equity. 

GPR 250 Europe 

GPR 250 Germany 

REFIRE charts courtesy of GPR 

Germany/Acquisitions 

Carlyle Group buys prime 

Düsseldorf site for development 

Shrugging off the fears that have led many 

project developers to slow down on major 

new German commitments, the US private 

equity firm The Carlyle Group has 

bought a prime site in Düsseldorf which it 

plans to re-develop, in line with its strategy 

of buying prestigious single assets in 

established central business districts. 

It bought the site, at Cecilienallee 6-9, 

from DEKA Immobilienfonds, an openended 

fund owned by the Frankfurt-based 

DEKA Bank. No price for the deal was 

disclosed, although Nord/LB is providing 

the financing for the deal. 

Carlyle Europe Real Estate plans to 

demolish the existing property when tenancies 

expire in August 2009 and to then 

construct a new modern office building 

in its place with 14,000 sq.m of space. 

Commenting on the deal, Carlyle’s Ger- 

GRAPH-1 

Total Return Performance GPR 250 Index (�� 

Page 1 

18 

many managing director Wulf Meinel 

said that Düsseldorf appealed because of 

its economic strength and stability among 

Germany’s major centres. He added: 

“This investment is totally in line with our 

strategy of identifying attractive properties 

with significant upside potential from 

demolishing existing outdated buildings 

and developing modern, state-of-the-art 

premises in strong local markets.” 

Carlyle has three Europe Real Estate 

Partners funds now active in Europe. 

The funds have invested in office, retail, 

and logistic real estate portfolios with an 

area of about 600,000 m² in Germany, 

and include, amongst others, Gänsemarkt 

45, Freshfields-Haus and BrahmsQuartier 

in Hamburg, the Versatel building in Stuttgart 

and Lindenpark in Hannover. 

The third European real estate fund, 

Carlyle Europe Real Estate Partners 

III (CEREP III), was recently closed at �€2.2 

billion. With leverage, this should give 

Carlyle’s pan-European team of 46 people 

up to about �€9 billion to invest. The 

Sep-03 Mar-04 Sep-04 Mar-05 Sep-05 Mar-06 Sep-06 Mar-07 Sep-07 Mar-08 

Source: Global Property Research, 2008 

400 

350 

300 

250 

200 

150 

100 

50 

0

19 

Carlyle Group now manages �€3.4 billion 

of real estate in Europe, and along with 

several other major private equity groups 

such as Apollo Management and the 

Blackstone Group, has also been raising 

funds to increase its investment in distressed 

European assets. 

A thank you to our sponsors: 

Europe/Website 

Ourbania.com as networking 

site for the real estate industry 

We’re happy to give a little plug here to 

Ourbania.com, a networking website 

set up by mortgage finance provider Eu- 

GALABALL 

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Meet commuicators and decisionmakers 

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International top bands and show acts 

in the whole Kurhaus 

Promoters 

Architekten- und Stadtplanerkammer Hessen, Deutsche Immobilien-Akademie (DIA), gif Gesellschaft für 

immobilienwirtschaftliche Forschung e.V., IMMOEBS e.V., REFIRE Real Estate Finance Intelligence Report Europe 

Organisator: Strumpf Eventmanagement OHG - Friedrichstr. 10 - 65817 Eppstein / Germany - Galaball-Hotline: +49 (800) GALABALL 

Further information and tickets:www.galaball-immobilien.de 

rohypo, which will appeal in particular to 

younger members of the real estate profession 

worldwide, and particularly those 

who are used to networking on social 

interaction sites on the internet such as 

Facebook or XING. 

Ourbania’s target market is much nar- 

R E A G

ower than these well-established sites, although 

they work the same way. Developers, 

architects, investors, analysts, valuers, 

facility managers, brokers, engineers and 

planners will find it useful, we think – in fact, 

anybody contributing in some way to the life 

cycle of individual commercial buildings. The 

language of the website is English, in keeping 

with the international background of most of 

the site’s visitors. 

The website was launched at the MIPIM 

in March under the auspices of Germany’s 

federal Economics and Technology ministry 

in Berlin. The site revolves around individual 

Don’t move - or if you do, move east 

It’s a common complaint in Germany by landlords that the socalled 

‘Mietspiegel’ or maximum permissible residential rent fixed 

in a neighbourhood, discourages investment by keeping rents 

artificially low at landlords’ expense. New development, too, is 

said to be hindered by the low level of rents achievable. However, 

recent research shows that, at least for new tenancies, residential 

rents are rising strongly in Germany’s largest cities as investors 

and landlords find ways to raise rent levels. 

