The Berlin-based real estate fund manager Activum SG Capital Management said it plans to launch a third fund this summer to capitalise on the demand for re-financing of German property assets, after seeing strong support for its two previous vehicles.
Speaking with trade publication Investment Europe recently, Activum’s CEO Saul Goldstein, who set up Activum in 2007 after a previous stint running the European real estate team at private equity group Cerberus in New York, said the biggest opportunity in European real estate at the moment is in re-financing, rather than in the leverage-driven deals of previous business cycles.
“This year we are seeing the remaining overhang of debt, and a lending gap. A lot of assets need to be refinanced,” said Goldstein. “Leverage levels are coming down, and filling that gap - via re-capitalisation and re financing -- is where the best opportunities are… We try to get access to the asset to re-capitalise the structure and add value. In the past you would buy a single asset and add value by better management, now you need to be more flexible in how you play the value component.” He added that there are a lot of potentially distressed opportunities in the sector, but “it is still hard to shake them free”.
On the prospects of the much-awaited wave of distressed loans hitting the market, Goldstein said, “With the European Central Bank basically lending to the banks at zero, they can hold out and don't yet need to shift non-performing loans. There has been disintermediation among thousands of investors and where there used to be bi-lateral loans, financing is now far more complex.” He believes that the opportunities will not start to emerge until the macro-economic backdrop improves a little. "While things are so tight, nothing is moving. The banks cannot afford to sell at a big loss, so they hold out."
The company’s two existing portfolio funds each hold six real estate assets located in large German cities, and the new third fund will continue to focus on distressed and value-added situations, single assets and smaller portfolio acquisitions in the German commercial and residential sectors. Transactions range from €5m to €100m per investment.
The first Activum fund, launched in 2008, is currently being liquidated with the assets being sold off, and the second fund, which started buying in 2011, will make its first disposals later this year. The funds are Jersey-based, closed end private partnerships, with investors committing to an agreed sum which is drawn down over the life of the fund. More than half the funds’ investors are US-based, mainly foundations, endowments, fund of funds and family offices, with the typical stake in a fund being €3m-€5m.
Goldstein highlighted what he called fresh demand for funds such as Activum’s deriving from investors “return to simplicity” of plain-vanilla assets which they understand, “rather than assets involving financial engineering and complex modelling. Many have been burned by getting into areas and instruments they didn’t understand.” Germany is not the only European country with real estate opportunities, he said, but its safe haven status and Activum’s high level of equity involvement with little leverage, particularly in office leasing, meant Germany still offered good mileage.