German institutional investors targeting real estate – survey
GERMANY – Nearly half of all German insurers and pension funds have acknowledged the importance of investing in real estate, according a recent survey by MPC Real Estate.
The Hamburg-based consultancy interviewed roughly 400 German institutional investors, including insurers, mortgage banks, Pensionskassen and Versorgungswerke with more than €1.8bn in combined assets under management.
Similar to recent studies by Universal and Union, MPC found a growing interest among investors in increasing exposure to real estate.
Nearly 60% of all surveyed insurers and Pensionskassen, and 40% of all Versorgungswerke – pension funds for doctors, lawyers and other professionals – said they were currently looking into property investments.
Among all investors responding to the questionnaire, one-third confirmed they would be making new investments within the next 12-24 months.
Survey respondents' real estate allocations averaged at 5.2%, mainly in direct property, but the allocation was almost twice that (9.45%) with Pensionskassen.
Speaking at a recent conference organised by the Austrian association of alternative investments, Richard Apfelbacher, managing director of institutional clients at MPC, said three-quarters of respondents had admitted that their real estate portfolios were "not as professionally managed as their securities portfolio".
He also predicted that real assets would "gain in importance" due to institutional investors' high exposure to bonds – averaging at 80% among German insurers.
Asked how insurers were dealing with the question of Solvency II and capital requirements for debt-financed real estate, Apfelbacher pointed out that most were simply not using leverage in property deals.
Alternatively, they are acting as "bank substitutes", providing debt financing for real estate deals themselves.
He also predicted a "spill over" of assets from the five largest cities in Germany to other regions.
"At the moment, it is all core, core, core, but the top return in the top five cities is 4.8%, while in other regions it is still 6.3%," he said.
On the implementation of the AIFM Directive in Germany via the Kapitalanlagegesetzbuch (KAGB), Apfelbacher noted that the new regulations were "professionalising the provider landscape in Germany", levelling the playing field between investment houses and KAGs.
MPC Real Estate itself has joined the INREV network to help it prepare its organisational structure for the new market opportunities, he added.