German prop. investors eye risk as competition hits

Tue Mar 8, 2011 10:22am EST

* German investors looking at riskier property assets

* IVG looking for partner deals in Europe, U.S. cities

* Union, ECE do not see new Russia investments

By Daryl Loo

CANNES, France, March 8 (Reuters) - Stiff competition for prime commercial properties in Europe is pushing German investors to look more at riskier sectors such as emerging markets and poorer buildings to boost returns, senior property executives said.

"Right now it's a difficult situation because there is too much liquidity in the world and in Germany looking for core products, in combination with the relatively low interest rate environment, so we have been looking at other opportunities that we can add value to," IVG IVGG.DE CEO Gerhard Niesslein said.

The property group is exploring up to 17 cities in Europe and the U.S. for investments through partnership deals, in which it expects to take between 5 to 20 percent equity stakes, he said on the sidelines of the MIPIM real estate trade fair. [ID:nLDE7192E4]

"Let's take Lisbon -- nobody would go there today. But Lisbon is not going to disappear from the map for the next 20 years and you're getting fascinating returns in the middle of the city," Niesslein said on Monday.

He declined to say if IVG was planning to invest there. "The problem is not with equity but finding the right core product at an acceptable pricing. Are we being pushed towards letting risk now more than in the past? Yes -- and we are doing this worldwide," said Karl-Joseph Hermanns-Engel, managing director at Hamburg-based Union Investment Real Estate.

Union's open-ended fund rival DekaBank [DSUGUD.UL] also told Reuters last month it had rejigged its near 2 billion euro ($2.7 billion) investment strategy away from core cities such as London and Paris, to focus strongly on prime assets in regional UK, French and U.S. cities. [ID:nLDE71L0ZH]

NO TO RUSSIA

While German companies are indicating an interest in taking a punt on some of the weaker European countries such as Portugal and Spain, which continue to struggle with sovereign debt issues, they say Russia is largely off their radar screens.

The Russian government has been trying to attract international investors with potential initiatives, including a fund that could co-invest about $10 billion with private equity firms in the country, a source said on Sunday. [ID:nL3E7E704R]

"We need more time before thinking about investing in Moscow. From a German open-ended fund point of view, even Moscow is still not up to our institutional expectation in terms of stability of the market," said Hermanns-Engel.

While property in Moscow may offer attractive yields and longer leases, he noted that there were doubts about the security of cash flow and property title rights in the market, a potential headache for foreign investors.

"It's a pity because we think the retail side of Russian property is interesting," said Karsten Hinrichs, chief financial officer of German developer ECE, which also manages 132 malls across Europe, including one in Moscow.

"But at the moment there is very limited amount of interest for finding financing or equity partners for development in Russia. And looking towards the next two years, I don't see very heavy investments there," he said. (Reporting by Daryl Loo; Editing by Karen Foster) (See www.reutersrealestate.com for the global service for real estate professionals from Reuters)