weekly investor newsletter Volume 8 | Issue 251 | 9 April 2012

INSIDE ❱❱〉

Capricorn, eBay's Skoll target London, German RE

German home- building to rise 16% through 2014

German Allianz buys €200m in Hamburg

Valad achieves €1.1bn DUKE refinancing

Russia’s PNK warehouse sale signals new trend

French RE invest- ment slumps in first quarter

Credit Suisse closes €290m German fund

Ivanhoé Cambridge pays €245m for Peugeot HQ

Spanish evictions rise 22% but repossessions drop

OUT 16 APRIL252 Property

Investor Europe

Ignored secondary assets ripe for turnround Core property funds remain acquisitive for the right product and the weakness of European curren-cies is attracting opportunistic investors, says realtor Savills. But rising capital flows and risk accept-ance may signal a turnound in neglected secondary assets. (See inside pages for full story)

French real estate returns 8.4% in 2011 – IPDFrench real estate recorded an annual return of 8.4% in 2011, according to IPD, with a rental yield of 5.6% and a capital return of 2.7%. The latter is mainly due to stability of rents (+0.6%), while entry yields fell to 5.9% on average across all products. (See inside pages for full story)

Korean family office in first Brussels RE buyKorean family office NXHM, part of the financial interests of the J. Kim family who owns a majority of one of the largest online gaming companies in the world Nexon, has made its first property invest-ment in Brussels - a €16m office acquired from Germany's IVG. (See inside pages for full story)

German Eurohypo ends with €3.5bn lossGerman property financier Eurohypo posted a €3.5bn loss in 2011, its last year as an independent entity. The bank will be wound down, and core real estate activities transferred to parent Commerz-bank in accordance with conditions imposed by the EC. (See inside pages for full story)

Polish retail projects boom in smaller towns Retail development is booming in smaller Polish towns and is responsible for 68% of retail space in 1Q12 and nearly 40% of total under construction, realtor Jones Lang LaSalle reports. The Polish market continues to attract new entrants and expansions. (See inside pages for full story)

Spanish land prices plummet to half of 2007 Land in Spain may be worth as little as 50% of its pre-crisis value in 2007, and has gone from being the main factor that pushed house prices higher to the biggest drag on property value, according to industry insiders. (See inside pages for full story)

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Spanish land prices plummet to half 2007 Land in Spain may be worth as little as 50% of its pre-crisis value in 2007, and has gone from being the main factor that pushed house prices higher to the biggest drag on property value, ac-cording to industry insiders.

Land is financial institutions' biggest headache as it presents the biggest obstacle to selling real estate, and is the real ‘sub-prime’ of the Spanish financial sector, Lorenzo Castilla, commercial direc-tor of real estate developer Vallehermoso, told El Confidencial newspaper. At end-2011, urban land prices were €182.5 per sq.m., down 19.8% on 4Q10 and marking the fifth consecutive year of falls, according to the Development Ministry. This repre-sents a fall of 35.9% since 4Q06, when prices went into free fall. In comparison, housing prices have fallen by 19% since 1Q08.

“Good urban land is now worth 50% less than in 2007, which puts prices at 2003 levels, while land considered poor, due to its bad location, is worth nothing, as if it were rural or agricultural land,” Castilla said. Referring to the 80% provisions banks will be required to make to cover land assets in their portfolios, he said such an amount might be excessive for land in certain areas, such as Madrid’s periphery, or insufficient for parcels in other areas.

According to Fernando Rodríguez Acuña, president of Madrid-based real estate consultancy RR de Acuña y Asociados, land in metropolitan areas has shed 65% of its value, and by 95% in non-metro areas. “In some cases the price is symbolic, it’s worth noth-ing, and once real estate developers acknowledge that they will be bankrupt.” He identifies the massive financing for land purchas-ing as the culprit of the crisis afflicting the sector - unlike in other countries which avoided a similar risk, caused by low interest rates, carte blanche with credit, and demographic pressures.

Juan Fernández-Aceytuno, director general of Madrid-based surveyors and valuers Sociedad de Tasación, said land prices are difficult to determine because there is no active two-way market. “I’ve been speaking more English than Spanish in recent months as ratings agencies and investment funds ask me how we can value land in Spain," he told the publication. "Land is worth what the markets are willing to pay, which is why they see it as expensive.” The collapse of land prices has been much more acute compared to housing because there are no buyers. “The number of deals is

revealing. They are not real land sales but, in the majority of cases, exchanges among banks and developers in exchange for future houses but there is no market outside these transactions.”

Spain’s real estate boom saw annual land transactions worth €20bn, with more than €7bn transacted in one quarter alone. In 2011 deals totalled €3bn, with just €3bn worth of land trans-acted in 3Q11, as a result of the lack of liquidity and restricted financing. Local councils offering land at discounted prices have exacerbated the situation, pushing prices down further. pie

Multi/Corio €120m German mall attracts 48,000 Arneken Galerie, a 28,000 sq.m. shopping centre developed by the Dutch Multi Corp and investor Corio in the northwest Ger-man town of Hildesheim, attracted 48,000 visitors at its opening last week. Total investment in the new mall was €120m.

Designed by Multi’s inhouse architectural company T+T De-sign, the mall offers gallery space on three levels for 90 retail stores, catering and office units, service centres and a daycare fa-cility. Along with anchor tenants Saturn and H&M, retail brands include Mango, Depot, Schuhkay, Intersport Voswinkel, Brax, idee.creativ, Wanderzeit, Camp David, Esprit, Mustang, Triumpf, Tom Tailor, Engbers and Douglas - alongside regional operators.

Designed as an open city district, Arneken Galerie comprises three buildings that blend into the surrounding townscape. Two open pedestrian shopping streets are linked with the main building to the prime shopping street Almsstrasse, creating a new route in the city centre. With an inter-play of paths and squares; a new and most attractive urban environment has been created to provide a high quality experience for visitors and customers, Multi said.

