Pension fund BVK targets higher real estate allocation in 2016

The Munich-based pension fund Bayerische Versorgungskammer (BVK), which is among the biggest German investors in global real estate, struck a cautious note at the recent MIPIM, suggesting that markets must be close to their cyclical peak. Nonetheless, given the lack of viable alternatives, the group is committed to raising its allocation to the sector this year.

According to Rainer Komenda, the head of real estate funds at BVK, “We think that markets are peaking at the moment, and we're not sure future performance will be as good as it has been.” Despite that, BVK intends to raise its allocation to real estate from its current 14% to up to 16% this year, he said.

With overall assets under management of €75bn, this would suggest extra investment of up to €1.5bn by BVK. "We are cautious in the short term, but for the long term we see a continued low interest rate environment. We are heavily invested in alternatives and real estate is a big part of that", said Komenda.

Komenda was speaking at INREV's annual seminar at the MIPIM in Cannes last month, at which the European non-listed real estate association presented its latest global capital raising survey (see elsewhere in this issue). That survey shows that a new record of €124bn of fresh capital was raised worldwide in 2015 for non-listed real estate.

BVK manages the portfolios of 12 occupational pension funds in southern Germany, covering pensions for more than 2 million doctors, pharmacists, engineers, lawyers, musicians, civil servants, and other white-collar workers. It now invests across the world through global mandates with CBRE Global Investors, LaSalle Investment Management and UBS Global Asset Management.

Norman Fackelmann, BVK's head of real estate investment, said recently that it intends to add three further mandates for the US or the Americas to its portfolio this year. Specialised mandates were given last year to Alpha Investment Partners, CBRE Global Investors and Arch Capital for the Asian region, with Hines hunting for suitable European retail assets. CapMan and Patrizia Immobilien have mandates for residential investment in the Nordic countries.

BVK currently has about €4bn invested in German real estate and a further €7bn outside the country. Typical investments are in funds for niche sectors with investments of under €500m. It does do direct lending through real estate debt funds in Germany, but has less than €500 in mezzanine debt funds.

US investor group Hines, which last year won a €1.3bn mandate from BVK to invest in core-plus and value-add properties, last month bought a seven-storey retail and office building in Milan for BVK for €55m. The 6,000sqm building, near Milan’s Castello Sforzesco in the fashion district, is almost fully let, and will be redeveloped to create a flagship high street stroe with office space. The deal follows a similar high-profile acquisition of a 5,100 sqm building for BVK on Oslo's premier shopping street for €52m late last year.