It’s a core world out there

March 11, 2015 admin

At our VIP – Europe conference in February, IREI’s Jonathan Schein chatted with Martin Brühl, head of international investment management at Union Investment Real Estate, as well as the president-elect of the venerable 148-year-old RICS (he will be the 134th president; a couple of wars where the British were fighting off the Germans precluded electing presidents during some of the years — but here is Martin anyway), about the challenges he faces in taking a very German, very core-oriented, investment firm into the international investing arena.

What made this discussion particularly interesting was Brühl’s role with RICS. In this position, he promotes the benefits of an international standardized valuation process. How much easier would it be to invest outside your home market if you knew the appraisal process was consistent, transparent and comparative across markets?

Brühl believes that standardized valuations are the lifeblood of the market.

“Accurate valuations allow better decision making by governments, businesses, organizations and individuals, increasing market efficiency,” he said.

The audience, of course, couldn’t let Brühl leave the stage without at least one question about the irony of a German advocating for standardized appraisal criteria — how can you take a German appraiser seriously? But he pointed out that the German property market has an undeserved bad rep when it comes to valuations. Most properties in Germany are appraised on a standardized basis, and it is pretty much only the open-end funds that use the government-mandated process.

Even without standardized valuations, Brühl is rapidly taking Union Investment international. Right now, Union Investment’s portfolio stands at about €24 billion in assets under management, with approximately 70 percent invested in the core European countries and 24 percent in Germany. But the core markets are getting overpriced and their markets are shrinking, so during the next few years, Union Investment will be adding investments in the United Kingdom — primarily regional cities such as Glasgow, Cardiff and Birmingham; London is a seller’s market — as well as Asia Pacific and the Americas. There are about 183 countries in world. Union Investment has narrowed that universe down to 36 investable countries (investable per the firm’s low-risk criteria) and currently invests in 23 of them.

Given that Union Investment is a conservative, core investor, it comes as something of a surprise to hear that it is investing in Asia Pacific. But even Asia has some core regions. Union Investment expects to build a large portfolio in Australia (Brühl really likes Brisbane), and already has assets in Tokyo and Singapore. In the United States, the firm will be investing in gateway cities, but also fast-growing secondary markets such as Austin. When talking to Brühl after his keynote discussion, I told him I had family in Austin. He said he is looking forward to visiting his assets and taking in the live music scene. “Live music scene” seems as good a metric as any when picking a viable investment market.

With plans to put out €2 billion to €2.5 billion in international investments per year, Union Investment’s portfolio could quickly take on a new look.

But being a marathon runner, “quickly” really isn’t in Brühl’s vocabulary. Steady and methodical works better. He noted that when moving into international markets, you need to be patient.

“The best deal is the bad one you didn’t do,” he explained.

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SheilaWebSheila Hopkins is a contributor to Institutional Real Estate, Inc.

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