Hackelberg / Hennig Investing in German Real Estate

A practical guide
1. Auflage 2021
ISBN: 978-3-648-14658-3
Verlag: Haufe
Format: EPUB
Kopierschutz: 6 - ePub Watermark

E-Book, Englisch, 380 Seiten, E-Book

Reihe: Haufe Fachbuch

Investing in one of the most promising real estate markets in Europe offers enormous opportunities. And as with every real estate market, in Germany too, the local framework conditions must be understood and their particularities must be adequately taken into account. The authors are renowned senior executives, real estate advisors and academics, who share here their extensive experience and real life insights from countless real estate investments, covering all aspects of a successful investment process in Germany. Includes: markets, the regulatory framework and investment guidelines. Contents: - Essentials for successful real estate investments in Germany - Macro-economic structure and dynamics of the German real estate market - Real estate investment, trends and strategies - Diverse submarkets: residential, offices, retail, hotel and nursing homes - Real estate legal, tax and audit frameworks - German REITS and ESG in real estate investments - Real estate M&A, financing, due diligence and valuations

Florian Hackelberg Prof. Dr Florian Hackelberg is Professor of Real Estate Economics and Management at the HAWK University of Applied Sciences and Arts in Holzminden, Germany. Before that, he was a senior manager in the Real Estate Transactions team at PricewaterhouseCoopers, based in Berlin and Shanghai. After studying Civil Engineering and Management in Germany, England and China, Hackelberg received a PhD from the Technical University of Berlin. He also holds a master's degree in International Relations from the University of Cambridge, where he was awarded the Madingley thesis prize. Hackelberg is a Professional Member of the Royal Institution of Chartered Surveyors (MRICS), a member of the RICS Professional Group Valuation and a member of the German Society of Property Researchers (gif). He is also a member of the Höxter committee of valuation experts (Gutachterausschuss). He has written and co-written numerous books and articles on various real estate topics. Dirk Hennig Dirk Hennig is a transactions partner with PricewaterhouseCoopers, focusing on real estate advisory services. He has over 25 years of hands-on consulting and deals experience from serving multinational clients with their real estate investments in Germany. He has worked in PwC offices in Berlin, Düsseldorf and New York. Hennig has a master's degree in Engineering from the University of Dresden, and the title of Expert for International Valuation of Real Estate from European Business School, Oestrich-Winkel. He is a board member of the Federal Association of Publicly Appointed, Sworn and Qualified Experts e.V. (BVS); a member of the German Property Federation (ZIA) working group 'Accounting and Valuation'; and a member of the Tangible Assets Board of the International Valuation Standards Council (IVSC). He was a member of the working group of the Institute of Public Auditors in Germany (IDW) for the publication of the IDW S 10 standard 'Principles for the Valuation of Real Estate'.

Autoren/Hrsg.

Hackelberg, Florian

Hennig, Dirk

Fachgebiete

• Wirtschaftswissenschaften Finanzsektor & Finanzdienstleistungen Anlagen & Wertpapiere
• Wirtschaftswissenschaften Wirtschaftssektoren & Branchen Immobilienwirtschaft

Inhaltsverzeichnis

Table of Contents

Foreword

Foreword from the Editors

Fundamentals - Basics of the German Real Estate Market

Macroeconomic Structure of the German Real Estate Market
- German Macroeconomic Key Indicators

- Geographic Structure of the German Real Estate Market
- German Real Estate Indicators
- German Real Estate Investment Structure
- Conclusion: Attractiveness and Complexity

Real Estate Investment Trends and Strategy
- Introduction
- Real Estate Investment Strategies
- Deal Sourcing
- Conclusion

Markets - German Real Estate Market Sectors

The Housing Market in Germany
- The Provider Structure in the German Housing Market
- Rental Accommodation in Germany - The Most Common Form of Housing, High Quality and Stable Demand
- Housing Construction in Germany and Demand for New Housing
- German Rent Control
- Price Developments in the Sale of Residential Real Estate
- Conclusion

Investing in German Offices
- Introduction
- Germany Is Not Paris
- Smaller Is Liquid

- GDP Growth Is Not Alone
- Low Yields: Small Margins of Error
- Co-working Revisited
- Sustainability Matters
- The World According to Covid
- Summary

Retail Property Investment Market
- Introduction
- Definition and Types of Retail
- Retail Property Market Structure
- Development of the Retail Property Investment Market
- Challenges for the Retail Sector and Changing Shopping Behaviour
- Summary and Outlook

The Logistics and Industrial Property Investment Market
- Introduction
- Definition and Types of Logistic and Industrial Properties
- The German Logistics Investment Market
- Trends in the Logistics Real Estate Sector
- Summary and Outlook

Hotel Investment Market
- Introduction
- Supply and Demand in the German Hotel Market
- German Hotel Investment Market
- Types of Hotels
- Definitions of the Most Important KPIs for Investors in Hotels
- Hotel-specific KPIs and German Market Characteristics
- Operator Models
- Summary and Outlook
- Hotel Data and Addresses

Nursing Home Investment Market
- Introduction
- Types of Care Provision and Properties in the Senior Housing Segment
- Demographics
- Market and Location Analysis for Nursing Homes
- Structural Requirements for Nursing Homes
- Regulatory Framework
- Consolidation and Concentration in the Nursing Home Operator Market
- Transaction Market and Prime Yield Development
- Opportunities and Risks of this Asset Class
- Summary and Outlook
- Organizations
- Market Reports Databases

Framework - German Regulatory Real Estate Framework

Legal Real Estate Investment Framework
- Introduction
- Accessibility
- Acquisition Structure
- Relevant Legal Aspects for Risk Assessment
- Acquisition Process

Tax Aspects of Real Estate Investments in Germany
- Overview
- Income Tax (Einkommensteuer) and Corporate Income Tax (Körperschaftsteuer)
- Withholding Tax Regime
- Trade Tax (Gewerbesteuer)
- Real Estate Transfer Tax (Grunderwerbsteuer)
- Value-added Tax (Umsatzsteuer)
- Land Tax (Grundsteuer)
- German Anti-hybrid Considerations
- Mandatory Reporting of Cross-border Tax Arrangements
- Tax Summary

Real Estate Accounting
- Introduction
- Components of Accounting and their Functions
- Accounting and Valuation Principles
- Conclusion and Meaningfulness of the Valuations

Real Estate Investment Trust (REITs) in Germany from the Perspective of Investors
- Introduction
- Two Major Types of REIT Investor
- Investors' View on the German REIT
- The German REIT Sector
- Case Study: Hamborner REIT AG

ESG in German Real Estate Investments
- Political and Regulatory Background
- Market Trends and Value Drivers
- Overview of ESG Measurement and Key Performance Indicators ('KPI')
- Implementation in Investment Processes (ESG due diligence)
- Implementation in Contracts and Legal Documentation

Management - Guidelines for Investing in German Real Estate

Real Estate Mergers & Acquisitions
- Real Estate M&A Processes
- Best Practices

Financing Real Estate in Germany
- Sources of Capital
- Types of Security
- Long-term Debt Financing
- Conclusion

Real Estate Valuation in Germany
- Basis of Valuation
- Valuation Framework in Germany
- Valuation Methodologies
- Fundamentals for Determining the Mortgage Value
- