New opportunities on the german real estate market ?
Until 2006 that major international finance players wasn't took a close interest in the German real estate market. At the time, many organizations from all over the world, all sharing the same desire to quickly generate significant returns on investments, have massively injected funds. German real estate was then considered as a new class of assets in its own right.
The strategy pursued by investors was simple, not to say basic. It involved buying land to build a building as soon as possible and signing a ten-year lease agreement with a tenant. Investors then sought to sell their asset portfolios to structures that wanted to take advantage of long-term returns, while realizing an added value of 20% or more.
"Real estate, more than a purely financial asset"
For many years, many investors have shared this vision, purely financial, detached from any issue of operational management of real estate. At the time, the notion of primary and secondary market was much less marked. Analyzes of the economic strengths and weaknesses of a region were rarely conducted. Only the idea of generating a significant return on investment mattered.
"When management weighs on returns"
Real estate is a living asset. If we are talking about stone structures designed to last, the market around them is constantly evolving with the needs of tenants and the regulatory requirements related to the management and rental of buildings. Many international companies that invested in the German market some ten years ago did not take sufficient account of these aspects. Many investors were quickly forced to incorporate additional costs related to the effective management of real estate assets and saw their portfolio performance decline. At the time, in the face of these constraints, the investment companies sought above all to liquidate their portfolio by realizing the largest possible gain.
"Security at a high price"
Then came the fall of Lehman Brothers on September 15, 2008. The money suddenly disappeared. Many investment companies went bankrupt. Many real estate assets have remained immobile. Finished, the idea of generating capital gains of more than 20% in less than a year. In the years that followed, the market stagnated further. Investors have focused more on the simplified management of large objects on main roads.
"Maintain value through more active management"
If today we see mass international investors, the approach of the German real estate market has changed. During their absence, local asset management structures were created, notably to ensure the monitoring of existing assets.
The role of the asset manager has evolved. Today, they take on the role of owner and, above all, spend time preparing business plans, cash flow, consistent investment strategies, managing investments (CAPEX), taking care of the regulations relating to the fire safety, tenants and their needs, and repair and maintenance. The integration of all these dimensions has enabled us, through the crisis, to maintain the value of the assets or, in some cases, to recover the value that had been lost.
At MIMCO Capital, learning from real estate market developments and analyzing trends, we are going to look for new opportunities. By developing a dynamic management approach, across the entire real estate value chain. Our strategy aims to identify high potential investments. These are most often assets that have been abandoned or poorly managed by their owners, financial funds or private individuals who have considered real estate as purely financial assets. Our goal is to create value by putting real estate in line with the market, in a revitalization process.
"Evaluate opportunities by integrating all variables at the start"
Premium assets, well located, becoming rarely available at reasonable prices, the secondary market is at the heart of the center of interest of investors.
However, we believe that to manage more dispersed assets in the territory, more rigor is needed. Above all, it is essential to evaluate investment opportunities by integrating all the variables that come into play. It is therefore imperative to have a team integrating all skills, from asset management to property management, considerable experience and a local network of service providers, facility managers, custodians, brokers, architects, experts ... Knowing the local authorities, economic development offices, construction actors are undeniable assets.
The german real estate secondary market presents new investment opportunities today. However, to obtain the best returns, it is essential to be able to identify real estate assets with the greatest potential, and willingly pursue a much more active management policy.
It is in this perspective that MIMCO Capital inscribes its approach, relying on many skills in real estate, real market expertise and an important network of partners throughout the territory.
Article written by Roland Schleider Head of Asset Management Germany MIMCO Capital.