von Torsten C. Wesch, Managing Director, redos institutional.
General opinion seems to be that increasingly, core real estate property is scarce or simply too expensive. In addition it is said, pressure to invest remains high on institutional investors, who are therefore taking ever higher risks. I have not observed this development, at least not to the extent often suggested.
In my opinion, the rule especially for domestic institutional investors is: the existing set of risk parameters is not likely to get watered down. Let us take a look at retail properties for example. In this case, the risk parameters contain all kinds of factors for success, such as the composition of the portfolio – uniform versus non-homogenous – or the asset-management strategy on an individual property level, again containing anything from construction law on changing or extending utilization to the rental concept and utilization mix. Each one of these factors has the power and individual weight to thwart a sale. Therefore, portfolios often contain varying location qualities, building types and formats. If the offer is not sufficiently homogenous, it will likely be discarded.
These parameters have changed little and have been used for years. Offers still have to pass significant hurdles in order to get considered. Only after that will the return be assessed, which is in itself determined by the above parameters. Different approaches are of course equally legitimate, however the current course of action for a typical German insurance company or pension fund with an investment horizon of 10 years or more still follows the traditional path. Choosing a new approach might get one labelled as an opportunistic investor or one with at least some of the characteristics. In my opinion, truly security-oriented investors generally remain that way. I make this observation regardless of utilization, even though I chose to use the example of retail property.
Naturally, investment patterns have changed somewhat over the last few years. Especially long-term investors take their time to perfect a portfolio. With successful asset management, a non-core property can absolutely be transformed into a core property, as has been shown in the field again and again. The know-how and willingness to work on existing properties is there, always making sure of course – and I am happy to reiterate my point – not to infringe any of the risk parameters.
About the author
Torsten C. Wesch is managing director of the redos institutional GmbH, a subsidiary of the redos real estate GmbH, and has more than 20 years of management experience in the real estate industry. redos real estate is an asset manager, investor and developer specialised in German retail assets.