German insurer Volkswohl-Bund is looking to secondary cities, following a decision to invest in commercial real estate debt for the first time.
Having recently mandated fund manager Caerus to invest 鈧�200m in senior real estate debt, the 鈧�11bn institution sees opportunity away from the core playground of Germany鈥檚 main cities.
The move into real estate debt is yet another example of institutional capital entering a traditionally bank-dominated sector.
Significant yield compression in core locations has pushed investors and lenders towards Germany鈥檚 鈥樷�� in the search for opportunities.
鈥淭here is still demand for finance,鈥� Axel Hoffmann, Volkswohl-Bund chief finance officer told IP Real Estate, pointing to banks鈥� reluctance to lend in 鈥渘iche鈥� sectors.
鈥淭here are market players who don鈥檛 have access to credit in certain markets 鈥� particularly in the mid-sized loan market and in the CRE loan market.鈥�
Whole loans up to loan-to-value ratios of 80% are being offered through the mandate.
While Volkswohl-Bund鈥檚 focus is firmly fixed on domestic real estate, Hoffmann says the US offers a good example of how certain sectors are less crowded than others. 鈥淚f you take project development for multifamily housing in the US, then it鈥檚 very hard to find credit for,鈥� he says. 鈥淪o in certain niches, there is demand.鈥�
Entering a new asset class, the investor is 鈥渃onvinced鈥�, he says, that commercial real estate debt 鈥渕akes sense as part of a strategic asset allocation鈥�.
鈥淲e have our mortgage department, we have a real estate department, so that helps,鈥� Hoffmann says. 鈥淭his sits in between. Low bond rates mean we are somewhat forced to go towards CRE debt.鈥�
For Caerus, the latest backing follows a parallel 鈧�150m commitment from another, unnamed German insurer.
Last year, German insurer Gothaer backed Caerus鈥� Real Estate Debt Fund I with 鈧�50m. The fund also received a 鈧�20m commitment from Swiss private bank, Reichmuth & Co.
Along with junior and mezzanine loans, Caerus said it has been mandated with 鈧�420m for CRE debt, with investments worth 鈧�188m in place.
Fund I has a target volume of 鈥ㄢ偓300m and focuses on German-speaking countries but has not ruled out financing in the Benelux region.
Caerus chief investment officer, Patrick Z眉chner, said there is a pre-conception that German commercial real estate financing was liquid.
鈥淭his is not the case,鈥� he said. 鈥淚t鈥檚 a split market 鈥� there鈥檚 a core market where the banks are active but there鈥檚 a market beyond that.鈥�
The office and retail sectors of Germany鈥檚 鈥楤鈥� cities, Z眉chner added, have been 鈥渓ess volatile鈥� than the prime side.
鈥淚n some cases 鈥� such as a mixed-use asset in a 鈥楤鈥� city 鈥� it is not even a case of pricing but more an issue of basic availability as some German banks have strict lending disciplines. You can find surprises.鈥�
