Back in the 1980’s they used to dub GE chairman Jack Welch “Neutron Jack” for his penchant for eliminating employees while leaving the buildings intact. Germany is currently afflicted by the opposite problem. While unemployment falls to near record lows as the economy powers ahead – with one leading economic forecaster going so far as to even predict full employment as early as 2013 – it’s not jobs that are being eliminated, but buildings.

How can this be? Surely more jobs means more demand for office space, means higher rents, means investors prepared to pay higher prices to buy the buildings? Well, only up to a point, m’lud. Things aren’t really working out like that, much though we would like them to.

Let’s have a look at what’s happening. As we report in several articles in our REFIRE Intelligence Report throughout January, all the professional opinionators – from the consultancy groups such as KPMG and Ernst & Young, the specialist property advisory groups, and the economic think-tanks – are unanimous in their view that demand for German real estate will rise significantly this year, and with it, peak rents and prices in the prime business locations. Continue Reading

After months of weighing up appropriate reform legislation for Germany’s embattled open-ended real estate funds (GOEF) industry, it looked this week as if Germany’s ruling coalition had managed to find agreement on a new set of rules for the industry, which has been plagued with uncertainty and volatile investor behaviour since October 2008.

Meanwhile, the European Public Real Estate Association EPRA vowed to continue its campaign to “liberate the German market” from what it sees as an unhealthy domination of the sector by the open-ended funds at the expense of the stock-market listed sector.

The drive by Berlin to reform the GOEF sector has been gathering pace over the last two years, but has intensified since May of last year when original proposals emanating from Berlin led to a fresh wave of investor panic leading to fund withdrawals, and ultimately, the announcement of fund liquidation by three groups – Aberdeen Immobilien, Morgan Stanley and the KanAm Group. These funds are currently unwinding their positions and have announced a series of staggered payments over the next three years to their shareholders as assets are progressively sold off. This month saw shareholders in Aberdeen’s Degi Europa receive the first tranche of 20% of their fund’s (albeit shrunken, after heavy write-downs) total value. Continue Reading

Frankfurt, May 1st, 2010

Warren Buffett, not surprisingly, is siding with Lloyd Blankfein in Goldman Sachs’ trial before the Senate in the SEC civil suit against the bank. With his company Berkshire Hathaway earning $500m in annual dividends from its $5bn stake in the investment bank, what’s not to like about his partnership with the titans of Wall Street?  Besides, as he said last week at his annual shindig in Nebraska, he would never assume to second-guess what investors on the other side of a trade he was involved in were thinking.  “They could very well be shorting a product, they do not owe us a divulgence of their position more than any reason why we need to explain what we are doing with our position.”

The Sage of Omaha is perhaps being a touch disingenuous, given his stake in the outcome and in the alleged perpetrator.  However, as a trader, he’s fully aware that moral compunctions have no place in the decision as to WHEN to enter or exit the trade.  We suspect that his views might be a little more tempered if he was paying advisory fees to the bank, presumably to act on his behalf, only to have them trade against him.

In the decisive moments of the trial, Continue Reading

This year’s MIPIM was good fun, as always. Nearly anybody we wanted to talk to was there, and most seemed to have time for a chat. We found the pace of the fair agreeable, and highly hospitable in a manner much less frenetic than in earlier years. We attended a wide range of pre-selected events, had plenty of our own appointments, and there still seemed to be enough time for spontaneous, unplanned gatherings, leading to new faces and ideas. Call it serendipity if you wish  - we always associate it with Cannes, and it was there in plenty this year.

Even the entertainment was low-key, in keeping with the buttoned-down tenor of the industry these days. Only the lawyers seemed to have no qualms about making a late-night splash on their harbour-side motor yachts, or in Cannes’ better class of hotel – but then, it’s good to be the winners, whether the market is leveraging up, or trying to negotiate its way out of a lost cause. Somebody has to salvage the MIPIM’s reputation as a glamour event, after all – now that the Russians no longer appear quite so keen to entertain all and sundry, and Europe’s now-nationalised banks have to be seen to be acting suitably chastened. Continue Reading

We bumped into Danny DeVito a fortnight ago in Berlin.  The pocket-sized actor was in town for the Golden Camera awards, the German equivalent of the Oscars, where he was due to receive a well-deserved Lifetime Achievement accolade from his peers in the German movie business.

