Last year at about this time we reported on the first study on ‘off-market’ real estate deals, carried out by Berlin-based off-market specialist HPBA and market research group Bulwiengesa.
The study caused ripples in Germany and no lack of discussion about the meaning of ‘off-market’, with several of the larger broker groups appearing to treat the findings with sniffy indifference. Much ado about nothing, seemed to be the reaction from several of the established players, as if to suggest that naturally their own information-gathering resources have already registered any sizeable real estate transactions well in advance of completion.
The term “off-market” was effectively defined for the first time when the study came out, and – without getting too legal about the definition – broadly means trading assets in the form of a sale or a swap deal which excludes the public or a broad range of competitive bidders, and negotiating with either a small group of interested buyers or in exclusive bilateral dealings with a single party, either directly by the seller or by a specialist off-market adviser.
The 2nd HPBA Off-market Study has now been published, and doubtless the latest edition will also give rise to lively discussion about the methodology employed in separating out on-market or off-market for the purposes of defining transaction volumes.
In summary, the latest survey highlights the extent to which the investors surveyed take part in off-market transactions, as against participating in structured bidding processes. It certainly looks as if more investors are at least looking at doing off-market deals, with 98% or respondents now saying they did so. The HPBA study puts the off-market transaction volume at between €40bn and €70bn.
Probably the key takeaway from this year’s study, however, is the figure of 29% of respondents who now said they did NOT participate in bidding auctions, or even specifically excluded participating in them.
REFIRE visited John Amran, the founder and CEO of Berlin-based HPBA, to discuss the findings of the survey. “For me personally, the key message from this year’s survey was that off-market models reach certain investor groups who specifically do not take part in conventional bidding processes”, said Amran. He acknowledges that it’s not always a clear-cut matter as to into which category a deal falls, accepting that “there are a lot of transactions that nobody knows anything about.”
Andreas Schulten, head of market research group Bulwiengesa, commented: “With the first scientific study of the advantages and disadvantages of off-market transactions compared to traditional bidding processes which we carried out in 2018, we were able to gather statistical data about that segment of the market. The key findings of that study and widespread media interest resulting from it were the spur for us to delve even deeper into the market for this year’s study.” Schulten agrees with Amran that, despite best efforts to gather accurate data on deal volume, “ a lot of deals still slip under the radar.”
Nonetheless, the study is useful again this year. Among the findings: 31% of respondents said they carried out transactions as share deals rather than asset deals, a percentage which is more or less consistent with the overall German institutional real estate investment market.
The share of successfully completed deals for both buyers and sellers using the off-market model has risen significantly over the last twelve months, with 68% of buyers and 75% of sellers saying they achieved more than a 50% success rate with the model. The difference to the on-market model is therefore more defined than last year, with buyers 40% more successful and sellers 26% more successful than last year.
Compared to last year, the number of participants saying they would be prepared to pay a higher price with the off-market model rose by 7.8% to 84.8%, with more than 43% of respondents saying they would accept a price delta of between 5% and 7.5% (same delta comparison as last year).
On both the buyer and the seller side the level of satisfaction with off-market deals is 17% higher that with on-market deals. Even the share of “very unsatisfied” responses remains well below that of the conventional bidding models. The extent to which off-market participants remained very positive on key attributes such as discretion, quality of matching and probability of successful conclusion, remained comparable to last year’s study.
While the number of respondents who viewed off-market sales processes as less transparent rose slightly, less of those respondents saw any conflict with their own compliance standards than last year.
The survey evaluated responses from 700 participants from all segments of the professional German real estate market, with responsibility for more than €100bn of real estate assets under management. Companies ranged from those with less than €100m of AUM to those with more than €10bn, and – in terms of investor type – included real estate funds (24.4%), project developers (18.3%), family offices (14.2%), and on down to listed real estate companies (4.0%) – broadly representative of the make-up of the real estate industry itself.
