Companies and investors: The equity-heavy move to centre stage

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Western property funds are moving into central and eastern Europe, with Austrian cash accounting for most trade over the past three years, according to Gareth Jones, Jones Lang LaSalle’s head of central European capital markets. He says it is the largest source of capital. This does not mean the money itself is Austrian – it is more likely to be from western European countries. Immoeast has been the biggest buyer, says Mr Jones, along with other Austrian buyers such as Meinl, CA Immo and Europolis.

Most large institutions have dedicated central and eastern European funds, and there is more to come after fund-raising last year when Axa, GLL, Heitman, AEW Europe and ING were among the most prominent operators.

German fund groups have also emerged from a period of difficulty to become established investors. Mr Jones says the larger fund managers such as Deka, Rreef, Degi, Seb and CGI are all active.

“There is more money expected from Germany and the open-ended funds, which are already looking for high-quality assets in mature markets,” says Jonathan Hull, a senior director at CB Richard Ellis. “For them, a 5.5 per cent yield is pretty attractive.”

Otherwise, he says, there is the “usual mix” of UK, Australian and US funds, often looking to back a domestic developer or investment partner to gain local expertise.

Large opportunistic US funds such as Heitman and Invesco are established but in recent years the investment scene has become increasingly cosmopolitan with a wave of Irish investors such as Quinlan Private and UK investors such as Dawnay Day.

A number of close-ended investment funds, normally listed in London, have been launched in the past three years to buy into the market. The Dutch, particularly ING, are also active investors in the region, says Jonathan Fothergill, of Knight Frank Czech Republic, and he points to the emergence of Spanish investors in the past couple of years seeking residential bulk buying opportunities.

According to Pierre Cherki, co-head of fund manager Rreef Europe, part of Deutsche Bank, foreign investors dominate the regional market with well over 60 per cent of transaction volume, mostly focused on office and retail.

Mr Cherki says the profile of investors varies across the region, with core and value-added investors from Austria, Germany, Ireland and the UK active in the more mature markets of central Europe.

“The less mature markets further to the east tend to attract more opportunistic investors,” he says.

The biggest change has been the loss of appetite by some debt-driven investors, who may have borrowed almost the entire purchase price a year ago. Now, with debt markets struggling following the credit crunch, many predict equity-heavy investors will dominate.

“Overseas capital is still very much in the market but some of the names have changed,” says EC Harris, the property advisers. “Those funds with greater equity and therefore requiring less debt are now seeing opportunities that were not put to bed last year.”

Partly because of this, there has been more interest from relatively equity-rich private investors. The region is still attractive to private investors and wealth managers who are looking for better investment yields than can be found in the west, according to Gavin Rabinowitz, director in the property group at wealth manager Credo.

“Relative to most of the bigger investors, wealth managers and individuals are relatively cash-rich and so have not been hit as hard by the credit crunch. There is significant appetite from these groups to do deals in eastern Europe based on the higher returns available.”

The wild-card investors, says Mr Hull, have always been the Russian private wealth funds, which were first into niche countries such as Belarus and Ukraine, but “go almost anywhere they can fly to”.

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