DeVito has been involved in numerous good movies as an actor, director and producer – but we’ll always remember his role as corporate raider and asset stripper Lawrence Garfield in the 1991 drama Other People’s Money.   Engaged in a battle for control of struggling New England Wire and Cable with ‘old school’ businessman Gregory Peck as the company’s patriarch, the high point of the movie is when DeVito as Larry the Liquidator persuades the reluctant shareholders to take his money and run.  Faced with the encroaching new technology of fibre optics and a share price in terminal decline, the shareholders finally succumb to Larry’s appeal to their pockets. “I’m not your best friend.  I’m your ONLY friend.   I’m making you money”, he explains to them. Continue Reading

I’d always been baffled by the German phrase “Eule nach Athen tragen”.  Its English equivalent, “Carrying Coals to Newcastle” is self-explanatory, given the mining traditions of that hard-bitten northern English town.  But owls to Athens? 

 As it happens, the Greek capital did have a large owl population in its day, even meriting a reference by local author Aristophanes in his play “The Birds”.  However, the popular expression is more likely to refer to the owls printed on the coins in circulation in the wealthy Greek capital.  As such, they stood for a surfeit, an abundance – with the expression coming to mean that adding to the existing stock would be an exercise in futility.

As the EU and the European Central Bank rally round to bail out the modern Greek state, it’s clear that a lot has changed since those halcyon days of Hellenic prosperity.  Although the Greeks are in trouble now, they’re unlikely to be the last nation in Europe in need of assistance.  Others are likely to join them before this year is out. Continue Reading

In one of the livelier presentations at the recent CIMMIT Conference in Frankfurt, the head of Jones Lang LaSalle’s German operations Andreas Quint told the assembled throng of real estate professionals that investment flows are again concentrating on the largest economies. Germany will profit disproportionately from the interest of foreign investors, he declared.

The basic thrust of his premise was this:  This new-found concentration on the strongest economies is a reaction to the crisis in the real estate markets. Smaller markets that rose quickly and subsequently collapsed, such as those in Eastern Europe, will take longer to recover than more developed markets. The most stable markets, like Germany, will benefit sooner from the huge war chests accumulated over the past two years and now waiting on the side lines to enter the market, while prices cool to more reasonable levels. Continue Reading

As we grind our way to the end of a tough year, a new tremor of uncertainty can be detected rippling through the commercial real estate industry. Not, we hasten to add, from the broker community, disturbing numbers of whom are buying readily into the notion of an imminent return to ‘normality’.

Perhaps it’s understandable – transactions, after all, are the life blood of the brokerage and advisory industry. But an up-tick in trading volumes in the third and fourth quarters of this year is no basis for assuming that property prices have reached a new equilibrium, and it’s upwards from here.  We are uncomfortable, too, with the now widely accepted notion that, since the wave of distressed selling in Germany has been conspicuous by its absence, it no longer poses an immediate threat. Continue Reading

To paraphrase Goebbels, to whom the quote is often attributed in a different context, when I hear the word Sustainability, I reach for my revolver.  Goebbels was talking about the ubiquitous use of the word Culture, deemed always and everywhere to be a Good Thing.  While doubtless culture has its merits, the rise of Sustainability, or Nachhaltigkeit, as the supposed panacea for all ills, carries with it the same danger of being rendered meaningless by indiscriminate over-use.

Like “liberty” or “justice”, the concept of sustainability threatens to become nothing other than a feel-good buzzword with no real meaning or substance.  If,  two years from now, the talk is still all about sustainability, it will be obvious that we are still in a deep and ongoing recession, and the real estate industry hasn’t come up with significant new ideas to get the markets moving again.  Sustainability will still be top of the agenda, but green-fatigue will have to be countered by specific commercial marketing of the individual merits of a waste-reducing, energy-efficient, employee-friendly building that can provide solid financial returns to investors and tenants. It will soon have to be more narrowly defined, if it is to continue to have any meaning. Continue Reading