Real I.S. filling euro pipeline, pivots to higher yielding Australia
Munich bank BayernLB's real estate subsidiary Real I.S. has been cranking up a more active presence on international markets for its institutional investors – and re-aligning its strategy in light of more restrictive regulations for fund managers.
Celebrating its 25th anniversary this year, board member Jochen Schenk outlined the company's new strategic orientation at a recent press briefing in Frankfurt, foremost among which is an investment target for this year of €1bn.
Real I.S. is now almost exclusively targeting institutionals for its new business, since the introduction of new regulations making it unattractive to intitiate public funds. As recently as 2011, two-thirds of the group's investors were private individuals, and this base has now practically disappeared.
After three years Real I.S. has now raised the planned €600m in equity capital for its targeted €1bn Spezialfonds BGV VI, of which €400m is already invested. A further €160m is in the pipeline and close to being called.
The BGV VI fund focuses on core/core plus investments in Germany, France and the Benelux countries, and mainly invests in office and retail properties - but also considers logistics assets and budget hotels. Its existing assets include the Mosse-Zentrum in Berlin and the Arena Arcaden in Amsterdam. Investors include German savings banks and pension funds, as well as co-operative banks.
The successor fund, BGV VII, has just been launched, and has just bought its first asset – the Black Pearl office building in Brussels, fully-let long-term to the European Union. Like its predecessor, the BGV VII fund is targeting a volume of €1bn, mainly in Germany and France (but with some allotment for Benelux, Ireland and Spain). However, in contrast to the earlier fund, which offered returns of 4.75% to 5%, the target yield on the new ten-year fund is now only 3.5% to 4%.
With such low yields on offer, Real I.S. is going on the offensive with more interesting vehicles to lure its yield-hungry investor base of institutionals. Among Real I.S.'s active new funds is a fund targeting Australian cities. It said the new fund provided an alternative to the shrinking returns available in Europe and the US, and the classical core/core-plus property approach, especially in Germany. Yields of 5% to 6% before hedging costs are still available there, said Schenk.
“There are many good arguments in favour of setting up an institutional property portfolio fund in Australia, including investing removed from Brexit uncertainties. It is time to chart new courses, and, for institutional investors as well, the right moment has come to take that step towards Australia”, said Schenk.
The Australian fund will focus on Sydney, Brisbane and Melbourne and invest in retail, logistics and office. Real I.S. already has nine assets under management in four Australian cities, making its first investments Down Under in 2005 through a series of closed-end funds, and opening an office there in 2012.