(Bloomberg) — As institutional investors steer clear of Germany’s battered commercial real estate market, wealthy families are sensing an opportunity to snap up trophy assets for cheap.
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The ultra-rich private investors have closed deals worth €1.5 billion ($1.7 billion) across all property classes in the first six months of this year, according to data provided by real estate broker Jones Lang LaSalle Inc.
Since the European Central Bank began raising interest rates in 2022, the volume of private investments into real estate has remained constant, while other investor groups have visibly withdrawn, JLL said. That’s meant that the wealthy’s share of overall transactions has surged fivefold to about 10% of the total in the first six months of 2024, JLL’s data show.
The buying spree has included offices, which have been hit with the double blow of post-pandemic remote working trends and higher interest rates. In Hanover, JLL brokered a €70 million deal to sell the former headquarters of Deutsche Hypothekenbank — the mortgage unit of public sector regional lender NordLB — to the family office of Karl Gerhold, founder of Hanover-based energy company Getec Group.
In 2023, office properties accounted for almost a third of real estate investments made by private buyers, whereas the share of office transactions in the wider German market fell to 17%. Institutional buyers are still cautious about putting money into office space, according to Stephan Leimbach, JLL’s head of office investment Germany.
“Private money is currently finding it easier than institutional money and is prepared to pay attractive prices,” Leimbach said. “An office transaction in the region of €70 million in a city like Hanover — who would have thought that’s possible in 2024?”
Beside offices, iconic buildings and locations are another portfolio favorite of private investors. In March, Union Investment sold Munich’s Fünf Höfe, which houses an upscale shopping mall as well as offices and apartments, to the family office of German health-care billionaires Andreas and Thomas Strüngmann. The complex near the city’s iconic Frauenkirche sold for €700 million, making it one of the largest German commercial real estate deals so far this year.
Trophy assets like Fünf Höfe as well as a lack of serious competition are luring back private investors who had withdrawn from the market when other buyers were most active, according to Henning Koch, the chief executive officer of fund manager Commerz Real AG.
“These are all investors who generally have no desire to take part in long bidding processes and price wars, but rather value confidential, exclusive access,” he said.
Earlier this year, Commerz Real bought several mixed-use commercial properties in Munich for an unnamed private investor. The assets were made available as part of the turmoil affecting the sector, as the previous owner — Düsseldorf-based developer Centrum Holding — had filed for insolvency in mid-2023.
Some of the buildings, which sold for an undisclosed sum, are located on Maximilianstrasse, Munich’s high-end shopping boulevard, and house stores of luxury brands like Fendi and Montblanc.
“Private investors are now seizing this rare opportunity to lock in properties that are usually not for sale,” Koch said.
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