Empira launches new fund, study on impact of building land prices

The Swiss-based Empira Group, an institutional investment manager in German-speaking Europe, is planning to raise €150m for its Empira Real Estate Finance Fund IV, the company’s fourth debt fund.

'The new fund offers an innovative joint-venture approach,' said Lahcen Knapp, Empira's CEO. 'The product combines mezzanine capital with relatively low current interest rates and a share in the financed property. The fund’s first loan has already been granted.'

The new product issues subordinated mezzanine loans and is targeted at developers in Germany, Austria, Switzerland and the Benelux region that are looking to purchase land or properties to develop residential or commercial projects.

According to Empira, the fund seeks to acquire a 50% share in financed developments with a minimum total investment volume of €150m.

'Institutional investors benefit from the current interest rate and at the same time can participate in the value creation,' added Knapp. 'Developers, in return, receive attractive mezzanine capital and thus an alternative to conventional bank financings.'

Empira, headquartered in Zug, manages assets of about €1.7bn in German-speaking Europe. It specializes in high-yield investment approaches, focused on project development and land-banking. In debt funds, it offers both mezzanine and whole loan products. It maintains offices in Zug, Luxembourg, Frankfurt, Munich and Leipzig.

In a recent study, its active research department recently analysed the development of construction land prices in the 71 biggest German cities, those with a population of more than 100,000 inhabitants. Over a 20-year period, the report tracks changes in the cost of building land and identifies the most attractive clusters for investor by region, purchasing power and number of residents.

The study, authored by Empira’s head of research Professor Dr. Steffen Metzner, finds an increasing divergence in construction land prices between locations and clusters. Overall, construction land was the biggest cost driver in German real estate, ahead of construction costs.

Since 2000 the cost of building land has risen by 130% making it the biggest cost driver, ahead of the likewise surging ancillary, material and labour costs.

Prof. Metzner said, “Prices for building land have completely broken free of general cost-of-living prices particularly since 2010. Against this dynamic background, we want to give institutional investors and developers the right tools to make qualified investment decisions.”

Since 2000 and 2017 the price per sqm in Germany rose on average by €99.00, from €76.00 to €175.00 per sqm. In particular since 2011 the rise has been steadily very high.

Of the big cities, Munich at €2,400 per sqm is the most expensive, while in terms of growth over the nearly 20-year period, Düsseldorf has seen the highest growth rate at 450%.

Building land in Chemnitz is the lowest, at €70.00 per sqm, while Chemnitz at minus 27.9% has been the slowest performer along with Mönchengladbach (-29.6%).

According to CEO Lahcen Knapp, “Our study clearly shows the dynamic development of building land prices and their significance for both institutional investors in existing assets as well as project developers. We’re not expecting a weakening of price pressure for building land anytime soon particularly in the main conurbations, and can therefore only recommend to institutional investors to get in early on the value-added chain. Investment managers who have their own in-house project development or land-bank capacities will have a decided advantage.”