Some 480 guests attended the opening ceremony for the mall, which also boasts a 17th century vaulted passage discovered dur-ing archaeological excavations of the site. Along with other finds from the Thirty Years War, the passage is displayed in the gallery telling the story of Hildesheim between 1550 and 1650. Other components include an oversized visual wall in the main build-ing and an observation deck on the roof. Arneken Galerie also offers a 1150 sq.m. daycare facility, for which an operating grant was presented by Peter Block of Sparkasse Hildesheim and Axel

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Funke, CEO of Multi Development Germany. Arneken Galerie is certified with BREEAM Excellent” for sustainability, based on eight categories, including air and water pollution, land use, op-eration of energy and CO2 emissions. pie

German homebuilding to rise 16%– LBSGerman residential construction is on its way to recovery, with building permits rising by 22% last year, and mortgage lender LBS, part of the savings bank network and the nation’s largest building society, expects new construction to rise by 16% until 2014.

On the European residential construction table, Germany is set to move up to place 13 from 16, with a construction inten-sity of 2.3 new apartments per 1,000 inhabitants this year, LBS expects. It will leave Denmark, Italy, the UK, Spain, Hungary and Ireland behind.

Switzerland heads the table with an intensity of 6.1, followed by Finland (5.9) and France (5.5). In 2010, Germany left last place for the first time in six years. New construction in the country is still below ‘normal’ levels of three to five apartments per 1,000 inhabitants, said LBS. For 2013, LBS expects an in-tensity of 2.7 for Germany. Portugal will fall to 1.5 and last place from 2.6 and 12th place this year. It expects a slight upswing for Spain, Ireland and Hungary. pie

German Deka buys in Amsterdam, LondonGerman savings banks’ fund manager Deka, the nation's biggest property manager, has paid €132m for The Rock office tower in Amsterdam’s Zuidas district from Evans Randall, a private UK investment banking and private equity group. Deka also invested £235m in London's Kings Cross.

The fully leased Amsterdam property will be an addition to the open-ended mutual property fund WestInvest InterSelect. With the acquisition, the fund increases its allocation in the Nether-lands to 10.5% from 8.1%, as part of a wider strategy to decrease

portfolio allocation to Germany and increase allocation to newer assets. The Rock has 30,000 sq.m. of office space and was fin-ished in 2009. Main tenant is international law firm De Brauw Blackstone Westbroek.

In an off-market transaction for £235m for the same fund, Deka also bought Kings Place in London’s King Cross from Pa-rabola Land. The 30,000 sq.ft. fully-let office was completed in 2008. Deka now manages some €23bn AUM in real estate. pie

German Allianz buys €200m Hamburg stake Allianz Real Estate, the property manager of the giant German in-surer, has bought the remaining 45% share of Hamburg’s Europa Passage mixed-use asset from north German landesbank HSH Nordbank and is now the sole owner. The parties did not disclose the price but industry experts estimate it at around €200m.

For HSH, the sale is part of a divestment program of non-strategic investments. The Europa Passage in Hamburg’s inner city was opened in 2006, and accommodates 120 shops on 30,000 sq.m. and 34,000 sq.m. office space. It attracts 48,000 visitors per day. The centre is managed by Hamburg-based mall specialist ECE. Allianz RE holds €19.5bn AUM. pie

Valad achieves €1.1bn DUKE refinancing European investment manager Valad has refinanced its real estate joint venture with Lloyds Banking Group DUKE with a €1.1bn facility. Valad did not disclose the lender. It is now looking for workout, single mandates and portfolio acquisition opportunities.

“Our collective teams and advisors have been working tire-lessly to achieve this and we are extremely pleased to have final-ised this complex cross border refinancing in the current cli-mate,” said Valad Europe CEO Martyn McCarthy. “This serves as an excellent base from which we will continue to drive income growth, complete asset management initiatives and seek to max-imise returns to the DUKE joint venture.”

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The completion follows a €300m cross-border refinancing of Valad’s European High Income Fund last month from a syndi-cate of banks led by German pbb and Helaba. “As a business, Valad Europe has now refinanced all near-term loan expiries of any significant scale and we are looking at various workout, sin-gle mandates and portfolio acquisition opportunities across our platform,” added McCarthy.

The new debt facility will mature in December 2016. The Di-versified UK and European (DUKE) portfolio is a 50/50 joint venture between Valad and Lloyds created in July 2009, initially for a three year term. The portfolio comprises more than 100 multi-let office, industrial and retail properties with over 1.3m sq.m. space. Valad manages over €4bn across 13 mandates. It fo-cuses on value-add real estate investment management with local asset management teams. The company is owned by management and US-based property investment manager Blackstone, through its €7.5bn Blackstone Real Estate Partners VI fund. pie

Russia’s PNK warehouse sale signals new trendPNK Group has closed another deal and sold a warehouse termi-nal at PNK-Vnukovo industrial park in Moscow Region to PRV Group as the market trend shifts from leasing to construction, and purchase of tailor-made facilities. Price details were not released.

PRV is a Russian alcoholic beverages and food products dis-tributor, which has purchased a 33,000 sq.m. Class A warehouse, with completion and transfer of three warehouse blocks and office premises. Construction funding was provided under a partnership program between PNK and a unit of Sberbank, one of very few institutions that can afford participation in large-scale and long-term projects, said the bank’s acting chairman Yuri Ismaghilov.

Knight Frank's Vyacheslav Kholopov said the deal confirms a trend towards purchase, by contrast to Russia and the Moscow markets focused on active lease development, and few build-to-suit sale projects. Now, due to developers that can build quality products and deliver on time, more construction deals are expect-ed. PNK is a leading Russian industrial and warehouse developer has completed eight projects for a of over 615,000 sq.m. Class-A premises. It operates in Moscow, St. Petersburg and Novosibirsk with short-term plans to expand into Ekaterinburg. pie

Polish retail projects boom in smaller towns – JLLRetail development is booming in smaller Polish towns and is re-sponsible for 68% of retail space delivered in 1Q12 and nearly 40% of total under construction, realtor Jones Lang LaSalle reports. The Polish market continues to attract new entrants and expansions.

JLL estimates that some 445,000 sq.m. will be delivered in 2012. About 755,000 sq.m. is under construction, 87% in new shopping centres and the rest in extensions, and 62% of this is in small and medium-sized centres. The main focus is on major met-ropolitan areas as well as small towns of below 100,000 inhabit-ants, with market shares of 45% and 38% respectively. Towns of 200,000-400,000 are quiet but cities like Lublin and Bydgoszcz

reasonably hot and on developers’ radar screens. Total shopping centre supply is now at over 7.6m sq.m., after completion of just 89,000 sq.m. in five new centres and three extensions in 1Q12.

