INTERVIEW: Striking a balance between size and agility

As Commerz Real and its flagship Hausinvest fund register unprecedented deal flows, CEO Andreas Muschter seeks the sweet spot between tradition and modernity. In an interview with PropertyEU, he looks back on an 'exhausting' 2019 and discusses plans for the year ahead.

Andreas Muschter, the energetic, 47-year-old CEO of Commerz Real, Commerz Bank’s real asset arm, has myriad plans for 2020. From building on the firm’s sustainability initiatives, to consolidating its digital drives, there is also the small issue of overseeing the continuing growth of a hugely successful real estate fund which has virtually become a household name.

Commerz Real’s flagship Hausinvest fund is approaching its 48th birthday this year, but it would be fair to say that there is life in the old dog yet. The open-ended property fund recorded its most acquisitive year on record in 2019, buying nearly €5 bn of assets and exchanging on some €7 bn of deals to reach a total volume of €16 bn (2018: €14 bn).

Leaving 2018’s transactions total of €2.8 bn in the dust, Hausinvest was able to capitalise on ‘unique events’, according to Muschter, to drive some of the industry’s most enviable acquisitions. These included the purchase of the Millennium portfolio, comprising 49 core properties in German premium locations for around €2.7 bn; the deal for office campus Tucherpark in Munich (€1.1 bn), and the participation in 10 Kaufhof department stores across Germany (€412 mln).

Millennium milestone
‘The Millennium Portfolio is the most significant portfolio I have come across in my career,’ said Muschter. ‘But it was some 40 years in the making. These kinds of assets are being sold not because their owners are riding the property cycle – they’re simply unique events.’ Comprising 26 offices, 14 residential properties and nine retail assets – and a total leasable area of more than 352,000 m2 in 10 inner-city locations – Commerz Real beat off stiff competition to close the deal with Italian insurer Generali’s German arm in September. Despite its size and diversity, Muschter said that an extensive non-core sell-off was unlikely to follow.

‘We are constantly approached by people who want to buy individual assets from the portfolio, so the temptation is there to lock in some sales. There are some non-core assets there we don’t need to own in the future, and we will shed some of those before we get too deeply involved.  But the purpose of the deal was to bring long-term value to our clients, and we don’t do that by immediately splitting it up,’ he said.

‘The other aspect is that we managed to raise Hausinvest’s leverage to about 15% last year, thanks to a higher debt-to-equity ratio, and thus secure the benefits of the historically low level of interest rates for the fund in the long term,’ Muschter added. ‘We could go up to as much as 30%, but would be comfortable at 25%. That means we have a least another 10% to go. The point of relatively cheap debt is that you spend it – you don’t leave it in bank accounts.
‘Plus, if you have a fund which has existed for 48 years, has never lost a dime and has a core portfolio with €16 bn of assets, you get the best financing conditions.’

Into the woods
Hausinvest hit the headlines again weeks after the Millennium deal as it closed on the acquisition of the mixed-use Tucherpark quarter in Munich for €1.1 bn. Currently known as the

HVB campus, comprising 148,000 m2 of space across 10 listed buildings in the city’s downtown, the vendor was HypoVereinsbank (HVB), a subsidiary of global banking group UniCredit.

HVB occupies one of the seven offices in the portfolio, which comprise a total of 99,000 m2. The estate also includes a 5-star Hilton Hotel with 484 rooms on 36,000 m2, a data centre covering 10,800 m2, plus a sports complex with some 2,300 m2.

The riverside, wooded Tucherpark, named after a former HVB board spokesman, was built in the late 1960s by HVB as a non-conventional business campus in the grounds of an abandoned mill. Listed as an historic ensemble, sources suggest that UniCredit’s more recent attempts to sell the site stalled in part due to buyers being wary of its protected status.
HVB and Hilton are the only sitting tenants in the portfolio, with the former planning to stick around for five years, according to media sources. ‘It depends on how their plans unfold within the next years,’ said Muschter.

Commerz Real’s partner in the deal was global investment group Hines, although Muschter underlined that Commerz Real’s ownership is ‘close to 100%’. ‘We have created a joint venture with Hines to pursue future development opportunities on the site,’ he explained.

The park’s potential transformation – on 15 hectares of prime downtown land – now hinges on the local authorities’ appetite for change. Muschter suggested that Commerz Real will take a ‘softly, softly’ approach in the near term.

