Press Article

NAS Invest: Looking farther afield does pay off for investors

NAS Invest: Looking farther afield does pay off for investors
(Source: IPE Institutional Investment, Barbara Ottawa, 26/04/2017)
So-called grade B cities offer better opportunities at lower risks.
“Properties may still prove compelling investments, even if they are located beyond the borders of a certain city,” stressed Nikolai Dëus-von Homeyer, Managing Partner at NAS Invest, at the very outset of the conversation with our editors.
“Especially towns within the commuter belt of large cities benefit from the developments in these centres.”
According to a recent study by the Central Property Committee (Zentraler Immobilienausschuss, ZIA), only 5% of office space is vacant in Germany’s 7 leading cities Berlin, Düsseldorf, Frankfurt am Main, Hamburg, Cologne, Munich and Stuttgart – half as much as in 2010. “Very tight property markets can hamper the economic development of cities,” commented the ZIA.
According to Dëus-von Homeyer, the biggest problem for investors seeking opportunities in these cities is the prices some are willing to pay because they are limited to investments in grade A locations, either by choice or external restrictions: “There is a risk that prices paid for specific segments and areas in the top-7 cities are too high, which leads to initial yields of no more than 2 to 3%.”
For NAS Invest, the solution is offices and health centres in grade B cities or special situations in grade A locations “with the right fundamentals and pricing structure”:
“We frequently analyse opportunities in Hanover, in various locations across North Rhine-Westphalia including Düsseldorf, and in Stuttgart even though this market is tight and difficult,” explains Dëus-von Homeyer.
“The great thing about Germany is that it is broadly diversified as a result of its federalist structure and historic developments.”
Properties in so-called grade B locations can sometimes be acquired for five times the net annual local rent, which allows for better risk management: “The risk of a market correction is much higher for investors who have bought property in a grade A location for 30 to 40 times the annual rent,” argues Dëus-von Homeyer.
The investment sizes in these locations also fall into a category with better supply/demand profiles:
“Grade B cities offer a highly attractive and large property pipeline because the investment volumes tend to be too small for large institutional investors. We acquire properties for between EUR 10 and 25 million and bring them together in larger and more broadly diversified portfolios.”
Overall, Dëus-von Homeyer also confirms that there is a trend among German institutional investors to increasingly use external managers and fund solutions.
The company also focuses on medical centres “which offer a very solid investment, because doctors frequently stay in one location for several decades.” However, these properties are more difficult to manage and therefore frequently sold by institutional portfolios. “Generally speaking, management for a lot of German portfolio properties is insufficiently or poor. Value creation often does not happen, because there is a lack of resources,” concludes Dëus-von Homeyer.