Investors want funds that can protect capital, outperform benchmarks and offer diversification. Many are turning to real estate, but the options are wide ranging.
FOCUS ON BERLIN
London is not the only city to boast an appealing property market. According to CB Richard Ellis, a commercial real estate adviser providing valuation and advisory services for more than 64,025 properties worldwide, investors are increasingly targeting Germany's property market as they consider it stable and prosperous
Luxembourg private equity boutique Optimum Asset Management has been benefiting from the Berlin property market for some time now. It launched its second Berlin-focused property fund, Optimum Evolution Fund SIF - Property II, in July. Optimum's fund aims to tap into the Berlin property market and has galvanized most interest from institutional investors, mainly pension funds.
The fund opened with €130m and hopes to invest in a portfolio of €250mn in both residential and commercial German property. The fund will select properties generating a gross rental yield of 7.5% at an average price of €1,200 per square metre. Its targeted internal rate of return is 15% a year on a five to ten-year time horizon.
But this goal has been complicated, since the fund's launch was delayed due to continued uncertainty about the future of the eurozone.
Doubts about the region's stability have pushed investors to go for "safe assets in countries where if the eurozone breaks up, the market will remain strong," according to Alberto Matta, managing director of Optimum.
Investors rattled by the eurozone's fluctuations have suddenly started investing in German property, causing prices in Berlin's fashionable Mitte and Prenzlauer Berg districts to soar. Matta says this has made clever investments trickier to find, although he is confident some opportunities remain, particularly in the traditionally poorer areas of Berlin such as Wedding.
Matta also opted for the Luxembourg Sicav structure as he believes it provides a lot of flexibility, the jurisdiction is a "neutral ground" for investors, and offers high quality service providers. If the fund had been regulated in Germany, it would have been encumbered by "all kinds of local regulations and rules," he says.
Despite the abundant opportunities in the European residential property market, pessimism is spooking investors away from commercial property.