1. 68 PROPERTY INVESTOR EUROPE l Edition 274 l October 2012 l www.pie-mag.com
GERMAN RESIDENTIAL PROPERTY BREAKFAST
Germanhousingissafe
Eurozonebetamidtroubles
Interest in German residential real estate is set to con-
tinue, with the country and the asset class seen as a
safe haven amid Eurozone trouble and even as a
hedge against a possible currency breakup, PIE’s Ger-
man Residential Property Breakfast heard.
GSW’s Andreas Segal said that his company’s in-
ternational shareholders – including the government
of Singapore, UK- and US-based long-term investors
and pension funds – see the asset class as a defensive
play, with some not believing in the survival of the
Eurozone. “We see a lot of capital inflow from mac-
ro-economic players into the German listed and non-
listed sector,” Segal said. Insecurity among interna-
tional investors, especially the Asians, certainly
abounds, confirmed Dolphin Capital’s Charles
Smethurst. “That is why many are attracted to short-
term investments.”
“Future growth may not be very strong but at this
time, investors are mainly looking at preservation of
capital and stable cash-flows,” said Francois Bour-
bonnais from Centuria, which has most clients from
the Middle East. Added Catella’s Klaus Franken: “In-
vestors are indeed focusing on secure assets, not on
high yield. It is also easy to find financing for the seg-
ment, mainly due to the extreme multi-tenant struc-
ture as compared to commercial real estate.” Corpus
Sireo’s Douglas Edwards also sees demand continu-
ing: “Fundamentally, German residential has all the
right characteristics of a core asset class.” The market
is liquid, accessible and run professionally, and inves-
tors can place significant volumes, making for the
right fit for international investors. pie
Distressed housing seen
difficult to source
Many opportunistic investors are looking to source
distressed German housing from banks – an under-
taking that has become increasingly difficult, most of
the panel agreed. The continuing growth prospects
have made many lenders reluctant to sell as yet.
“Those holding distressed assets have developed a
lot of patience as the multi-family housing market is
set for growth,” said Bourbonnais. Banks have recap-
italised to some extent so that many can now wait for
an even better opportunity to sell. Edwards noted
German residential seen‘safe as houses’
as investors seek stability over yield
P
ie’s German Residential Property Breakfast in Berlin in September
brought together five experts to discuss: What is the outlook for Ger-
man residential property and the best investment channel? Staged in
the offices of listed housing company GSW, the PIE Breakfast welcomed (left
to right): Francois Bourbonnais, Director, Centuria Real Estate Management
International, Luxembourg; Douglas Edwards, Managing Director, Corpus
Sireo, Luxembourg; Klaus Franken, Chief Executive Officer, Catella Property,
Frankfurt; Andreas Segal, Board Member and Chief Financial Officer, GSW Im-
mobilien, Berlin; and Charles Smethurst, Chief Executive Officer, Dolphin
Capital, Hanover.

2. PROPERTY INVESTOR EUROPE l Edition 274 l October 2012 l www.pie-mag.com 69
GERMAN RESIDENTIAL PROPERTY BREAKFAST
that the lack of overall residential supply is not as dire
as propagated. “It all comes down to access. We see a
lot of portfolios, ranging between €50m-€200m, at
least twice, three times a week,” he said, as many
companies are repositioning their portfolios. He sees
a further opportunity in forward-purchase develop-
ments as they are difficult to finance through banks.
There are also opportunities in niche residential
markets. Hanover-based Dolphin Capital, for exam-
ple, buys historically listed derelict assets throughout
the country, funded by international investors rang-
ing from family offices to pension funds, then refur-
bishes the building and sells it to German investors.
“It is one of the few remaining short-term investment
opportunities,” said Smethurst. The holding period
for the international investors ranges between one
and three years and they put up a maximum of 20%
of an asset’s end-value. The German end-buyer is
then mainly concerned with tax efficiency rather
than with yield. pie
Hope for alternative
lenders as banks retreat
Bank real estate financing has contracted over the last
few years, with several lenders out of the picture and
existing ones mostly focused on core investments, the
panel agreed. The emergence of alternative financing
sources may help fill the gap.
Development projects are seen as risky investments
per se, as long as they are not pre-let or sold and fi-
nancing outside of the larger cities is all but impos-
sible, said Smethurst. That is why Dolphin Capital
has been looking to source from private equity part-
ners at an early stage. “The German private equity
market is far less developed than that in the UK, for
example,” said Smethurst. He foresees a change in the
capital markets, with more non-bank financing avail-
able soon. Several real estate loan funds have already
been issued, driven by institutional investors who
want to place money in a secure but higher yielding
vehicle. Added Bourbonnais: “In Canada, a lot of
real estate finance is traditionally done by insurers,
while the trend is relatively new in Germany. I think
it will last.”
Segal sees a possibility for a credit crunch, with less
lenders, smaller volumes, increasing margins, stricter
regulation and the upcoming CMBS refinancings in
addition to the usual maturities. “I see a huge financ-
ing tsunami coming our way,” he told the Breakfast.
