German institutional investors seeking stability in real estate

GERMANY - The majority of German institutional investors are employing a core or core-plus investment style for their indirect real estate portfolios and increasing risk management for those investments, according to a survey by kommalpha.

The Germany-based financial services provider - which polled more than 70 insurance and pension funds in October in a study commissioned by IMC Privatinstitut for Immobiliencontrolling - found that more than 60% of the institutions applied a core/core-plus strategy in their indirect real estate portfolio.

Another 52% used value-added strategies, while only 30% of all investments were opportunistic.

Just over half of respondents said they used the quarterly reports from their managers for risk controlling, while 36% use monthly reports.

Only 9% use individualised queries, and those who do are chiefly interested in details on a given property, return figures, financing and currency details.

Already 44% of all polled institutions have included indirect real estate into their risk measurements under MARisk, the risk management regulations in Germany that have been in place since 2009. Another 44% is currently implementing the new standards.

The risk measure most widely used is Value at Risk - 75% are already using it, while another 19% are thinking to apply it in future.

Scenario-based analysis are used by half the investors - mostly for checking the current market price, the currency situation or rental income - but only 19% are using scoring models.

All polled investors agreed information requirements from asset managers would increase significantly due to heightened risk awareness making the construction of indirect real estate portfolios more complex.

On average, the real estate portfolio of a German institutional investor consists of approximately nine indirect real estate investments, most of them either German Spezialfonds or a Luxemburg structure. REITs remain of little interest for German investors. 

Three-quarter of the investments are in Europe, and of those, 58% are in Germany.