Germany’s Activum SG plans third real estate fund

German real estate firm Activum SG Capital Management plans a third fund in the summer following the success of two previous structures.

Managing partner Saul Goldstein said the main opportunity for European real estate investors at the moment is in re-financing, rather than the leverage-driven deals of previous cycles.

Activum, founded in 2007, focuses on distressed and value-add situations, single asset and smaller portfolio acquisitions in commercial and residential real estate in Germany. Transactions range from €5m to €100m per investment.

The firm currently has two portfolio funds each containing six real estate assets located in major German cities

Goldstein has been actively investing in the sector for more than 15 years. He previously run the European real estate and investment advisory team at Cerberus Capital Management in New York, where he was responsible for identifying the various Cerberus management vehicles for investments in debt and equity investments

“This year we are seeing the remaining overhang of debt, and a lending gap. A lot of assets need to be refinanced,” notes Goldstein. “Leverage levels are coming down and filling that gap – via re-capitalisation and re financing — is where the best opportunities are.”

“We try to get access to the asset to re capitalise the structure and add value. In the past you would buy a single asset and add value by better management, now you need to be more flexible in how you play the value component.”

He adds that there are a lot of potentially distressed opportunities in the sector, but “it is still hard to shake them free”.

“With the European Central Bank basically lending to the banks at zero, they can hold out and don’t yet need to shift non-performing loans. There has been disintermediation among thousands of investors and where there used to be bi-lateral loans, financing is now far more complex.”

He believes that the opportunities will not start to emerge until the macro-economic backdrop improves a little. “While things are so tight, nothing is moving. The banks cannot afford to sell at a big loss, so they hold out.”

But like in Japan in 1996-1997, what history shows is that it is when the economy starts to move again, and banks start to make a bit more money, then they are ready to consider selling off, he added.

“They can even take a small loss but they need growth overall so they can write off a small loss against business elsewhere.”

Activum has been active in most real estate asset classes – residential, commercial and industrial and development, although it tends not to get involved in operational holdings like hotels.

He also likes office leasing, if it offers sufficient value. On the residential sector, he says the firm “understands the thesis but we are not all that bullish right now”.

“There is however growth in the major centres in southern Germany – notably Berlin and Frankfurt, what we call the 24/7 locations, which like in the US and UK are very alive and attractive.”

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