The €50 billion rescue of German commercial real estate lender Hypo Real Estate could prompt investors to be even more cautious and adopt a wait-and-see approach in the belief more distress – and more opportunities – could be created in the near future.
ING Real Estate European chief investment officer Will Rowson, speaking to journalists at the ExpoReal conference in Munich, said the second liquidity package offered by a consortium of banks to Hypo, and supported by the German government, at the weekend could result in an “extra element of caution.”
He added that investors might believe prices of real estate, and financial assets, will get cheaper over the next three months and “if you don't think your competition will get any stronger than why not wait. Any extra doubt in the market is going to fuel that sentiment.”
It comes as ING Real Estate published research showing the German real estate market would not escape the effects of the global credit crunch. Although fundamentals in the country were still strong, the study said office demand was expected to slow during the second half of 2008 compared to record take-up of office space in the first half of this year.
Equity-rich investors, such as private equity real estate managers, were therefore in a prime position to take advantage of potential distress in the market. “Distressed and repriced properties are increasingly the target of newly launched opportunistic funds,” the report concluded.
Buddy Roes, head of ING Real Estate's German investments, said Germany was not going to be “immune” from the financial situation but that fundamentals would help the economy perform “relatively well” with recovery expected in the “mid-term.”
On Sunday, German chanceller Angela Merkel said the government would not let “problems at one financial institute spiral into a crisis of the entire system” after a proposed €35 billion rescue package for Hypo broke down.
The new scheme announced yesterday, and backed by a government credit guarantee of €26 billion, has now increased the financial package to €50 billion and will be provided by a consortium of other financial institutions.
In June, private equity firms JC Flowers and Grove International, working with Japanese financial institution, Shinsei Bank Limited, invested €1.1 billion in Hypo for up to 24.13 percent of the firm’s shares. Since the deal was announced, Hypo's shares have dropped more than 75 percent in value.
At the time, Flowers said it wanted to expand Hypo’s position including growth in German and international markets, but particularly in Japan. One “significant” opportunity, the firms said, was working with Shinsei Bank where it could help provide commercial real estate and public sector financing.
In a brochure advertising Hypo's recent transactions, and being offered to delegates at the ExpoReal conference, the lender highlights recent deals including helping provide €305.6 million to Pirelli Real Estate and RREEF for the acquisition of 29 buildings from Italy's ENPAM pension fund and providing €95 million for The Carlyle Group's acquisition and refurbishment of Tour Franklin in Montreuil sous Bois.