On the demand side, vacancy is only about 2% in major cities. The highest immediate availability is in markets such as Toruń, Radom and Szczecin, where prime assets in the main metropoli-tan areas capture the most demand. Landlords of poorly per-ceived centres or those in very competitive markets face down-ward pressure on rents and high expectations from occupiers. Retail parks, despite much lower rentals, are still not seen as ac-ceptable alternatives to shopping centres. Outlet centres are gradually gaining in popularity: seven are already operating, nearly all with occupancy levels of over 97%, and three under development including two for delivery this year.

Several retailers also announced entries and expansions on the Polish market in 1Q12. The German KIK and NKD chains and Maxi Zoo look set to expand, as do Russian footwear retailer Kari, Portuguese Lanidor, Latvian Attirance and German Bonita. LC Waikiki is opening its first store in Silesia City Center in Katowice and H&M launching its first Collection of Style store in Warsaw. Catering concepts Nordsee, Iceland Foods and Bel-gian Beer Cafe also plan to arrive. pie

French RE investment slumps in 1Q – C&WFrench commercial real estate investment retreated sharply in first quarter to €1.2bn from €6.6bn in 4Q11 as financing diffi-culties grew and due to special reasons, realtor Cushman & Wakefield says. But 2Q12 should be stronger.

The end-2011 expiry of a reduced capital gains tax rate on sales by corporates to listed property firms contributed to the decline in the first quarter, which compared to a volume of €2.5bn in 1Q11. Take-up in the Ile-de-France office market also fell 8% year-on-year to 452,300 sq.m. "There were still many uncertain-ties affecting debt financing in the first quarter and visibility for users was limited as a result of the forthcoming French presiden-tial election and worsening labour market conditions," said C&W France chairman Olivier Gérard. "And unlike at the end of 2011, there were no special factors stimulating large transactions."

Of 82 investment deals recorded in 1Q12, only three were for more than €100m and none were above €200m. However, a number of large transactions are at the preliminary agreement stage, so a substantial increase in investment is expected in 2Q12. And business conditions are expected to improve more solidly in the second half. "After avoiding a retreat into recession, France should start to see an economic rebound and benefit from the fact that the elections are out of the way, as they have been a cause of additional uncertainty in recent months," said Gérard. pie

Credit Suisse closes €290m German open fund The €289m German open-ended property fund CS Property Dynamic managed by Credit Suisse has closed for redemptions, initially for three months. For its €6bn CS Euroreal, which has

PRoPERTy INVESToR EURoPE Volume 8 l Issue 251 l 9 April 2012 l www .pie-mag .com 5

to re-open in May or liquidate, CS is sound out distribution partners again before making a decision.

Credit Suisse told Financial Times Germany that several inves-tors had withdrawn from CS Property Dynamic as a result of new GOEPF legislation, which stipulates a 24-month initial minimum holding period and 12-month redemption notice for all investors.

The closure is an additional blow to the €85bn German OEPF sector, which is in the middle of a fundamental re-shuffle. The fund was issued in 2006, targeted at institutional investors. It holds 17 assets throughout Europe. Since its closure two years ago, CS Euro-real has sold 14 assets worth €1.25bn. Liquidity is now at 26%.

Many GOEPFs closed during the massive run on liquidity during the financial crisis, only to be hit again – after a few had succeeded in re-opening briefly – by market uncertainty arising from publica-tion of draft legislation on investor protection in May 2010. pie

I. Cambridge pays €245m for Peugeot HQCanadian fund group Ivanhoé Cambridge has agreed to buy French carmaker PSA Peugeot Citroën's 33,660 sq.m. Paris head office for €245.5m. It sees considerable value creation potential due to the eventual arrival of new metro lines at nearby Porte Maillot.

The building is located in the CBD on avenue de la Grande Armée, near the Arc de Triomphe. "This acquisition is important because it gives Ivanhoé Cambridge a foothold in a very sought after district," said Méka Brunel, executive vice-president at Ivan-hoé Cambridge Europe. "This is also an opportunity to assume the ownership of a building fully leased for nine years by French industry leader PSA Peugeot Citroën." Added Bill Tresham presi-dent of global investments: "We are pursuing our strategic plan to acquire high quality buildings in the best markets. Investment opportunities such as this one are quite rare these days."

Ivanhoé Cambridge is the real estate subsidiary of Montreal fund manager Caisse de Dépôt et Placement du Québec and has global assets of more than C$30bn, including 14 office buildings and seven shopping centres in Europe. It owns the T1 tower in the La Défense business district on the western edge of the French capital. Peugeot announced plans to sell €500m of property assets as part of a €1.5bn asset disposals program in February, and was reported by union officials to be considering a sale-leaseback of the head office building, as well as the possible €60m sale of the Citroën brand's Epinettes site in the north of Paris. pie

Spain’s Colonial pockets €34m SFL dividendBarcelona-based listed Colonial will receive a €34.8m dividend from its French affiliate Société Foncière Lyonnaise, in which it holds a majority 53.45% share. SFL will pay a dividend of €1.40 per share as a result of a 10% increase in 2011 net profits.

SFL increased net profits in 2011 to €81m but its revenues were down 13% to €151m as a result of the sale of two office buildings to SIIC de Paris, the French affiliate of Spanish listed developer Realia. Colonial posted net profits of €15m in 2011, against losses of €739m in 2010, a return to profit for the first time since 2007.

SFL contributed 66% of Colonial’s €229m total rental revenues and €50m of the firm’s €76m total sales revenues. The firm’s shares were trading at €1.45 on Tuesday, down 3.5%. pie

Spanish tenant evictions rise 22% Spanish households evictions of due to mortgage or rental arrears grew by 22% last year to an all-time high, but repossessions fell by 17% in the wake of new government regulations that oblige banks to assist homeowners facing financial difficulties.

