Review 69th Swiss Real Estate Conference

For moderator Prof. Dr. John Davidson, Co-Head Real Estate at the Lucerne University of Applied Sciences and Arts (HSLU), one thing was crystal clear at the start of the 69th Swiss Real Estate Talks: more and more institutional investors are increasing their real estate quotas abroad in view of the ongoing low-interest phase and the lack of alternatives at home. But how do you find the right continent, the right country, the right city for an investment? Which sectors should be considered, which vehicles are suitable and - perhaps the most sensitive factor - which partners can I trust when going abroad?

Closed-end real estate funds/special real estate funds

Dr. Marcus Cieleback, Group Head of Research at the SDAX-listed German company Patrizia Immobilien AG (Augsburg), began the event by explaining that the international real estate markets are currently much more complicated than before due to the special situation with low interest rates and a lot of capital seeking suitable investment opportunities. There has been a "massive yield compression" over the past few years and yet there is still a lot of capital looking for investment opportunities on the real estate markets. The fact that transaction volumes are currently declining is not due to a drop in demand, but rather to the lack of core products in the top markets. Some players are therefore deviating from the usual core concept and choosing an ABBA strategy: investments in A locations (in B locations) or in B locations (in A locations). Cieleback sees the residential segment and - for the next three to five years, for example - logistics properties as currently attractive asset classes, primarily due to the increase in online retailing. As a real estate investment company, Patrizia operates throughout Europe for large institutional investors as well as for private investors.

Direct real estate investments abroad

According to Ingo Bofinger MRICS, CEO of the directly investing AFIAA Investment Foundation for Real Estate Investments Abroad since the beginning of the year, promising real estate investments on a global level are a very complex task. The challenges include sounding out the political framework conditions and assessing the demographic changes in the target countries. According to Bofinger, the most important thing is to identify global trends - such as digitalisation - at an early stage and to draw the right conclusions from this as to what this means for the real estate markets in the various regions. For example, the question needs to be asked as to how office properties in Australia must be designed in order to attract the right tenants in the future - because the habits and demands of tenants in the individual regions differ from one another, sometimes considerably. In general, it is important to actively maintain networks and have reliable local partners, even in an international environment. According to Bofinger, fast reaction times require a local presence - and this also results in one or two off-market deals. AFIAA itself is active with offices in New York and Sydney. The strategy of the investment foundation is clearly focused on core properties in A-cities, among others in the USA, Canada, Australia and Europe - all very liquid and transparent markets. "The respective market practices and political conditions, as well as legal and tax circumstances, must always be taken into account," Bofinger explained. With its "2016+" expansion strategy, AFIAA aims to expand its international real estate portfolio from the current 26 properties (valued at CHF 1.5 billion) to 40 (over CHF 3 billion) in the medium term. Around 45 percent of AFIAA's current portfolio is located in Europe, 31 percent in North America and 24 percent in Australia.

Fund of funds solutions

Like Cieleback, Sven Schaltegger, Director Indirect Real Estate Investments at Credit Suisse - and thus an expert in funds of funds (FoF) for institutional investors - currently sees good opportunities in the logistics sector: "We are a big fan of logistics, especially in the USA. In addition, the residential markets in some countries, such as Germany and the Netherlands, are also attractive for investments. However, the selection of suitable indirect real estate products in the USA and Europe is not easy; moreover, in some regions, such as the Netherlands, there have recently been waiting periods of one to two years between capital commitment and actual investment. According to Schaltegger, it is also advisable to have a good local partner when investing abroad: "Real estate remains a local business, even internationally". The Global Real Estate Fund Index, or GREFI for short, a joint effort by ANREV, INREV and NCREIF, provides a good initial overview of non-listed real estate investment vehicles worldwide. GREFI currently covers 26 countries worldwide with 98 funds in the USA, 318 in Europe and 94 in the Asia-Pacific region. The returns for the individual regions as well as for the various strategies such as Core and Value Add over the last 7 years are published.

Practical example PUBLICA

The presentation by Christoph Gerber, Head of Real Estate at the Federal Pension Fund PUBLICA, who provided an illustrative practical example, met with great interest: "We first planned to go abroad in 2010/2011 - and initially said 'no'." The negative decision was based on the assessment that the non-real estate-specific risks that had to be taken into account in such investments would not be compensated accordingly at the time. In the meantime, however, "the world has changed" and, following another internal study in 2015, PUBLICA managers decided to draw up their own new strategy for real estate investments abroad. A good two years after the decision was taken, the first purchase was made two months ago and a good CHF 10 million invested. According to Gerber, the initial focus of the investment strategy is on the USA, where around 50 percent of the targeted investment volume should end up. Subsequently, about 20 percent will be invested in Asia and about 30 percent in European countries. The main focus is on open-ended real estate funds, but mandates with special strategic funds are also sought. Here, for example, one looks to see whether the issuer, i.e. the parent company, is also invested. At the same time, one trusts in internationally active advisors - if only because of their market knowledge and expertise, and not least because of the access possibilities to large databases that they offer. Gerber reported that they had been able to "generate a lot of knowledge" in the process. "Our learning curve was steep." The planned investments are to be spread over the next four to six years with the option of being invested abroad for a longer period. In terms of diversification, he said the plan is to follow a strategy similar to that demonstrated by the pension fund in its home market. One of the objectives of the foreign investment is diversification and therefore the generation of an additional return compared to the home market is not in the foreground. In the case of foreign investments, PUBLICA also attaches great importance to the fact that the issuers of the investment vehicles abroad also take risks: "We like it when the parent company is also invested.

This was followed by a panel discussion with the speakers, which was also opened up for some questions from the audience at the end. The subsequent apéro riche provided an opportunity to get to know each other, network and exchange further professional information.

The organiser of this event, the Swiss trade magazine IMMOBILIEN BUSINESS, would like to thank the moderator John Davidson, the four speakers and the extremely active audience for this truly successful evening together.

The presentations of the speakers for download:

• Ingo Bofinger MRICS - AFIAA
• Sven Schaltegger MRICS - Credit Suisse
• Christoph Gerber - Federal Pension Fund PUBLICA
• Dr. Marcus Cieleback - PATRIZIA Immobilien AG

Impressions