Mar 17, 2009

How sexy is Germany?

Some days ago some of the German press echoes a speaker (from the Senior Management of a leading european agent) who said the following about Germany: "For 15 years since reunification, Frankfurt and Munich have seen virtually no rental movement at all Germany is boring and was boring It will never be a sexy market". This comment stroke me as at the time of alstria's IPO, one of the main drawback we had was that alstria's portfolio was not sexy enough for Germany. Leases were too long, not enough vacancy, not enough short term reversion, in a nutshell not enough growth. Reading this new comment it seems that alstria's portfolio had exactly the characteristics of a German portfolio. Boring.

I heard another interesting comment at the MIPIM this year. I was one of the speakers at a panel called "who is buying now?" during which we shared views on the markets with the other panelist and the audience. One of the members of the audience wondered what we were all doing at MIPIM, given that it was relatively obvious that whoever was buying, was a rather small minority.

Those two independent comments made in two different circumstances highlight what happened to a large part of our industry in the past years. Real estate had become for numerous players a pure trading business. Growth came as the market was growing (either by yield compression or by rental market going up, and sometime both), and it did not take more than buy, wait and sell to make decent profit (nothing wrong about that). Now that the trades have slowed down, and that suddenly the market does not grow alone anymore, it seems that the fun is gone, and that there is no easy way out of this.

As I always highlight in road show, alstria´s base case business plan is based on two assumptions:

1- Germany is not about trading.
2- There is no rent reversion in the German market (there is negative reversion on average).

Does that mean that Germany is boring? Probably yes if you are a trader, as some realized that it is going to be very hard to make any king of profit out of this. Surely no if you look at the underlying real estate market. Germany is one of the most thrilling real estate markets in Europe, as it is highly diversified, and presents a lot of opportunities for who is willing to take the time to try understanding the market dynamics and working on the assets.

I have largely argued that I look at the long term leases as a floor to the value of our assets, and that there will be more for who will take the time to work with them and get this value out. It requires patience, capital, and asset managers sweat to get there. Nothing comes easily if you want to succeed in Germany. The only people I know who made money in Germany were close to the assets and used to put their hands in the dirt in order to get this value out.

Buy low, and sell high is out. What remains is real estate work, the good old way. Is real estate dead or Germany boring? Maybe for those who were never really into real estate, or never really looked into German real estate. For all the other Germany is still an incredible country of opportunities that can only be unlocked if you fight for it. Whether this is sexy or not is I guess a question of taste. I like challenges that need to be worked out. In that respect, Germany is damn hot.



  1. Times have definitely changed. German properties are like Gold: As far as everybody celebrates a big party, no one is interested in Gold. Everyone just looks out for sparkling diamonds. But when the party´s over, you´re happy to have Gold in your portfolio. It´s stable and gives you secureness - even when every other asset loses its value. But Olivier: wouldn´t you also go on to celebrate a party when you can´t see the end? I think it would be stupid not to celebrate? What about Gold and Diamonds?

  2. With Alstria's current, hugely depressed share price it is looking like a sexy lonely lady awaiting for Mr. Right...therefore go for it!