1. THE PIE COVER INTERVIEWS
PIE: Which European markets are of in-
terest for institutional residential in-
vestment?
FB: After some discussions with some Ca-
nadian institutional investors, we believe
Germany is one important target because
of its liquidity. As we know, institutional in-
vestors look for an exit even while they in-
vest. Germany offers this, albeit in a few
cities only. London as well is a target of
such investors we believe.
PIE: Why is Europe so different from US
large-scale housing investment?
FB: US real estate is structured differently
on the ground level. There, large profes-
sional groups treat residential units just as,
for example, the hotel industry sees its
business. Leasing is done in a very profes-
sional fashion, with rentals adjusted monthly. Most big resi-
dential complexes have in-house leasing and management
that ensure optimal maintenance and leasing. This is not the
norm in Europe, as properties are managed and leased at a
distance, from more centralised offices. These differences
stem from different habits and are hard to change. As for
ownership, in the USA, most insurance and pension groups
are big investors in residential. This is done direct, indirect in-
vestment in funds, private and public REITS. Things are slowly
evolving in Germany but the biggest boost to housing invest-
ment would be residential REITS.
PIE: Would an active institutional residential sector be
beneficial for tenants?
FB: Investors, institutional or other, are in it for the returns and
the long run. Such real estate tends to be more professionally
managed and aimed at value creation. Therefore these prop-
erties would see higher increases in rents but in the long run
the impact for cities and tenants is positive as these proper-
ties tend to remain in much better shape.
PIE: What is the risk-return in European housing? What
yields can be expected?
FB: Depending on the location of such housing, cap rates can
go from 4% to 7% or 8%. The higher the cap rate, the riskier
the asset, the more intensive is the management required. It
all depends on the required return for each investor and its
tolerance to risk.
PIE: Is housing regulation the main/only hindrance to
more institutional investment?
FB: Every market in Europe has different regulations, and in-
vestors find their way to residential assets despite this diversity
so I do not believe that regulation is a hinderance. On the
other hand, there is an argument to be made for deregulation.
I have seen some cities totally exempt from regulation, and in
which case there is a fair portion of mid to low-end stock. In
such cases, the market regulates itself quite well. If landlords
increase rents too much, tenants move out and find plentiful
vacant apartments. Excessive regulation tends to push inves-
tors to under-invest and in the long run, this creates pockets of
low-quality housing that benefit neither tenants nor cities.
PIE: If Germany is most attractive for residential, what
other Europeans are interesting?
FB: Germany is the most liquid and most tenant oriented lo-
cation, and thus most interesting for now. But institutions
should also research London, Paris and Lyon, in my view.
PIE: Residential supply is tight across Europe. When will
prices truly respond?
FB: Prices have already responded already. In Paris, London
and Berlin as well, there have been huge rent increased in the
last four years, achieving perhaps 40% to 50%.
PIE: Is the choice of a good asset manager key to foreign
residential market entry?
FB: Real estate is and has always been a local activity. Real
estate eats morning, midday and night time. Without proper
supervision it cannot yield proper results to investors. Having
an integrated asset manager is therefore key to the success of
the business plan. The AM must have excellent knowledge of
property management, construction oversight, local market
knowledge - to know local leasing and population trends in
every market - investment trend knowledge, contacts with
brokerage and investor communities, and good knowledge
of financing and local and country specific tax conditions.
Without such, the chances of the assets delivering the fore-
cast yields are tremendously diminished. pie
16 PROPERTY INVESTOR EUROPE l Edition 296 l April 2013 l www.pie-mag.com
European residential opportunities in
Germany – and London, Paris and Lyon
Germanresidentialpropertyremainsmuchindemandbydomesticandcross-borderinstitu-
tionalinvestors.PIEaskedFrancoisBourbonnais,MDofCenturiaRealEstateAMInternational,
howheseesthesectordeveloping,andifheseesotheropportunitiesinEurope.
Francois Bourbonnais:“Real
estate is and has always been a
local activity.”