A total of 58,241 households received eviction orders, a reflec-tion of the serious economic crisis facing the country as a soaring unemployment rate, now at around 23%, takes its toll, accord-ing to official statistics, and 166,700 have been executed since 2008. Repossessions fell by 17% however, to 77,854, from the all-time high of 93,636 in 2010. The worst affected region is Valencia, with 13,711 evictions, followed by Andalusia with 9,684 and Madrid with 9,460. The rate of evictions has increased quarterly, with 15,347 executed in 4Q11 alone, according to Ex-pansión newspaper

The Spanish government issued a decree at the beginning of the year, the so-called code of good practice, in favour of home-owners at risk of eviction or repossession, obliging the country’s financial institutions to refinance mortgages and allowing fami-lies to remain as tenants for a period of two years, subject to the payment of a “reasonable” rent. pie

French orpea to sell €200m property French healthcare provider Orpea is looking to sell €200m of property assets this year, no longer seeing 50% of its facilities as essential. This follows sales of €147m in 2011, when it also set up a partnership with Belgian REIT Cofinimmo on a €500m portfolio of clinics and nursing homes Orpea operates.

"The group intends to make the most of the attractive conditions offered by investors to accelerate its real estate divestments in the coming months," Orpea said. Cofinimmo will have 51% of each of the joint ventures, with the remainder held by Orpea's OPCI prop-erty fund. The value of Orpea's property portfolio grew to €2.2bn in 2011 from €1.9bn a year earlier. Constructed assets grew 27% to €1.8bn mainly due to acquisitions and completions, while €382m of assets are currently under construction or being renovated.

Chairman Jean-Claude Marian told Le Figaro newspaper that Orpea is dropping its policy of owning at least half of its facili-ties. "The proportion of our buildings that we own outright will fall below 50%, but this does not mean that we will be carrying out a systematic sale of our existing buildings. Sales will mainly concern buildings under construction." Orpea also aims to spend no more than 50% of EBITDA on rental charges and other property costs, seeing this as a key threshold in light of the expe-rience of UK operator Southern Cross, which collapsed in 2011 due to spiralling rental costs. Reliability of rental income from clinics and nursing homes should enable Orpea to negotiate rea-sonable rents with owners, he said. pie

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Local Intelligence - Global Audience

Property Investor Europe proudly presents the latest in its expert seminar series:

German Property BreakfastWith German jobs rising and its economy stable,

is it time to raise investment risk and thus returns?

SPEAKERS:JAMES BAUERManaging Director, REAG Germany, Frankfurt, Advisory Board Member, REAGThe Real Estate Advisory Group is an international real estate service provider in investment advisory, technical services, environmental, re-search, hospitality, NPLs, and valuation . Mr . Bauer was formerly a director at Calliston Development, and before that worked in the fi eld of real estate extensively in the US . A native of Chicago, he was educated in the US and Germany, and gained international working experience prior to REAG where he is responsible for Germany and central and eastern Europe .

ANDREW M. GROOMHead of Valuation & Transaction Advisory Germany, Jones Lang LaSalle, FrankfurtGlobal real estate services group Jones Lang LaSalle employs over 45,000 staff in 60 nations, and is one of the largest realtors in Germany . Mr . Groom, who heads a 70-person valuation/due diligence team, led development of the innovative VICTOR prime offi ce indicator and is also responsible for key clients, business acquisition, portfolio strategy and risk assessment . With over 20 years’ experience, he has been based in Germany since 1992 and previously worked with other major realtors in Europe .

JAN-EVERT POSTMember of the Global Management Team, ING Real Estate Finance, The HagueING Real Estate Finance is an international commercial real estate lender with roots in the Netherlands . At ING since 2002, Mr . Post is responsible for real estate fi nancing activities in Germany, central and eastern Europe, Australia and Asia, and special projects on behalf of the manage-ment team . He has over 20 years of experience in corporate banking, structured lending, originating and managing large debt transactions in a variety of sectors, since 2008 for real estate clients . He holds an MBA degree .

DANIEL WERTHDirector Asset Management – International Clients, HIH, HamburgHIH operates as the real estate investment and management company within the network of M .M . Warburg & CO bank, established in 1798, and its group of companies . With €4bn assets under management, the fi rm is one of the largest non-captive real estate asset man-agers in Germany with offi ces in Hamburg, Frankfurt, Berlin, Munich, Düsseldorf and Cologne . Hr . Werth is a director and responsible for all asset management activities on behalf of international clients . He is based in Hamburg and has been with HIH since 2005 .

DOUGLAS EDWARDSManaging Director, Corpus Sireo, LuxembourgDouglas Edwards is Managing Director of Corpus Sireo Investment Management, based in Luxembourg . Corpus Sireo is a European asset manager for commercial and residential real estate, with AUM of €15 .4bn . Operating out of Luxembourg and Frankfurt, Mr . Edwards is re-sponsible for Corpus Sireo’s business with international clients wishing to invest in Germany and requiring asset management or advisory solutions for their existing German investments .

SCHEDULE:8.00 a.m. Networking & Snacks8.30 a.m. Panel discussion10.00 a.m. Coff ee/Networking

DATE:Tuesday, 17 April 2012Location: DLA Piper, 3 Noble Street, London EC2V 7EE, UK

REGISTRATION OPEN ONwww.pie-mag.com/events.html or Email: Gaby Wagner on events@pie-mag .com

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ENTRy FEE: PIE subscribers gain free entry to all PIE events during 12-month subscription period . Non-subscribers: Early Bird rate £62 .50 . Standard entry £80 . Prices plus 20% UK VAT if applicable . Early bird rate closes 3 April 2012 .

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German Eurohypo ends with €3.5bn lossGerman property financier Eurohypo posted a €3.5bn loss in 2011, its last year as an independent entity. The bank will be wound down, and core real estate activities transferred to parent Commerzbank in accordance with conditions imposed by the European Commission.

“The past financial year was the most difficult year in Euro-hypo history,” said Chairman Thomas Köntgen in the annual report. It is also the last as the Eurohypo brand will be left be-hind in the split-up. The EC set conditions for Commerzbank in return for allowing an €18bn state bailout during the financial crisis. It originally asked Commerz to sell Eurohypo by 2014 but the bank gave up hope of finding a buyer for the unit, which also posted a loss of almost €4bn in 2010. Eurohypo’s core real estate activities, limited to Germany, UK, France and Poland, will be-come part of new Commerzbank division Real Estate and Ship Finance, and non-core assets will be worked out as a ‘bad bank’. Core CRE lending may not exceed €25bn, and annual maxi-mum new business of €5bn through 2015.

