Union Investment raises €620m for Germany’s biggest-ever resi fund

Hamburg-based fund manager Union Investment has raised €620m in its first subscription phase for Germany’s biggest-ever open-ended real estate fund, suggesting that the fund is poised for further growth.

The fund, UniImmo: Wohnen ZBI, marks the German fund manager’s first residential fund, for which it has joined forces with housing specialist ZBI Zentral Boden Immobilien.

ZBI has already secured €460m in assets, more than half of which have been transferred to the fund. Union Investment said the remaining sub-portfolios would be transferred by the end of September. The fund already holds a portfolio of 260 properties totalling 2,500 units, which is valued at €132m. The properties are largely located in cities such as Düsseldorf and Gelsenkirchen. In addition, almost three-quarters of another portfolio with a pro-rata value of about €113m has been transferred to the fund. The portfolio is mainly located in North Rhine-Westphalia, primarily in the cities of Bochum, Essen, Duisburg and Düsseldorf.

‘We are delighted to have got off to such a good start, both on the marketing side and with regard to acquisitions,’ said Dr. Reinhard Kutscher, chairman of the management board of Union Investment Real Estate. ‘With its initial portfolio, the fund is very well positioned to leverage opportunities in the German residential real estate markets.’

The fund focuses on properties that offer 'affordable living space for the wider population’, with medium to high amenity value, according to Union Investment. Geographically, the fund is open to investment opportunities throughout Germany. Unilmmo: Wohnen ZBI will mainly invest in portfolios with recognisable potential for value growth. Mid-market development projects and existing properties requiring refurbishment will also be considered.

Union Investment invested €262m in its home market in the first eight months of the year, down from €347m in the same period last year, a company spokesman told REFIRE. It has been a busy year for the group and not just in its home market. Earlier this month, it acquired a micro apartment complex in Graz, Austria, for its Urban Living Nr. 1 fund for an undisclosed sum. The complex comprises 378 units and is let on a long-term lease to student housing provider Milestone. The apartments are typically between 20 sqm and 28 sqm and the eight-storey complex offers communal areas, including study areas and a gym.

‘Graz is one of the fastest growing conurbations in Austria and a university city with long-term demand for stylish, high-spec apartments with additional services,’ said Alejandro Obermeyer, head of investment management DACH region at Union Investment Real Estate. ‘It’s not just the high level of construction quality and excellent location in the Lend district close to the city centre, plus the dynamic growth of Graz, that make this first investment for our new fund so compelling. A long-term lease and the complex’s fully-let status, combined with continuing high demand, are also key advantages,’ he added.

The city has a student population of over 60,000, but there are currently less than 6,000 places available in student hostels. Graz is Austria’s second largest city, with 280,000 inhabitants, and also has the country’s second biggest concentration of science and research facilities after Vienna.

Urban Living Nr. 1 is an open-ended special AIF which is targeted at institutional investors. It has a target size of €500m and is expected to run for at least 15 years, according to a company spokesman. The fund focuses on micro apartment complexes which appeal to young professionals, students and one-person households. The fund will primarily invest in dynamic German cities and metropolitan areas, although it can also invest in other core European markets.

The German fund manager has been equally active on the retail front: in May, it acquired the 43,500 sqm Mercado shopping centre in Nuremberg for its open-ended real estate fund Unilmmo: Europa for an undisclosed sum. Mercado was the last of three shopping centres from the Melody portfolio that Union Investment agreed to acquire in December last year. Until May this year, all three properties were held by CS EUROREAL. Henrike Waldburg, head of retail investment management at Union Investment described Mercado as ‘very well positioned... to meet the daily needs of people living in the local catchment area’.

Union’s investment drive is in line with other investors who remain bullish on Europe. According to the group’s latest investment study, more than three quarters of real estate investors in Europe expect the current market cycle to continue to at least 2019. Around 75% of the 168 commercial real estate investors in Germany, France and the UK between May and July did not expect the market to peak before 2019. Of those investors, 43% expected the peak to come even later, according to Union Investment.

Interesting, despite lower returns in the marketplace today, 71% of respondents in Germany and 74% of those in the UK have not adjusted their risk profile to chase higher real estate returns but, rather, are willing to accept lower returns in favour of low risk assets, percentages that have increased by 15% and 14% respectively since the last survey was carried out six months ago. However, over in France, 41% of investors said they were willing to take on more risk to achieve the same returns as before.

Other investors are also buying into the student housing trend, according to the survey, as traditional investment opportunities become thinner on the ground. ‘In recent months, high prices for office and retail real estate in the core markets have sparked the creativity of professional investors and caused them to take a broader view of the property market,’ said Olaf Janßen, head of real estate research at Union Investment Real Estate in Hamburg.

Overall, alternative assets are gaining a lot of ground, with 83% of respondents targeting logistics and 61% of investors eyeing hotel and residential assets. Moreover, 50% of German investors said they intend to focus more on these asset types going forward. A quarter of French respondents, 29% of German investors and 67% of their UK counterparts with an alternative investment strategy are looking to acquire micro housing, which includes student housing in the survey.