Interview: Cross-Border Transactions are Changing the Real Estate Landscape
26. April 2016
Dr. Martin Braun is co-founder and managing director of Nexus Capital Advisors. Last year, he participated in a task-force aimed at establishing the first standard index for real estate transactions. In this interview, he shares his views on the international real estate market.
What will be the challenges facing the real estate market in 2016?
Germany continues to draw international investment, but there is nervousness; people are afraid that another financial crisis is impending because of global issues such as the financial instability of China, a state that plays a key role in the world economy, and the challenges for the German real estate market caused by the refugee crisis. The influence of these exogenous factors on the market might be so significant, that they cause institutional and private investors to pull cash out or lead players to opt for cautious investment choices.
Will we witness the burst of a speculative bubble?
If will only be partial, if there is one at all. There is a sort of bubble. High-value real estate assets have seen an increase in price that has not been matched by rent rises, although this trend concerns only top-level locations. The gap between property returns and interest rates is much wider today than during the last boom of 2006-2007, but it could be argued that these days, interest rates are artificial, and it seems that many funds do not see these price increases ending in a speculative bubble.
What do you forecast for the cross-border transaction market?
It is difficult even to define what constitutes a cross-border transaction. Is it about where the money comes from? Well, it is hard to trace the provenance of the cash precisely. For instance, Allianz is a German company, yet it also has subsidiaries overseas. When Allianz invests in an asset, can we really say that the investment is German? It could be that one of these subsidiaries is making the investment from abroad. Therefore, differentiating between cross-border and non cross-border transactions is a difficult exercise. That said, we have noticed that in Germany, cash flows in 2015 are lower than they were between 2009 and 2011. It seems that a balance has been found between domestic and foreign investments, with the latter increasing. To this extent, experts are predicting that in terms of cross-border transactions, 2016 will be in line with the previous year.
Which role does China play in the global real estate market?
Chinese investment in Germany has been comparatively low so far, probably because of the cultural differences that are more significant than those between China and other big players such as the U.S. For deals with Asian investors to succeed, structures must be put in place that allow for communication between the parties. The level of Chinese investment is growing, but this investment is mainly indirect cash flows facilitated by local asset managers making it possible for Chinese investors to enter the market. Again, the definition of a cross-border transaction is not as clear-cut as we like to think.
You just mentioned cases of complex transactions. To what extent do leveraging data rooms help such processes?
Virtual data rooms have become standard in large transactions. However, the primary factor in any transaction is the completeness of the documentation. A quality data room should facilitate the organizing and structuring of the documents. The seller wants to have their information continuously updated, so they can carry out due diligence at any time, while the investor will want to see complete and updated information. Any virtual platform must be intelligent enough to facilitate this preparation phase and here there is room for improvement and standardising.
Which direction should the standardisation of transactions take?
There is a lot to do. It is crucial to help the selling side to build a structured data room, so that the whole pre-check phase becomes shorter and easier. Knowing where to find documents can be a major challenge in many data rooms that are often organised sloppily, to say the least. Better organisation would make the life of stakeholders such as legal advisors much easier.
Dr. Martin Braun is co-founder and managing director of Nexus Capital Advisors, a consulting firm for corporate finance and transaction advisory based in Frankfurt. After more than ten years at Cushman & Wakefield, where Dr. Braun was responsible for the Capital Markets and Valuation business, Dr. Braun founded Nexus Capital in 2014. The company focuses on providing tailor-made solutions in real estate related transactions.
In 2015, Dr. Braun collaborated with the gif - Gesellschaft für Immobilienwirtschaftliche Forschung e.V. in the creation of the first standard index for real estate data rooms, downloadable here.