While the public sector financing segment incurred pre-tax losses of €3.5bn – driven by the debt crisis and 73% depreciation on Greek government bonds – the commercial real estate seg-ment returned to black with €210m profits for the first time since 2007. Risk provisions in the segment halved to €645m from €1.3bn in 2010. Eurohypo also reduced its CRE portfolio by €11bn to €61bn and halved new lending to €2.5bn, €800m of which fell on Germany, €900m on the UK. It prolonged €6.6bn credits, up from €6.3bn. “Even in these difficult times, we managed to successfully reduce the portfolio in all segments, and a lot faster than anticipated,” said Köntgen. New lending business will be taken up again from July.

"Merely a clearly scaled-down part of the commercial real estate financing in Germany, United Kingdom, France, and Poland may be continued," Eurohypo said. Commerzbank Chairman Martin Blessing added: “The amended conditions of the EU Commission are challenging, but acceptable. We will consistently continue with the chosen course of a reduction in the Eurohypo portfolios. The objective is of continuing a small, lower-risk area of the commercial real estate business in Commerzbank.”

EU Competition Commissioner Joaquin Almunia said in a statement on Friday that the move conforms with EU state aid rules, which limit government subsidies to private firms across the 27-member European Union. "The winding down of Euro-hypo on the balance sheet of Commerzbank, plus a prolongation of the acquisition ban, are an adequate substitute to the divesti-ture of Eurohypo," Almunia said.

The announcement brings to an end what was one of Germa-ny's largest real estate financiers. Eurohypo resulted from a 2001 merger of property activities of (then) all three major private banks, Deutsche, Dresdner and Commerz. During the boom years in 2005, the latter took over the entire entity, and Eurohypo became the largest Pfandbrief issuer in Europe, an important player in se-curitisations, and market leader in syndicated property loans. Thus, it was hit very hard by the Lehman Brothers collapse and the financial crisis of 2008/9 and tipped quickly into dramatic losses.

Eurohypo Chairman Thomas Köntgen said last week: "We will … run this business in the future so that it is much more

focused and the risks are lower.” He will now take over responsi-bility for core area real estate at Commerzbank. Eurohypo also confirmed that the EC has imposed further conditions on its parent, Germany’s second largest bank: Commerzbank must shrink its balance sheet to €600bn by end-2012, a sum it is not allowed to exceed until end-2014, and is banned from acquisi-tions until the end of first quarter in that year.

Due to the lending halt imposed by Commerzbank last No-vember amid negotiations with the EC over a business resolu-tion, Eurohypo reduced real estate financing last year by €10.1bn to a total €56.5bn, with risk-weighted commercial real estate as-sets of €37.6bn, down from €48.5bn. However, pre-tax profit in real estate was positive, at €210m. It limited new commitments over the year to around €2.5bn, of which just €800m in the home market and €1.7bn abroad. Prolongations of existing property loans amounted to €6.6bn, of which more than half domestic. Including all other activities such as public finance, ship finance, asset management and leasing, Eurohypo last year had a balance sheet of €166bn, down from €191bn in 2010, and compared to a peak of €214bn in 2007. pie

German GSW doubles 2011 net, FFo fallsBerlin housing group GSW, listed since April 2011, more than doubles consolidated net profit to €105m last year from €49m in 2010, due to upward portfolio valuations. Funds from opera-tions fell by 28% to €57m however, reflecting higher interest rate expenses for the refinancing of a €890m CMBS loan. It plans growth through further acquisitions.

GSW also aims to profit from the positive developments on the Berlin housing market, where construction activity is rela-tively low, while demand for housing space is rising, driven by the growing number of residents in the city and a rising number of households. “With a slight rise in rents and an unchanged property portfolio, we expect FFO to increase to between €59m-€63m in the 2012 financial year,” said CFO Andreas Seg-al. Rental income rose by €4m to €183m, mainly due to vacancy rate falling to 3.4% from 3.7% and the acquisition of 4,800 Berlin units from Gagfah for €330m in November.

“Overall, the average rent for leased apartments increased by 3.7% from €4.90 per sq.m. to €5.08,” said COO Jörg Schwa-genscheidt, who predicts further growth due to the high rental level and low vacancy rate. GSW now has 53,000 residential units worth some €2.95bn, up from €2.57bn. A GSW subsidi-ary manages 17,500 units for third parties.

Net interest payments rose by €21m to €62m for total liabilities of €1.8bn, up from €1.6bn. “We are delighted to have been able to provide GSW with a stable financial footing,” said Segal. “This investment in GSW’s long-term stability was the key prerequisite for our successful IPO last year.” No further significant liabilities are scheduled for refinancing until 2016, said the company. Its equity ratio rose to 38.4% from 36.4%; its loan-to-value-ratio fell to 58% from 61.1%. Net asset value rose by 23% to €1.2bn or €29.72 per share. GSW plans a dividend of €0.90 per share.

GSW’s IPO, with an issue volume of €468m, was the largest on the Frankfurt stock exchange last year. Former largest share-holders US private equity group Cerberus and Goldman Sachs'

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unit Whitehall placed their shares in October and January, re-sulting in an increase in free float to 94%. The company also received gross proceeds of €115m from a capital increase. pie

Vienna's Warimpex back in 2011 profit Listed Vienna-based CEE hotels investor and developer War-impex swung back into a 2011 profit of €7.2m from a €2m loss. Consolidated revenues grew 11% to €64.9m. EBITDA slipped 3% to €12.5m due to lower income from the sale of properties.

CEO Franz Jurkowitsch said the focus now is on bolstering financial basis to position it to seize promising new development opportunities; it will expand its angelo hotel brand and continue successful operation of existing properties. Despite the economic and financing deterioration, “the fact that all the markets in which we are active were growth markets in 2011 and the fact that the projections are very conservative but all positive” are good signs and confirm Warimpex is on the right path with its CEE investments, plus diversification into selected western Eu-ropean countries, he added.

Double-digit sales growth enabled Warimpex hotels to develop positively in nearly all markets last year, with occupancy and av-erage room rates up in traditionally strong locations in Munich, Berlin and Paris and also - at a considerably lower level - in n difficult markets like the Czech Republic and Romania. In its most important market, Poland, Warsaw hotels reported strong growth, with good though less stellar growth in secondary cities. Conditions in Russian hotels also improved substantially, nota-bly occupancy at the Ekaterinburg airport angelo, a positive sign for its recently completed St. Petersburg airport project.

