© H2i
Dr. Tilman Hickl, Managing Partner, H2i Asset Management
In Germany's dynamic real estate landscape, H2i stands as a bridge, connecting project developers with institutional investors. REFIRE recently sat down to talk with Managing Partner Tilman Hickl about EOF (einkommensorientierte Förderung), a program offering a unique opportunity for investors in Bavaria. The context for this programme, and for our discussion with Dr. Hickl, is expanded upon in this issue of REFIRE, in the article – “How can investors unlock potential in Germany’s social housing market?”
REFIRE: How do you see current efforts in Germany to address the housing shortage? Are there any specific examples of states taking approaches of their own in order to boost affordable real estate developments?
Dr. Tilman Hickl: Germany faces a shortage of nearly one million housing units, not only in metropolitan areas but also in regional markets, ranging from medium-sized cities to small towns. This highlights the specific challenge of Germany’s federal system in addressing the current acute housing shortage and makes Germany particularly intriguing for international investors in the housing market, especially as real estate prices have fallen significantly. However, while some states are setting a good example in combating the housing shortage, others are still hesitating. Bavaria for instance has launched a special program called EOF, which is complex in its structure but extremely effective and could serve as a model for other states.
What is the Bavarian EOF and how does it function?
EOF is a unique social housing program that addresses both, housing supply and affordability. Developers building affordable housing qualify for extensive subsidies and low interest loans while the tenants – eligible tenants are from low and middle income families – receive monthly subsidies for their rent payments. Funded by the Bavarian state, the program helps bridge the gap between market rents and what these households can afford.
How does EOF benefit institutional investors?
Institutional investors seeking a "win-win" scenario will find EOF particularly attractive. The program offers a trifecta of benefits: stable returns, low risk, and strong ESG compliance. The logic is clear: EOF-subsidized housing ensures availability beyond free market demand for consumers due to rent controls, while at the same time ensuring a predictable income stream for investors. The icing on the cake comes with the strong ESG credentials associated with EOF. By investing in affordable housing, institutions directly contribute to achieving the UN's Sustainable Development Goals. This makes EOF a perfect fit for investors seeking not only financial returns but also a positive social impact.
Why is EOF needed outside of the top 7 cities in Germany?
While the challenge of finding affordable housing is felt nationwide, the need can often be even more acute in Germany's rural markets. Unlike the top 7 cities where institutional investors are heavily present, competition for available properties is less fierce. This translates to a situation where the squeeze on affordable housing spans not only to major hubs, but also to smaller cities and towns. EOF steps in precisely to address this disparity. By offering financial support to developers building affordable housing, the program helps bridge the gap and ensure a more balanced housing market across Bavaria, not just the major metropolitan areas.
What are the advantages of investing in the German regional market?
The allure of Germany's major cities is undeniable for institutional investors, but a closer look reveals a compelling proposition in the nation's regional markets. Property prices here are significantly lower compared to the top 7 cities, offering a more accessible entry point and the potential to build a diversified portfolio. This affordability advantage isn't the only draw. Regional markets boast higher rental yields, translating to a potentially stronger cash flow for investors seeking income-driven strategies. But perhaps the most compelling aspect is the unwavering demand for housing. Across Germany, rural markets mirror the national trend, boasting a steady tenant pool. This translates to strong occupancy rates, minimizing vacancy risks and ensuring a consistent income stream for investors. In essence, the German regional market offers a unique combination of consistent demand, lower entry prices and strong yields, making it a force to be reckoned with for institutional investors seeking attractive opportunities beyond the major cities.
And in particular in Bavaria?
In our opinion, there are three plain reasons why Bavaria is so interesting for investors in subsidized housing projects. First, Bavaria’s diversified economy ensures stable demand for affordable housing, not only in the capital, but across the whole state. Second, the Bavarian government provides ongoing financial backing, signaling long-term commitment. And third, renowned for its exceptional lifestyle across the state, Bavaria attracts tenants to EOF-subsidized housing even in smaller cities and towns.
Drawing on your experience at H2i, what are you seeing in terms of investor interest in EOF?
H2i's deep understanding of both the EOF program and the German regional market allows us to excel in structuring, financing, and realizing these projects. We are committed to providing our clients with high-quality investment opportunities that unlock the full potential of the regional market.
How do you see the EOF program and the German regional market evolving in the coming years?
The future of EOF appears bright, especially with regard to the affordable housing crisis in Germany – and obviously brighter than many other real estate investment opportunities. The government's commitment to affordable housing suggests continued program support, potentially with adjustments to address regional imbalances. Additionally, the growing focus on ESG investing will likely further enhance the appeal of EOF for environmentally and socially conscious investors.
Beyond connecting investors and developers, does H2i offer any additional services related to EOF projects?
Absolutely. H2i goes beyond simply connecting investors with developers. We offer a comprehensive suite of services tailored to EOF projects. This includes identifying suitable investment opportunities, conducting thorough due diligence on projects, and providing ongoing asset management services. Our deep understanding of the program and the market allows us to navigate the complexities of EOF investments and ensure our clients’ success.