A recent study by Jones Lang LaSalle shows a widening 

discrepancy between the rents payable by new tenants (‘offered 

rents’) and those who don’t move, whose rents are protected by 

law, in Berlin, Düsseldorf, Frankfurt, Hamburg and Munich. The 

study delved into individual neighbourhoods within these cities to 

provide a more complete picture than other more general studies. 

The JLL study examined 130,000 in its City Profile from the 

first half of this year, and found that the ‘offered rents’ were diverging 

strongly from rents payable by sitting tenants. New tenants in 

the most desirable parts of Berlin, such as Prenzlauer Berg and 

Mitte, were paying nearly �8.00 per sq.m for a renovated apartment 

in an older building, nearly 50% more than indicated by the 

‘Mietspiegel’ for the neighbourhoods. 

According to Stefan Mergen, responsible for residential valuations 

at JLL, “This trend is going to continue, and will be probably 

even more extreme than expected. It just shows that the 

‘Mietspiegel’ is being completely ignored, in favour of what the 

market will bear. We’re seeing the same thing in Hamburg and 

the other larger cities.” 

The research institute Empirica, which carries out its own 

studies on rental levels, confirmed JLL’s findings of generally rising 

rents nationwide. It found that in 70% of 118 German cities the 

‘offered rents’ have been rising steadily since the last quarter of 

commercial property projects, with users who 

played a role in the property’s development 

cleverly linked up, able to send secure messages 

to each other, and discuss new projects. 

Over 500 property projects worldwide 

are currently featured on the site. Registration 

is free. You can join the community at www. 

ourbania.com 


SEB plans change to structure 

of German unit 

Swedish bank SEB said last week it was chang- 

2005. In Neubrandenburg, for example, it found that the average 

rent had risen by 26% within the ten quarters, from �4.27 to �5.36 per 

sq.m/month. The ‘Mietspiegel’ certainly wouldn’t permit that. 

Meanwhile, a company called F&B Forschung und Beratung 

für Wohnen, Immobilien und Umwelt GmbH has just produced 

the “Mietspiegelindex 2008”, a comprehensive guide for all the recommended 

official rent levels throughout Germany. The researchers 

examined rent levels for a 65 sq.m apartment, built to normal or 

average specifications in a normal or average area. While the average 

rent comes to �5.91 per sq.m/month, there are wide regional 

variations. 

In the northern part of Germany, most rents correspond to the 

average. But in the south, in the states of Baden Württemberg 

and Bavaria, and in the middle (Hesse and Rhineland-Palatinate) 

the average rents are �7.21 and �6.32 respectively (per sq.m/month), 

tenants pay considerably more. North Rhine-Westphalia is slightly 

below average, while in the eastern states, including Berlin, rents are 

well below average. 

The average rent in Munich at �9.81 is 66% above the national 

average, and is the highest in the country. Even towns well outside 

the centre of Munich rank among the highest in the country, with 

the towns of Germering and Dachau ranked two and three on the 

national list. 

Berlin is the place to live cheaply, with apartments in the western 

part of the city 3% below the national average, and east Berlin 10% 

below the mean. Renting in Munich is thus fully 70% more expensive 

for its inhabitants than living in the nation’s capital – where else 

do you find this? To really save money, live in an eastern German 

city, none of which feature in the top 30 most expensive places to 

rent. Then rent a newly-built apartment, which in contrast to the 

west will cost less than a renovated older building. With all these 

savings you can buy an excellent computer, and plenty of broadband 

capacity. And then become a telecommuter… 

20 

ing its structure to separate its retail banking 

business from merchant banking and real estate 

operations in Germany. 

The market has recently speculated that 

SEB might hive off its German retail banking division, 

acquired some years ago from Germany’s 

labour union bank BfG. SEB did not mention a 

possible sale, but did say that it wanted to take 

advantage of the merger and acquisition landscape 

in Germany. In a statement, the bank 

said, “The organisational change is of internal 

character solely and will have no implications on 

daily operations. SEB Asset Management is not 

part of the organisational change process.”

21 

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Peter Kasch, CATALYST CAPITAL LLP (London) 

Geza Toth-Feher, CB EQUITY PARTNERS GMBH 

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Mark Battistoni, CHATHAM FINANCIAL EUROPE LTD 

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David Rendall, CUSHMAN & WAKEFIELD INVESTORS 

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Karim Merchant, GID INVESTMENT ADVISERS LLC 

Frank Croston, HAMILTON HOTEL PARTNERS LLP 

Scott O’Donnell, HARBERT MANAGEMENT CORP., EUROPE 

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For The Most Current Information Please Visit: www.imn.org/ukop/refirem 

Tel: 1-212-768-2800 | Fax: 1-212-768-2484 | Email: mail@imn.org 


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Real Estate Finance Intelligence Report 

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