In transaction, Warimpex sold 25% of Sobieski Hotel in War-saw in one of the first significant CEE transactions since the fi-nancial crisis, and at year-end sold a 50% stake in its budget hotel project to jv partner Starwood Capital to focus on its core brands. It completed its St. Petersburg airport Crowne Plaza Ho-tel and 17,000 sq.m. office project last year, both opened in De-cember. Top priority now is completion of Palais Hansen in Vi-enna, while the Le Palais Office project at a prime location in Warsaw’s business district will be completed on schedule at year-end. Warimpex, among the largest hotel investors in CEE, is listed in Vienna and Warsaw and owns or operates 20 business and luxury hotels with over 4,800 rooms plus five commercial and office buildings. pie

Russian industrial space shortage to persist A shortage of quality industrial space will persist in Russia this year as demand shifts towards new highly efficient and built-to-suit properties, though much low-quality and less liquid property will still be brought to market, according to a recent conference

Consultant Knight Frank data shows that 19 projects totalling some 600,000 sq.m. were announced in Moscow region for 2011, but only 13 projects totalling 366,000 sq.m. were actually completed and put into operation. In 2012, developers plan to

complete and put into operation 26 warehousing complexes in Moscow Region, but analysts predict that no more than 20 of these will actually be completed. Supply of high-quality ware-housing properties in the region will under the most optimistic forecast grow by 700,000 sq.m., but more likely by 500,000 sq.m or less. “Each year in the industrial real estate market we see the same situation: roughly two times more properties are an-nounced than really completed,” PNK CEO Oleg Mamaev told to a conference organised by the Moscow Times business daily.

Mamaev said there is still a shortage of responsible players who stick strictly to their announced plan; a lack of investment capac-ity, with speculative capital dominant. Another trend is explosive growth of built-to-suit properties to 200,000 sq.m. or $300m in 2011. Modern technologies allow PNK to significantly cut con-struction timelines to 6-9 months from acquisition of land to turnkey, and clients – including both retailers and manufactur-ing companies – are prepared to wait that long for a tailor-built property, said Mamaev. pie

Korean family office in first Brussels buyKorean family office NXHM, part of the financial interests of the J. Kim family who founded and owns the majority of one of the largest online gaming companies in the world Nexon, has made its first property investment in Brussels - a €16m office asset acquired from Germany's IVG.

The asset was sold by IVG Institutional Funds, a unit of Ger-many’s largest listed property firm, and marks the first acquisition for NXMH in Brussels, according to realtor CBRE which acted as co-exclusive agent for IVG, together with Cushman & Wake-field. NXMH was recently formed in Belgium and is a subsidiary of NXC, a holding company for the J. Kim family interests. Nex-on was founded in Korea and is now headquartered in Japan, where it floated on the stock exchange last December, raising $1.2bn in an initial public offering, Japan's biggest of last year.

The 12-storey building at Avenue des Arts 53 is let on a short-term basis to a mix of tenants, including the Finnish Embassy, German Telekom and the American Chamber of Commerce. It offers 5,600 sq.m. office space near the Louise shopping area in the Leopold Quarter. pie

French property returns 8.4% in 2011 – IPDFrench real estate recorded an annual return of 8.4% in 2011, according to IPD, with a rental yield of 5.6% and a capital re-turn of 2.7%. The latter is mainly due to stability of rents (+0.6%), while entry yields fell to 5.9% on average across all products.

The latest data contrast with the past three years' average nega-tive capital returns at -0.3% annually. All types of assets did not record the same performance. Office reached an annual perform-ance of 7.2%, with a premium for Paris CBD which always leads the industry, at 8.5%. However, yields slid from 2010, with a capital return at 1.4%, after 3.6% in 2010.

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Retail performance also slowed but remained higher: 9.5% total return in 2011 as against 11% in 2010. "The malls which showed strong variations values (down in 2009, rising in 2010) show a similar trend last year to other retail sectors (3.5%)," said Steph-anie Galiègue, Director General IPD France & Southern Europe.

Logistics remained the only sector to record a drop in property values of 1.5% due to a fall in market rents by 1.1%, bringing its total return to 5.7%. Over four years, the segment's capital val-ues showed the largest cumulative decline, at 22.6%. While few institutional investors want to position themselves in residential property, IPD said it showed the best performance of all real es-tate segments in 2011 at 11.7% total return. Residential showed with the largest rise in values in 2011, 8.2% across the whole country, and 9.9% in Paris. pie

Ignored secondary assets ripe for turnround - SavillsCore property funds remain acquisitive for the right product and the weakness of European currencies is attracting opportunistic investors, says realtor Savills. But rising capital flows and risk ac-ceptance may signal a turnound in neglected secondary assets.

Tristam Larder, director of Savills cross-border investment team, says in the realtor's latest European investment bulletin: “Oppor-tunity funds can’t base their business models off future yield com-pression, they need active asset management angles. Core funds, on the other hand, are looking for prime .. or good quality assets with long leases in B+ locations." The middle ground of secondary assets, with no immediate asset management angle, is languishing. While four out of five of these are being purchased by local buyers, "those priced over €40m sit in a trouble zone.”

Savills suggests that core areas of UK, France and Germany will continue to be the main focus for 2012. However, central and eastern European nations, including Poland, are attracting investors seeing longer-term opportunities. Asian investment is slowly increasing, while Mid-East sourcing falls back; more than €4bn was invested by these groups in 2011, of which 81% in the UK. But Germany and CEE should be in focus in 2012. “Rising capital flows and interest from risk-embracing investors, com-bined with distressed opportunities offered by peripheral coun-tries and banks, may well be the start of a market turnaround,” says Lydia Brissy, director of Savills European research,

Savills suggests 2012 is set to see a 4% increase in real estate investment across Europe following €101bn in 2011 of which 80% transacted in UK, France and Germany. The research notes that defensive strategies have steered investors towards retail no-tably shopping centres, but the bulk of demand continues to target offices, representing 47% of total commercial turnover last year. Prime office CBD yields have fallen 6bp over the past year to 5.76%, in line with long term average of 5.78%, and average prime European shopping centre yields declined by 19bp to 6.6%. In contrast, the gap between industrial properties and re-tail and office assets has widened.

