As one lot tries to exit, the other lot is trying to fight its way in

Theree may have been an element of bad luck in the aborted IPO of Deutsche Annington, which denied UK private equity investor Terra Firma and its ebullient leader Guy Hands the opportunity to recoup some money after a series of financial disasters, and return something to his long-suffering investors. Hands has been looking for an exit from Deutsche Annington for some time, and this was the golden opportunity.

Possibly this was always going to be a close call, given the internal juggling that Annington has had to engage in over the past eighteen months, from re-financing its massive debt burden, to losing one and then finding another CEO capable of performing miracles with both the company’s housing offering and with the financial community.

However, from the beginning of the year it was clear that the company was in a race against time. The Masters of the Universe over at Goldman Sachs’ Whitehall Funds got their timing just about right in scrambling over the line in February and leaving the risk of ownership of Düsseldorf’s LEG in the hands of thousands of new shareholders, having trousered many hundreds of millions for their brief period of stewardship.

It may have been bad luck that even more uncertainty has been swirling around the markets since June 10th, when Annington announced its IPO schedule. But it’s been evident for over a week that there was serious resistance among investors to Annington’s issue price, which even at the low end of the price band was pitching the company at the same discount to net asset value as LEG in rosier times.

The lucky LEG shareholders are down only 10% on their investment since then, still faring somewhat better than at a number of their listed German property peers, some of whom have tumbled up to 20% since May.

From what we understand, the banks managing Annington’s flotation opted – finally, in the last hours - to cut the issue volume in half, but remained stubborn on the price of the stock. Some previously committed investors sensed the issue was now balancing on a knifeedge, and pulled large orders, scuppering any last hopes of the promoters getting the issue away.

Doubtless there will be extensive postmatch analysis as to what might have been done, but it certainly looks as if that window of opportunity is closed for the rest of the year at the very least - for Annington and Terra Firma.

While the company puts a stoic face on things, and says it’s back to business as usual, there will be consequences. The money from the IPO was badly needed for a big backlog of maintenance and refurbishment in the company’s enormous housing stock, and this will now have to be found from elsewhere – or not. Although Annington’s business fundamentals are solid, it will prove hard to increase its rental income, with the political tide turning against any suggestion of buccaneering landlords.

We have, of course, been reporting in these pages on the cooling in sentiment –

particularly among foreign investors – towards the German residential market for months. Given its low vacancy rates, stable rental returns, and new-found enthusiasm for Germans to become owner- occupiers, the sector has enjoyed nearly three years of investor attention – most of it warranted, we have to say.

But the sands are shifting, and the caravan is becoming restless. Gold has

plummeted, shares are shaky, bond yields are creeping back up, core assets in real estate markets are looking pricey, and investors are wondering if it’s not time to do something else.

Paradoxically, the very owners of capital getting weary of earning only 4% in Germany are vacating the field to a new class of property investor, for whom 4% in a safe currency sounds like something well worth pursuing. Asian investors, particularly groups from China and South Korea, are coming to represent a new force in the market, and after visiting London, are increasingly coming over to look at opportunities in Germany.

They won’t be buying tatty 10-storey apartment blocks on the outskirts of Wanne-Eickel any time soon, nor are they interested in the grinding mathematics of how to make such an investment work – the very bread-and-butter of the whizz- kids who toil over the spreadsheets at the private equity groups. No sirree, they don’t need to come to Europe for that, with more than half the world’s population scrambling to find similar dwellings on their own Asian doorstep.

But they ARE under pressure to diversify risk in their national pension funds, and from Asia, Germany looks more and more like a model of propriety and fiscal rectitude. South Korean cross-border real estate investment grew nine-fold in this year’s first quarter, compared to last year’s first full six months. That’s a big number, and a certain amount of it is headed this way.

That’s why we’re busy here boning up on the investment strategies of Suhyup Bank, Hanwha AMC, LIG Fire & Marine Insurance, and the National Credit Union Federation of Korea. And this group’s just the tip of the iceberg. And so, as one group tries to exit, another tries to fight its way in. ‘Twas ever thus.