Berlin-based transaction advisory and property management firm STRATEGIS AG has set up a residential property portfolio for a German family office. To date, it has acquired 364 apartments in three locations within the scope of the mandate, including an existing quarter in the town of Zossen south of Berlin comprising 265 apartments, a new housing estate of 74 apartments completed in 2022 in Hennigsdorf north of Berlin, and a new-build development in first-line waterfront location in the Köpenick district of Berlin with 25 apartments and six boat berths that are nearly completed. The sales prices have not been disclosed.
‘Despite the difficult market environment created by rising construction and financing costs, we managed to identify residential properties with attractive yield rates,’ Sascha Nöske, CEO of STRATEGIS told REFIRE. ‘The target investments for the family office are in Berlin and the neighbouring area. If we look at the same locations in Berlin compared to two years ago, the yield multiplier has been reduced by 20%. On the residential rental income side, it's 10% plus compared to two years ago. It's not shopping, it's just investment. I'd estimate that family offices allocate between 20% and 25% of their total allocation to real estate.’
Family offices taking counter-cyclical approach
Typically, German family offices range from around €20 million to €200 million in size, Dr. Thomas Beyerle, head of European research at Catella, told REFIRE, estimating that family offices accounted for around 30% of deals in the first quarter of the year: ‘It’s only an estimate since there are very few press releases about it,’ he said. ‘However, here I see a clear counter-cyclical approach as was the case in 2011 and 2012 when they first acquired residential portfolios, only this time they are also investing in retail properties in A locations and in hotels. We will only see in the third quarter how strong their commitment really was in the first half of 2023 but they are securing - not really at a significant discount either - sites that are not duplicated.’
Most family offices are properly diversified, investing in real estate, also in Berlin, according to Nöske: ‘We're also talking to UK investors as well who are very interested in Berlin. They've always had global glasses. They are evaluating assets and see a yield that is comparable to gilt bonds in America but, unlike gilts, real estate offers the potential of capital gains.’
Gerhard Alles, head of real estate investment at real estate agency Schürrer & Fleischer agrees: ‘Due to the evolution of the economy at present, family offices are after interesting investments. Traditionally, they have a high level of expertise and now they’re looking more at value-add. They are in a more comfortable situation than many other investors. In general, residential assets give them stability. Some of our family offices clients buy 10 flats, others want 20 to 50 units as they need to have a critical mass for it to make sense. Due to the industrial backgrounds that some of them have – many of them made their money in industry – they’re also looking at light industrial to complement that. They’re also looking at agricultural land as some of them have agricultural production. It’s a long-term investment but such land rarely comes on the market.’
Sale price gap can be overcome
Nöske notes that on the vendor side, there is a gap regarding the sale price expectations but that such a gap can be overcome: ‘Things that proved helpful in this context include our long-term presence in Berlin and Brandenburg and our great networking reach in the market. In addition, we were able to convince our client of the merits of our boutique strategy…while we, in turn, can take advantage of the synergy effects that you get when dovetailing management and sales so as to develop property values in optimal ways. The next acquisitions are planned for the ongoing year of 2023. They will focus both on standing properties and on new-build construction projects in Berlin and in easily accessible regions of the greater metro area.’
John Amram, founder and CEO of HPBA Off Market Solutions, has spoken about now being an opportune time for wealthy family offices to invest in real estate given their predisposition towards direct ownership. Family offices invest and manage assets with the aim of preserving the wealth of the respective families. According to estimates, there are around 5,300 single-family offices worldwide, of which around three-quarters are located in North America and Europe. In addition to single-family offices managing the capital of only one family, there are also numerous multi-family offices that professionally manage the assets of up to several hundred families.
‘I agree with John Amram, there is a discount to cost,’ Nöske said. ‘Family offices don't depend on interest rates, so they can buy now at a discount and refinance later when conditions are better. In the meantime, the income on the property keeps growing.’
The strong performance of alternative assets, including real estate, is driving a long-term switch to investing in alternatives for the family office sector, according to new global research published last month by Ocorian, the specialist global provider of services to high net worth individuals, family offices, financial institutions, asset managers, and corporates. It surveyed more than 130 family office investment managers responsible for around $62.42 billion of AUM and found that almost all agree that the sector is increasingly investing in alternatives and that the switch is a long-term trend.
‘As family offices look to diversify their portfolios and generate higher returns, there is a growing interest in alternative asset classes such as private equity, real estate, and hedge funds,’ said Amy Collins, head of family offices at Ocorian. ‘Whilst these asset classes offer the potential for higher returns, they also require a higher level of expertise and specialised knowledge.’