He hopes for insurers to step in in the residential sec-
tor, but isn’t sure if lending will become a long-term
business model for these institutions. “We definitely
need a broader range in financing tools,” he added.
Edwards noted that the German savings and co-
operative banks are still very open for residential
business on a local level. “You can very comfortably
get 70% LTV on a project with the local bank,” said
Edwards. Nevertheless, big ticket deals will run into
difficulty, he agreed. Franken agreed that access to
Centuria’s Francois Bourbon-
nais makes a key point (top
left), much to the amuse-
ment of Corpus Sireo’s Doug-
las Edwards. Catella Ger-
many’s Klaus Franken
addresses the prospects for
German residential property
(top right) to a packed Berlin
audience (above).

3. 70 PROPERTY INVESTOR EUROPE l Edition 274 l October 2012 l www.pie-mag.com
GERMAN RESIDENTIAL PROPERTY BREAKFAST
local banks is important and added that financing is
usually available but investors have to be well-pre-
pared for the negotiations these days. pie
Berlin-focus fraught with
opportunities and risks
German housing investors have a lot of cities to
choose from as the country has many strong region-
al centres, and most investors see Berlin still far un-
dervalued, giving best potential. But other strong
markets should not be underestimated, the panel
heard.
“You’ve got 3.5m people in Berlin and 84m people
in Germany - I think there is a market outside the
capital,” said Edwards. Corpus Sireo is looking at all
core metropolitan areas, including some in the East.
Smethurst named Potsdam, Berlin, Leipzig and
Dresden as eastern target cities for his company and
believes that investments in the city are far more se-
cure than in the countryside. Added Edwards: “With
the right local asset management partner, I am just as
comfortable buying in Stuttgart, Hanover, Nurem-
berg or Freiburg; but I would never concentrate on
just one city as the political risk involved is very
high.” Franken said he also likes to look at smaller
cities. “If you have the best property in town you are
virtually safe from competition there,” he said.
Bourbonnais is mainly looking at Berlin has it has
seen a steady inflow of new inhabitants over the past
years, pushing occupancy rates to great heights and
tenants into the city’s outskirt. “We had a major
project in Hellersdorf which was 25% vacant and
now stands at 3%,” he said, not just the result of
good management. He believes in further population
growth for the next 10 years as young and creative
people join the inflow to work or study in the city.
“Berlin is a vibrant city with lots of artists, tech com-
panies and good universities that all contribute to its
pull,” he added.
Berlin’s house prices and rents remained virtually
flat since the Reunification and only started to pick
up a few years ago as the city’s population grew. “All
the underlying fundamental market drivers are point-
ing to further growth in Berlin,” Segal told the panel.
Yet talk of a house price bubble in Berlin persists. “It
is right and wrong at the same time,” said Franken.
“Existing buildings certainly have potential for rental
growth but we see a hype for new condominiums.”
He said Catella recently sold a plot for double the
price expected. pie
Germans unlikely to be-
come homeowners
Despite rising housing demand in Germany in the
last two years or so, it is unlikely to emulate Europe-
an partners and become a nation of home-owners,
PIE’s German Residential Property Breakfast heard.
As well, one hindrance to an increase in supply, par-
ticularly in Berlin, is the fact that rents are too low to
stimulate construction.
Panellists were sceptical over a recent report by
LBS, part of the savings bank system and the nation’s
largest mortgage lender, that German home-owner-
ship has risen 10pts to 53% from its steady level of
recent years. “I cannot see it; this is simply not in the
cultural mentality of the people,” said Edwards,
though he added that the quantitative easing by the
European Central Bank has increased fears of future
inflation, and sparked a popular run into real assets.
“I believe the homeownership rate now has reached a
balance,” he said. Smethurst agreed the rate will not
rise much further as families need a double income to
afford upkeep of a house. “Many shy away to commit
to a long-term loan for fear of the future,” he said.
Segal noted that an increased demand for home-
ownership is helpful to the firm’s business model,
pushing up sales prices from its portfolio. With the
lowest homeownership rate in the country, Berlin, Eu-
rope’s largest tenant market, has growth potential. “We
have a steady inflow of new inhabitants with a differ-
ent mind-set,” he added. Segal also noted that con-
struction cost in the Berlin region, at €1,500 to €2,000
per sq.m., cannot support supply that depends on
buy-to-let. Even if market rents are rising, they are still
just €5-€6 per sq.m. “This is simply too low to support
development at the moment,” he said. Developments
in the city are focused on the luxury segment, and
some in the subsidised sector. “The mid-price range is
far underrepresented,” said Franken. pie
Andreas Segal, board member
of GSW (top left), is clear that
listed firms with exposure in
the German capital have an
advantage, responding to
audience members’(centre)
probing questions. Dolphin
Capital’s Charles Smethurst
(above) outlines his business
model based around renova-
tion of listed buildings in Ger-
many and Europe.