Dead wrong

A real estate analyst recently wrote that “In the real estate industry especially, buy and hold investment approaches are in essence simple spread businesses. Spread means the difference between rental yields (in our example we took gross rental yield based on in place rents) and the cost of interest-bearing debt (CoD).”

This vision of real estate is as far as reality as one can be, and ignores that running a (permanent) real estate business is much more an operational task than a financial gimmick.

Ignoring the physical reality of a real estate asset (it is depreciating over time, and need much care an attention), is a proven recipe for disaster, and had led not so long ago to a substantial amount of tears.
Our approach to real estate is for and foremost operational. Our underwriting of real estate is unlevered, in order not to cloud our judgment with cheap debt, and easy money. alstria will benefit from the low interest rate environment in the future, and the implied increased carry on our assets. However, this is done on assets which have an intrinsic value, beyond the cheap cost of funding. This value is underpinned by business plan that rely on reasonable market assumption, and more importantly on the ability to implement this business plans. Not on the biggest fool theory.

This approach has allowed us to increase our FFO per share systematically over the last 5 years, and allows us yet again to guide to an increase for the year to come. Achieving this result was possible thanks to a strong investment in our real estate operations, the dedication of our people to operation of the assets and the emphasis we put on our sticking to our strict underwriting criteria. We see no reason to change this approach, as we believe this is the only sustainable way forward. Carry trade in real estate is a dead wrong approach.

More than a thousand words

This is probably not really worth a press release, but i though I could take a few minutes to write about it on our blog. Our AltePost development project has been selected to run for the MIPIM award in two categories this year. As the best Refurbished Building, and the Best German Project.

It is a very nice recognition for what was a five year hard work for our team as well as our partners (although for them it was only three years work). This development is one of which a young company like alstria can be proud of. It demonstates that you can acheive eventually please a lot of people with divergent interest, as long as you have the right approach and the right asset.

The first stakeholders of this development where the citizen of Hamburg which were concerned about the look and feel of the area shaped around this asset. This concern was convayed to a certain extend by the Monument Protection authorities that insisted on a number of things to be done. As a developper you usually hate this, but as a citizen, they did a great job. Just looking at the people wandering around the asset, and looking at its new design is a testimony of the successful repositioning of this lamdmark asset in the heart of both the City and its citizens.

Tenant are also by definition large stakeholders, and the challenge of bringing this asset to modernity while keeping it 170 years old soul, was acheived successfully as testified by the fast leasing success of the asset and the unique quality of its tenant base.

And last but not least, our shareholders and the one of our partners also had a vested interest in this project. In essence you can easily acheive to satisfy the first two stakeholders above, if you spend enough money on the building. In the case of AltePost, the result yielded to our shareholders where also outstanding.

Theses results where only acheived through the work of the project team of this development which involved us, and our partners Quantum and Stenham. Market movements had nothing to do with the success of this project. It is also a testimony of what we stand for and what we believe in. Real estate is about work. Do not expect market to help you to grow. Growth only comes through hard, usually long, and alway exiting work.

All in all this project explains more than a thousand words how our approach to real estate management.

For the first time this year, the MIPIM is offering the public to vote for their prefered project. If you feel like it, you can vote for AltePost here (http://aox.ag/A7tYwp)

Real Life

Some pictures of the Mundsburg Construction site.

Real Life

Picture from the construction site of the New Ohnsorg Theater.

Real Life

Some pictures of the Alte Post construction site

And the promotional video of the asset