Michael Peter, founder of P&P Group
Michael Peter, the founder and guiding spirit of the Fürth-headquartered P&P Group was in London when we spoke by telephone recently. He recently handed over the reins of the day-to-day operations of the German business to to a long term staff member while he's decamped to London to drive through the company's overseas expansion, starting with the British market.
This shouldn't come as a surprise. Our previous meeting with Mr. Peter left us in no doubt that he doesn't do things by halves. His company, as an investor and project developer, has left its mark throughout the whole Nüremberg/Fürth region, with a 30-year history of building landmark residential and retail developments. Projects such as the Quelle Portfolio, the Heumann Gelände, the Forchheim Hospital and numerous housing developments in Erlangen/Schwabach and Forcheim all bear the stamp of his company's particular far-sighted approach to sustainable development.
The current development pipeline consists of striking residential and mixed-use developments throughout Bavaria.
P&P's's balance sheet for 2022 was about €600m, it had a 48% equity capital ratio, and it employs 130 staff. The subsidiary Rivus Capital invests in private equity and venture capital, looking to be an early-stage investor in promising real estate vehicles, such as impact funds and healthy living.
Peter recognises the limitations of his traditional business model in the current climate. He is actively pursuing joint-venture opportunities with partners, both in Germany and the UK - "partly also there where classical bank financing or forward funding at conditions like we had them in 2021 no longer exist". He is a fervent believer that now is the time for active investors, which he now views himself as, more as than as a project developer. It's the technical competence that the investor can bring to the deal that is decisive, he believes.
"Joint ventures can be an alternative to forward deals if both partners complement each other, otherwise there is no strategic added value. For example, it wouldn't be a good deal if both sides brought capital but no technical expertise." This is part of his approach to establishing a presence in the UK, both with a view to bringing UK-based capital to Germany, and German capital to appropriate opportunities in the UK. Joint ventures provide mutual benefits from the partner's network and product knowledge. "If we, as people unfamiliar with the area, want to buy products, we're always confronted with higher prices." In another joint venture, Peter says, P&P Group provides the capital, and the partner in turn works on the product and takes care of technical and construction and tenancy law issues. "That way, there's always added value."
The company continues building in Germany, an ongoing project being the first 79 of a planned 300 apartments on the old US army barracks in Bamberg. But Peter himself is getting active in London, focusing on properties at the top end of the market in the up-market boroughs of Mayfair, Marylebone and Kensington. He has just invested GBP 5 million in one-floor apartment in Mayfair in need of renovation, following another recent purchase for a two-digit million price in Knightsbridge. The pattern is clear - several more properties are in the pipeline over the coming months, all fitting the pattern of luxury segment assets needing repositioning through design and building improvements. The classic P&P approach, in other words, transported to the British capital.
To lay the groundwork for P&P's new expansion, Peter recently launched Mipex Group, which he sees as becoming an international investor platform. “Our goal is to build a cross-generational group of companies that exists and further grows in the future, independent of economic fluctuations”, said Peter. Mipex will focus on three fields of investment: a) real estate, refurbishment an project development in Germany and the UK, b) via Rivus Capital, private equity, with majority shareholdings in mid-sized companies with growth potential, and c) via Rivus Capital, venture capital with minority shareholdings in early-phase 'impact' enterprises.
And to balance out its business with institutional investors, who have largely pressed the pause button, P&P is addressing new private investors by offering them debtor warrants. This can help out in the following situation, says Peter.
The market is currently hovering around a price multiple of 25. At eight or nine multiples less than in boom times, as well as a bullet payment which institutional investors often demand, a sale no longer makes economic sense for developers, and can hurt their liquidity. "There are therefore many who do not want to build on their sites at the moment or who want to complete projects they have started first in the hope of better times on the market and then sell them."
Peter believes the debt warrant could get the business moving again. P&P usually works on a project for 4-6 months before it is sold, and with the debt warrant (Besserungsschein), the investor could realise a 10-15% higher purchase prices, while the buyer gains additional security by seeing that the project is fully-financed and up-and-running. P&P handles the letting, hands over fully-leased properties and guarantees the negotiated rents. The whole deal is transparent, says Peter. "No relocation vouchers, no rent-free periods or anything like that, the investor sees every contract."
Peter is clear on how the landscape will develop over the coming years, which is why he is still a strong believer in new residential house-building. "The market has collapsed, and the housing shortage in metropolitan areas will continue to worsen," he explains. "Even if the federal government were to take massive countermeasures with new construction subsidies now - it will take three and a half years before any appreciable amount of housing is completed."
At least during this period, he sees rents on new-build housing rising by 12% to 15% annually. But even after that, they'll continue to rise at a significant rate. Given the shortage of building land, inward migration to Germany and the sheer attraction of living in bigger cities, Peter is convinced: households are just going to have to dig deeper into their pockets to come up with the rent. "Rents are sustainable", he says.
