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Premature conclusions
Market Letter #3 '07
In July Cerberus sold part of its real estate stake, which it acquired only around 1.5 years before, to a consortium of Deutsche Bank (60 %) and Pirelli RE (40 %).
It was reported that Cerberus sold, because it was disappointed by its asset returns - and yield expectations supposedly had not been fulfilled. Many heralded this as the end of the German real estate hype.
Cerberus bought the package in November 2005 holding it for more than 1.5 years. Now it recognised that the time was right to cash in. The market has increasingly turned from a buyer’s to a seller’s market and interests have risen lately. It’s in the nature of big Opportunity Funds to buy low and sell high, as fast as they can. So there is nothing sensational in that transaction.
And conversely we saw the biggest office portfolio transaction in German history in May 2007. The German Degi, an open-ended fund, sold its offices worth € 2.45 billion to Whitehall, a Goldman Sachs managed fund, at an initial yield of 4.5 %!
Interestingly enough a consortium of Deutsche Bank and Pirelli RE bought the portfolio from Cerberus. And that’s what we experience in the wake of the value orientated opportunity investors, the so-called second wave of core and core plus investors with mid to long-term investment strategies.
How to take advantage:
Of course not all properties can be sold with profit. And some properties bought by the big players are not worth what they paid.
As time goes by and interests rise, the time is ripe for Opportunity Funds to dispense with their portfolios and move on. So maybe it’s true: the hype is over. But particularly for core and core plus investors the door is open to invest in sound properties, which sometimes can be bought at a bargain price.