Beijing Buyers

China Shopping for German Real Estate

Adlerwerke Frankfurt
Chinese-backed investors Ginko Tree bought the Adlerwerke office building in Frankfurt for 110 million euros.
  • Why it matters

    Why it matters

    Investment funds from China are quietly hunting for commercial real estate deals in Germany, which is seen as a more attractive market than Great Britain or France.

  • Facts

    Facts

    • Chinese investors typically favor purchases of buildings in the €300 million range.
    • Many Chinese investments are difficult to track because they often operate through investment companies formed outside the mainland, or with local partners in Europe.
    • The Chinese government is planning to reduce the amount of red tape and regulation surrounding property investments abroad.
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    Audio

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The Chinese are here. Anyone reading German real estate market statistics may find it hard to believe, since China doesn’t even appear among the ten most important buyers of industrial buildings in the last decade, but the statistics are deceiving. An analysis by the international commercial real estate services and investment management firm Jones Lang LaSalle found that Hong Kong investors spent more than €24 billion ($30.71 billion) on commercial real estate. What percentage of that amount came from mainland China is unknown, but it is clear much of the money is flowing from Beijing through Hong Kong.

In August, for example, the Hong Kong-based financial investor ACapital purchased ten three- and four-star hotels with a total of 1,250 rooms in Germany together with the Belgian Louvre Hotel Group at an estimated price of €30 million. The low price can be attributed to the need for considerable additional funds to modernize the properties. ACapital’s largest investor is the state-owned fund, China Investment Corp. (CIC), the fourth-largest fund of its kind in the world and worth €575 billion.

Chinese money is often not easy to recognize because it flows through a variety of investment vehicles created outside the country. Many Chinese investors are already in Germany, but they seldom invest alone, said Piotr Bienkowski, head of Germany BNP Paribas Real Estate.

Sometimes they work with a local partner, which happened with the purchase of a large chunk of historical office space in the former Adler works in Frankfurt by Gingko Tree. Gingko Tree is controlled by China’s State Administration of Foreign Exchange, an entity only slightly smaller than China Investment Corporation, with the Ireland-based asset management firm Pramerica also participating. The deal for the 79,000 square meters of office space was valued at €110 million.

Chinese institutional investors face the same challenges as major investors in other countries. Bonds with small returns dominate their portfolios, which is why they strive to increase the number of real estate holdings. At the same time, they want to lower their monetary risk from piling up enormous amounts of financial reserves.

“Germany is a bit hazy for foreign investors because there is no dominating city.”

Frank Pörschke, CEO of Jones Lang LaSalle Germany

Following the example of major Korean investors, China took its first steps into Europe via London. Ordinarily, the next destination would likely be Paris, but the Chinese detoured instead to Germany. “The top German markets are currently offering higher returns compared to London and Paris, where returns have recently continued to slip,” said Fabian Klein, head of investment at CBRE in Germany, the world’s largest real estate services company. Yvo Postleb, who directs business in Germany for rival DTZ has a similar view, particularly since France faces an uncertain financial future. “With increasing pressure to invest,” he said. “Germany is becoming more interesting.”

Chinese investors found the early going difficult. “Germany is a bit hazy for foreign investors because there is no dominating city,” said Frank Pörschke, head of JLL in Germany. In contrast to Great Britain and France, seven cities in Germany must be analyzed for industrial properties rather than one country capital like London or Paris.

Mr. Postleb said major state funds tend to seek out buildings in the €3oo million range, though they’ll act on other properties, too, as the purchase of the Solo West office building in Frankfurt for €45 million by the financial investor A.E. proves.

Chinese investors are still learning about the German real estate market. Jones Lang LaSalle analyzed bids for offices over the last 18 months with a volume each of €100 million ($127.95 million), and a total value of €1.3 billion ($1.66 billion). Seventy percent of the losing bidders were cross-border investors from countries like China. Mr. Pörschke said, “The competing bidders of today are the buyers of tomorrow.”

 

Biggest Sovereign Wealth Funds-01

Things will be easier for Chinese investors in the future. In the past, they often lost the bidding wars because they first had to have their foreign investments approved, a process that could take up to six months, according to the commercial real estate services company Colliers International Deutschland. The Chinese Ministry of Commerce announced a few days ago it is waiving the approval requirement for many foreign investments of Chinese companies.

Now, most of the transactions simply need to be reported. “The new ruling creates more confidence that transactions can be successfully carried out,” said Ignaz Trombello, head of investments at Colliers International in Germany.

 

 

Reiner Reichel has been with Handelsblatt since 1995 and currently specializes in the real estate sector.   To contact the author: reichel@handelsblatt.com

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