‘We calculated the deal on the basis of the existing cash flow, so anything more that arises would be the icing on the cake,’ he said. ‘HypoVereinsbank are sticking around for another few years so that gives us time to sit down in discussions with the local authorities. The current zoning plan allows for the refurbishment and maintenance of its current footprint. We would like to explore developing residential on the site. There is already one residential building on Tucherpark, although not part of the portfolio we acquired.’

Most of the buildings have been refurbished since 2018, giving Commerz Real a little more time to enjoy its office revenues while redevelopment talks progress.

Kaufhof deal
HausInvest continued its winning streak by clinching another deal around the same time as Tucherpark – securing 20% of 10 Kaufhof department store assets across Germany from Austrian group Signa.

While this looks like a very different deal, Muschter said it fitted with the fund’s appetite for acquiring projects with potential, and then assessing them individually.

'Similarly to the Millennium portfolio, we are securing properties in prime locations at an attractive price for Hausinvest which would not normally otherwise be available,’ said Muschter. ‘This is another great deal for our investors. We know the JV partners quite well and we aim to create value on an asset-by-asset basis. On the one hand, it’s a cashflow deal, and on the other, a value-add opportunity across a very strong portfolio.’

All the stores are located in high street and prime locations in Berlin, Düsseldorf (2), Cologne, Munich, Stuttgart, Bonn, Hanover, Frankfurt and Mannheim. They are fully leased to Galeria Kaufhof, with an average residual lease term of more than 16 years.

The partnership between Signa and Commerz Real plans to ‘maintain and raise’ the value of the assets, with one idea already in the works, for example, to build a 130-metre high, 33-storey tower at Alexanderplatz in Berlin next to the existing Kaufhof store.

Muschter said: ‘We are convinced of the Galeria Karstadt Kaufhof strategy and know the operator has strong value-creation plans across the retail side. But we both also see huge potential beyond that.

‘If you look at the locations, you can think about exploiting their potential for adding logistics, offices and even residential. Those with parking spaces can be used for car-sharing, click-and-collect or other hybrid initiatives. We believe that customers will always be mixing offline and online purchases, we believe in physical retail, and believe that its future is about creating opportunities.’

Seeking innovation
While it was Hausinvest’s mega deals that captured the headlines in 2019, plenty of other signs emerged of the fund’s ambitions and agility. The fund returned to Finland’s office market after nearly 10 years, and inked a €132 mln office deal in Spain after a 14-year hiatus. It was also the year that Hausinvest unveiled plans to move into residential investment in a significant way, targeting a €2 bn spend over the next five years, in partnership with Wertgrund Immobilien.

‘We did do some residential in the past – particularly in Frankfurt and Berlin. But we were always convinced that we didn’t have enough residential expertise to really get into the market and pick the right assets. We were looking for a partner for a long time,’ Muschter confirmed.

‘Wertgrund has proved a perfect match. They share the right ideals and objectives, in terms of matters of balance with social housing, sustainability, connectivity etc. That partnership has already generated over €200 mln of deals this year. We also picked up some €600 mln of residential properties with the Millennium Portfolio.’

In terms of Hausinvest’s territorial expansion, Muschter said the timing had again proved right. ‘Finland doesn’t have a huge and liquid market but we had an opportunity there with a JV partner that we have been closely linked to for some time. We’ve invested in Spain in the past, we understand the country, and the upside and downside potential of Europe. Barcelona is one of the most impressive cities in Europe, dynamic and growing still further.’

Further diversification
Perhaps spurred by the success of the return to residential, Muschter confirmed that another popular asset class, logistics, was likely to be back on the shopping list in 2020 – albeit with highly defined criteria.

‘Logistics today is seen as a way to remedy retail real estate investments – balancing offline losses with online transactions. But we always had the feeling you had to move a little carefully with logistics, steering clear of locations where you’re essentially replaceable. I think urban logistics has a strong rationale, especially if you see how people are moving more and more from the countryside into cities. We are looking at cities with a dynamic future, growing universities. As mentioned, the Kaufhof portfolio also has plenty of potential in this area – Kaufhof has a great logistics strategy, outstanding street access, huge storage rooms. We think that’s perfect for inner-city logistics management.’

