Dollar Fall May Trigger German Property Sell-Off


The U.S. dollar's slide against the euro could make it attractive for U.S. investors who bought real estate in Germany three or four years ago to start offloading some of those properties.

The exchange rate effect was among factors expected to shape the German real estate investment market in the near to medium term, according to speakers at a property conference in Berlin on Tuesday.

Property investment units of big U.S. banks as well as U.S. property funds and U.S. private equity companies have been at the forefront of an overseas charge into the German real estate market in recent years.

After a decade of almost flat prices, property in Europe's largest economy was seen undervalued relative to other European markets and budding signs of a recovery in German economic growth underpinned expectations of higher prices, rental growth and lower vacancies.

In 2007, when the German property investment transaction volume hit yet another record -- 75 billion euros ($116 billion) -- half of the buyers were Anglo-Saxon, said Marcellino von Hoensbroech, managing director at London-based CarVal Investors with $17 billion in assets under management.

"If and when we see signs that the dollar's slide has come to an end, which I haven't seen yet, I think we will see a massive wave of selling," Von Hoensbroech said, referring to U.S. investors with German property holdings.

The dollar has fallen against the euro, and many other currencies, since the start of 2002.

It hit a record low of 1.60 per euro last month, against 1.35 one year earlier and 1.10 in April 2003.

Hence, euro-denominated assets such as German real estate have risen in value in dollar terms, an increase that clearly outweighs the so-far modest decline in property prices stemming from the global credit crisis.

Less Volatile

"Germany's property market is far less volatile," said Peter Schreppel, head of international investment for Germany at property consultancy CB Richard Ellis.

While office property yields, which move in the opposite direction to prices, have risen by as much as 150 basis points in London's West End due to the credit crisis, the yield rise for top German locations is only 25 basis points, he said.

And while office rents have begun to fall in London as banks and others in the financial industry cut jobs, rents in Germany are still on the rise, Schreppel added.

The factors that made German property attractive a few years ago remain intact, but the new capital market environment, notably the limited access to financing, means tomorrow's buyers will be different from the highly leveraged opportunistic investors who dominated in the past few years when credit was abundant and cheap, the conference speakers said.

There is the expectation equity-strong investors, primarily those taking a longer view such as German open-ended property funds and sovereign wealth funds, will become prominent buyers.

In a reminder of how hard it can be to predict trends, Hanspeter Gondring, head of the ADI academy for real estate studies, recalled how real estate investment trusts (REITs) had been the hot theme at last year's conference, before the U.S. subprime meltdown.

"Today, nobody cares about REITs," Gondring said, referring to the stock exchange listed property investment vehicles which became possible in Germany in spring 2007 but failed to take off, mainly due to the credit crisis.