Specialist article written by Annette Kröger on the ULI Summit taking place on June 29, 2016, Frankfurt – "Real estate investment: a case for more cooperation in times of low interest rates"

Munich/Frankfurt, 06/23/2016

Professional companies know when it makes sense to join forces with other market participants, even if under different circumstances they would have been competing against each other.

Annette Kröger

Annette Kröger

Institutional investors are currently battling a climate of low interest rates, making real estate a sought-after alternative to other forms of investment. As a result of high demand, prices have picked up considerably in the meantime, especially when it comes to the coveted core real estate sector. This means identifying and securing the right objects that generate the anticipated returns in the long run becomes a challenge.  

In this respect, institutional investors making broadly diversified investments and being in a position to make the most of the different opportunities presented by the market would be an asset - on a regional, national and international level, differentiating between direct and indirect investments, real estate financing and components listed on the stock exchange, types of use, for instance office, retail, logistics, residential, student housing, etc.

This is the only way to acquire attractive real estate investments and achieve investment objectives even when demand is high. Within this framework, it is beyond dispute that a high level of expert knowledge is required to do this spectrum justice. What we need are real estate specialists from a whole range of areas with detailed knowledge and experience in the according submarkets and sectors. 

This is why it is extremely important for institutional investors to build their own teams of experts to reflect the broad investment spectrum. It is imperative to expand this team with co-operations with partners, all of whom bring exceptional expert knowledge of the individual segments to the table. It doesn't matter whether these co-operations take the form of joint ventures, club deals or syndicated financing agreements - there are plenty of opportunities to join forces with strong partners, take a broad-based approach whilst minimizing risks and generating attractive returns. 

Investing in shopping centers with a professional center manager by your side; investing in a logistics fund set up and operated by a strong specialist and composed of the right real estate properties, joining forces with a company that successfully invests in value add real estate using fund vehicles allowing risks to remain manageable but as well cooperating with a financial investor in your own key markets, taking on the role of an active partner. All of these are examples of successful collaboration. 

There are also numerous co-operations in the real estate financing segment, for instance within the framework of consortia between banks and insurance companies. Both realized a long time ago that it is vital to jointly use the chances and opportunities for financing offered by the market, especially when the volumes in question are high. As well as providing a broad base, these kinds of co-operations offer an opportunity to continuously expand own expertise in a wide variety of segments, ensuring that your company is well-positioned in the long term. 

Professional companies know when it makes sense to join forces with other market participants, even if under different circumstances they would have been competing against each other. Given all of the above, the main challenge involves not losing sight of the bigger picture and, more than anything else, keeping a watchful eye on the risks. This means that we need a pro-active approach to risk management, one which critically examines all transactions and fosters them instead of putting obstacles in their way. All of this in a quest to ensure that performance for the investor ultimately adds up.

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