Internos sees Germany as key to resurgence in funds sector
Our most recent issue of REFIRE included notes on a meeting we had recently held with Paul Muno, head of Internos’s operations in Germany. The thrust of that conversation had to do with Internos’s own drive to reach the kind of critical mass in Europe that would make it a serious partner for Asian and other sovereign wealth funds – specifically, to increase assets under management from their current €4.1bn to €5bn by the end of next year.
The latest issue of Internos’s in-house publication The Decisive Eye highlights what the company sees as a “complicity of positive trends which have transformed prospects for real estate funds in Europe.” The content, penned by Internos’s CEO Andrew Thornton, emphasises the new approach that several American, Asian and even Australian institutional investors are taking to what they see as first-class opportunities in Europe - albeit arising from the beaten-down nature of European markets against a background of bank unbundling. In particular, he points out how “intelligent but still cautious” investors are focusing on secondary real estate away from glamorous centres towards higher yielding areas of the UK, France and particularly Germany.
Germany, says Thornton, will play a fundamental role in the resurgence of European real estate funds. Here we quote directly from the Internos document, which looks at Germany as both an investee and an investor nation:
“Europe's dominant economy has not pulled a fair share of cross-border capital. The reasons for this are clear: Germany has a dispersed economy with no dominant metropolis. Strategic asset management scarcely exists at the managing agent level unlike, say, in the UK. The outside investor has to pick a city, grasp the heft of local businesses(the much lauded Mittelstand) as well as national or global entities and get more involved in driving continuous asset improvement then in the UK. This is not a simple endeavour and it takes German feet on German ground to master the complexity. This is particularly so because, for those sensibly seeking German assets to balance a portfolio, the prime office scene in the top six cities is crowded out by home-grown capital. Opportunity for the foreign investor lies, for example, in regional retail or specialist real estate. Here lies the appeal of a fund manager with the German asset team able to operate ‘close to the dirt’”
Thornton refers to the recent German penchant for institutions to favour indirect investment in real estate via funds rather than investing directly (up from 46% to 60% recently). He says “Diversification from the retrenchment scenario of 2008 is the name of the game and, though some of the diversity cash will head away from Europe, fund managers are increasingly helping German institutions elsewhere in Europe or to establish footholds in ‘alternative’ real estate both within and outside Germany. None of this is surprising given the grim yields available for more liquid investments made within German borders, for sovereign bonds especially.”
The Internos view is clearly not an outlier – there have been a number of major fund closings over this last quarter all targeting European opportunities. Orion Capital Managers recently announced the closing of its latest vehicle at €1.3bn, with a mandate to “invest in the full spectrum of real estate assets, loans, portfolios or real estate companies across Europe.
Just this week Tristan Capital Partners said it is finalising its fund raising for its European Property Investors Special Opportunities III Fund, which could hit €950m. The fund is set to target “value-add investments and distress opportunities arising from the shortage of debt and equity capital.”