“The growing appetite for risk in 2012 will be demonstrated by the increasing number of forward funding deals, fuelled by the rising number of distressed sales and bank disposals," said Brissy. "We anticipate this could revive the industrial market, which has become increasingly attractive, and see peripheral

countries where yields continue to rise such as Ireland and Spain back in the spotlight.” pie

Spanish house prices falls accelerate in 1QSpanish house prices recorded their sharpest fall in first quarter, down 7.6% year-on-year and 2.5% compared with 4Q11, the sharpest quarterly drop since 2Q09, according to real estate por-tal Fotocasa. It forecasts that the bottom is not yet reached and further downside is still to come this year.

Average house prices in the nation struggling with recession and unemployment, are now €2,059 per sq.m., an accumulated fall of 30.2% since 1Q07. The slump accelerated at the start of this year, a report by Fotocasa says. The sharpest 1Q12 falls were in Catalonia and Cantabria, down 10.3% year-on-year each, al-though Barcelona home prices still surpass the national average at €2,622. The central region of Castilla-La Mancha registered the only rise, up 0.7%, while prices in Madrid dropped 6.1% against 1Q11 to €3,211 and were 3.4% below December levels. Prices in Valencia slid 7% year-on-year to an average €1,628 per sq.m.

High unemployment and economic woes, and new govern-ment austerity measures are likely to continue to crimp demand, and the price slide is expected to continue this year and may even accelerate, the study predicts. pie

Swiss Peach Property says net loss expectedZurich-based luxury residential developer Peach Property posted a net 2011 loss of CHF11m (€9m), reversing 2010’s profit of CHF18m (€15m), but said the figures were in line with expecta-tions as no major projects were completed last year. It aims to further expand its investment portfolio in 2012.

Last year, the market value of its portfolio rose to CHF292m (€243m) from CHF264m (€219m), 93% of which is attributa-ble to development assets. Peach expanded its investment portfo-lio with the acquisition of assets in the north German town of Münster, which brings the total to 519 apartments with 15,000 sq.m. commercial space worth some CHF58m, generating in-come of CHF5m. Peach aims to stabilise income through the growth in investment assets. Its net asset value fell to CHF130m from CHF147m, including additional costs for the yoo Berlin project and a dividend distribution planned at CHF0.30 per share. Its equity amounted to CHF95.2m a year end, corre-sponding to a ratio of 42%, down from 53%.

“Peach Property Group’s financial result for 2011 is in line with expectations,” said CEO Thomas Wolfensberger. “It is im-portant that the company has made good operational progress at all levels: We have reached the specified milestones for all projects under construction and pressed on with projects in the develop-ment stage. We have implemented the announced build-up of an investment property portfolio.” Peach expects German-speaking European real estate markets to perform well this year. It will complete several projects, transfer them to owners, and target high-yield investment property portfolios for acquisition.

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PRoPERTy INVESToR EURoPE Volume 8 l Issue 251 l 9 April 2012 l www .pie-mag .com 11

PEPR sells €72m Polish, German logistics Amsterdam-listed Prologis European Properties, the Luxem-bourg-based closed-end property fund affiliated to the global logistics group, has sold eight logistics assets across Poland and Germany for €71.8m. Net proceeds will be used to further delev-erage the business, it said.

“These disposals are fully aligned with our active portfolio management strategy designed to optimise value for our unitholders through investment in core assets in prime loca-tions,” said CEO Peter Cassells. The disposal in Poland, to real estate firm Hines Global REIT, affiliated to the Hines invest-ment management group, comprises 73,000 sq.m. in five build-ings which are 93% occupied, located in Warsaw and Bedzin. The aggregate sales price was €51.2m. The disposal in Germany, to pan-European real estate investment manager Tristan Capital Partners, comprises just over 36,000 sq.m. in three fully occu-pied buildings, two of which are located in Saarwellingen, west-ern Germany, and one in Malsfeld in northern Germany at €20.6m.

In 2011, PEPR completed a €97.5m ordinary share capital increase, cutting loan-to-value to 46.7% from 53% and return-ing to an investment grade credit rating. Debt outstanding fell to €1.36bn from €1.57bn. Its next refinancing, of a €123m unse-cured credit facility, is due in December. In 2013, €376m falls due, and in 2014, €861m.

For this year, PEPR expects good space take-up, significantly higher than the 10-year average. It sees stable rents in most mar-kets, rising in Hamburg and Rotterdam. The fund posted 2011 net profit rising to €26m from €21m in 2010. NAV rose by 10.7% to €1.4bn. Net initial yield fell to 7.5% from 7.7%. Port-folio values were down 1.1% excluding disposals and foreign exchange effects. PEPR now holds 220 assets in 11 European countries worth some €2.6bn, down from €2.8bn 12 months earlier. Rental income fell to €237m from €255m, mainly due to lower market rents on new agreements. It leased 1.3bn sq.m., slightly below 2010’s record of 1.6bn sq.m. Occupancy remained stable at 94.4%. pie

LaSalle IM buys German mall from UnionChicago-based investment manager LaSalle Investment Man-agement has bought the 19,000 sq.m. Luisencenter mall in the southwestern German town of Darmstadt, near Frankfurt, for €104m for one of its funds from German Union Investment’s open-ended property fund UniImmo: Europa.

Union Investment had bought the centre in December 2003. “Having held the property for eight years, an attractive sale op-portunity arose due to strong interest from investors,” said Frank Billand, Union Investment Real Estate board member. The mall was refurbished in 2002-03 and contains 60 shops with tenants including fashion retailers H&M and New Yorker, and super-market REWE. Hamburg-based ECE will continue manage-ment and letting activity of the centre which attracts around 45,000 visitors per day.

LIM, the investment management arm of the Jones Lang La-Salle group, has $47.3bn under management. JLL and Latham & Watkins advised Union Investment, with LIM represented by GSK Stockmann. pie

Skanska sees green potential in Poland, CEESweden’s giant listed developer and builder Skanska sees growing green office potential in Poland and central and eastern Europe, and is working on seven projects, including five in Poland, with another seven to be launched this year.

As a global company, Skanska sees the growing potential of CEE, and its focus on Poland in times of global economic vola-tility confirms its confidence in this market, said Skanska Com-mercial Development Europe President Nicklas Lindberg. Skan-ska invests full equity in its developments, and can thus benefit from its financial strength and start new projects against the cy-cle. It has invested €155m in Polish office in the past two years.

“Therefore, we launched seven new projects in the CEE last year, including five in Poland, with a total of 146,000 sq.m., and we intend to launch seven new projects in 2012 in the region, which will deliver approximately 100,000 m2 of new office space,” Lindberg said. All new projects are LEED certified.