Picking up on other key trends, Commerz Real’s institutional business made significant strides in the hotel, smart living and infrastructure segments in 2019, as well as in the renewable energies sector. Its €1.2 bn of new business volume was around triple that of the previous year, permitting the expansion to nine funds for professional and semi-professional investors.

Muschter said he remained excited about the continued emergence of the hotel investment scene. ‘In 2014, we took over the hospitality team from EuroHypo, and I like to say we have the best hospitality team in Germany, if not Europe!’ he quipped.

‘We sold Hotel de Rome in Berlin last year and now two hotels in Munich for a very attractive price. We financed a further project development and have a very good and very attractive hospitality portfolio worth close to €1.5 bn right now. We often do off-market transactions; operators approach us and like to work with us. That is one of our success stories.’

Digital and sustainability
Commerz Real bought shares in three fintechs and proptechs in 2019, namely Bergfürst, Arabesque S-Ray and Share Your Space. With a 24.9% stake in crowd-investing platform Bergfürst, Muschter said he saw the business as an addition to the firm’s ‘multichannel’ capabilities. ‘There will still be our analogue partners such as banks, but there is need for a digital channel – for users who decide by themselves how they want to invest their money. We are convinced that multichannel is the future,’ he explained.

The investment in sustainability data-provider Arabesque S-Ray, on the other hand, ‘taps into the fact that sustainability is the mega trend of the future’. Muschter added: ‘We need to ensure that we get transparency into our assets and then benchmark it, so our users can assess if they’re meeting the expectations of their stakeholders.’

Similarly, Share Your Space’s flexible office mandate addresses sustainability issues surrounding property footprints. ‘It’s another company that is very close to our challenges, in which we would continue to make strategic participations,’ he confirmed.  ‘Sustainability remains a key challenge for us in 2020. It applies to our projects, our people, and our companies. We will be focusing on this for the next decade – and probably forever.’

The other slogan for 2020 is ‘stop starting, start finishing’, Muschter added. ‘Last year was the most exhausting year yet for so many reasons. One was obviously the huge amount of transactions, but also digitalisation and sustainability added a lot of work. We want to focus on consolidation this year, to make sure that everything we started is still as exciting as we thought at first glance. And in January, we’ve already hit the ground running.’

Seasoned manager with a zest for seeking new boundaries
Dr. Andreas Muschter has been the CEO of Commerz Real AG since January 2013, with specific responsibilities for all real estate topics, and for the transformation of the company into a sustainable digital asset manager. He became a member of the board of management back in December 2009, when he was appointed chief financial officer. Prior to this Muschter, who has a doctorate in law, headed Commerzbank Group’s M&A activities.

He is also a member of the supervisory board of Bergfürst and of the advisory council of Share Your Space. He is a member of various industry federations, including the executive committee of ZIA (German Property Federation), ICG (Corporate Governance in the German Property Sector Initiative), the executive committee of ULI (Urban Land Institute), and the advisory council of Quo Vadis, as well as being on the boards of trustees of several cultural and social bodies.

The history of Hausinvest 
After 47 years on the market, Hausinvest has attracted over 800,000 investors in nearly five decades, achieving a 2.5% net return on average. It currently holds 127 properties with some 3,000 tenants.

Established in April 1972 with a focus on German properties, Hausinvest survived the oil crises of its first decade with a stable performance, emerging in 1983 – after three years of severe recession – with the best sales result since the fund was launched. Net inflows of around €85 mln – compared to the previous year’s €13 mln – opened up new investment opportunities, and allowed fund managers to dream bigger.

Hausinvest first expanded its geographical horizons in 1995, unsurprisingly heading for the buoyant London market. The Milton & Shire House office property in north London gave it a taste for overseas trade, and acquisitions in the Netherlands, France, Italy, Sweden, Austria, Portugal, Belgium and Spain followed. 

By the turn of the Millennium, it had achieved a fund volume of €5.1 bn – ten billion Deutschmarks. Following the switch into Euros, and the financial crisis of 2007-2010, its €11 bn of diversified holdings made it one of the largest open-ended real estate funds in Europe in a time where other funds were failing.

The last 10 years have seen the fund expand further, finding its feet in targeting some of the industry’s largest deals. The acquisition of Munich’s HighLight Towers in 2016 for €500 mln marked a new individual transaction record for the fund.

Some €7.1 bn of transactions in 2019 have brought the fund’s total to nearly €16 bn, with fund managers successfully adding a net €3 bn of assets in the last 24 months.

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