Warsaw projects under way are Atrium 1, the first Deep Green building in CEE with especially ambitious solutions including a geothermal cooling and heating system and the Green Corner complex, both already with platinum LEED pre-certification. Skanska also believes in the strength of regional cities, with projects in Wroclaw and Łódź, plus its first its first project in Poznań, all LEED pre-certified. pie

Capricorn, eBay's Skoll target London, German REA new property club of private investors named Fore and includ-ing California-based private equity group Capricorn Investment and eBay co-Founder Jeff Skoll, are to focus on commercial real estate in London and Germany.

Launched last month, Fore is a co-investing platform for fam-ilies to club together to purchase mainly commercial property, Stephen George, co-founder and chief investment officer of Capricorn told a London news conference last week. The family office of eBay co-founder Skoll will also invest €25m in equity in Fore, according to portal CampdenFB.

“The model gives us the ability to go into the market and se-cure opportunities while at the same time providing club mem-bers with a degree of control over what we are doing," said Fore Managing Partner Basil Demeroutis. "Our model was designed by the families themselves, and is an extension of their own di-rect real estate activities. In the end, we are a club of like-minded investors that share the same values, and we have similar views in terms of what represents long-term value.”

The group gave no details of volumes that it expects to invest but Demeroutis said Fore will focus on London and Germany in particular, looking for B Class buildings in an A locations – well

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located but under-managed, priced between €10m and €20m. He said the club will charge fees less than half those levied by traditional funds, while increasing transparency and offering easy access to income generated from the properties. George added that investing in property should be relatively straightfor-ward, according to the portal. But there is, “all this structure around what should be a simple asset”, meaning transparency can be a problem. “You want to be as close to the asset as possible – you want the income,” he said.

Capricorn Investment Group LLC, founded in 2001 and based in Palo Alto, CA., is a privately owned manager for invest-ments by foundations, endowments, institutions, and high-net-worth individuals. It invests in public equity, fixed income, pri-vate equity, and real assets markets across the globe. It has offices in London, and New York. pie

Michelin in €100m capital gain on Paris HQ French private tyremaking group Michelin is to sell is former headquarters in the 7th quarter of Paris for €110m to the domes-tic insurance group Covea, providing the firm with a capital gain close to €100m, it said.

The gain will be included in non-recurrent earnings for the first quarter of 2012. The building offers 12,000 sq.m. of space and has been vacant since the group consolidated its entire head-quarters staff last June to a new location in the Paris suburb of Boulogne-Billancourt. Covea was advised on the transaction by the notary Cheuvreux with Michelin advised by Théret. Miche-lin had exclusively mandated BNP Paribas Real Estate for the transaction. pie

Germany's Fair Value REIT doubles netFair Value REIT based in Munich, the smallest of the four Ger-man REITs, doubled its consolidated net income last year to €4.6m, and forecasts a sustained rise in FFO from 2013 after renegotiating financial debt. Earnings per share soared to €0.49 from €0.24 in 2010.

Net rental income fell slightly to €8.8m from €9.5m but the operating result rose 130% due to considerably improved valua-tions on the real estate portfolio. Its REIT equity ratio rose to 51.0% from 49.6%, and it forecast an annual 10% rise in funds from operations from 2013 onward. The board will propose a dividend payment of €0.08 per share for 2011, a pay-out ratio of 97.6% of retained earnings.

“Since Fair Value REIT went public in 2007, we have been able to report stable operating earnings every year," commented CEO Frank Schaich. "Constantly high occupancy rates of around 95%, a solid equity base averaging 50% of our real estate portfolio, falling interest expenses for variable interest loans as well as high repayment volumes were and remain the basis for our stability even in uncertain times.”

The balance sheet net asset value increased by 4% to €8.31 per share at end-December. Fair Value, created out of a portfolio

contributed by a closed fund group, has been battling since the financial crisis with high leverage. With a portfolio at end-2011 of €191m, its NAV amounts to just €77.4m, giving EPRA NAV per share of €9.27, up from €8.93 at the end of 2010. Its stock was last trading at €4.12. It anticipates net income of €0.62 in 2013 and FFO growth averaging 10% p.a. for the current real estate portfolio in the years 2014 to 2016.

“The forecast increases in FFO results from 2013 are largely due to falling interest expenses," Schaich said. "In 2012 and 2013, around 62% of .. financial liabilities are due for renegoti-ating interest conditions, and this figure is around 75% at the associated companies. Given the current historically low interest rate levels, we are anticipating substantial potential savings de-spite generally increasing bank margins.” pie

Dutch Philips sells Eindhoven for €425mThe giant electronics firm Philips said it has sold its High Tech Campus in Eindhoven for €425m in a sale-and-lease-back deal to a Dutch consortium of private investors led by entrepreneur Marcel Boekhoorn.

The figure includes a €373m cash transaction and €52m to be paid in future years. Phillips will receive €65m in gains from the deal, which is part of an €800m cost reduction program started last year. Boekhoorn is founder and owner of Ramphastos In-vestments, which currently holds interests in over 30 companies in various sectors. Past transactions include the acquisition of Dutch telecommunications company Telford for €300m in 2004, one year later followed by its the sale to KPN for €1.1bn.

Harry Hendriks, CEO Philips Benelux, commented: "After many years of building and investing in the High Tech Campus Eindhoven, a change in ownership of its real estate will open up new opportunities for other companies to access the site, thus reinforcing the Campus as a truly universal open innovation eco-system." The campus was established by Philips in 1998 and opened to other firms in 2003. It has become an open innova-tion hub for more than 100 companies and 8,000 researchers, developers and entrepreneurs. Philips has 122,000 employees worldwide and made sales of €22.6bn in 2011. pie

Dutch Heijmans to build €100m PPP project The Dutch Government Buildings Agency has proposed listed local developer Heijmans to build the Soesterberg Defence Mu-seum in a public private partnership project, with a total value of over €100m.

The contract includes design, development and financing as well as long-term management and maintenance of the new Na-tional Military Museum and the museum district at the former military airbase Soesterberg near Utrecht. Heijmans combines property development, residential and non-residential building, installation engineering, road building and civil engineering, op-erating in the Netherlands, Belgium, and Germany. It has around 8,300 employees and in 2011 reached turnover of €2.4bn. pie

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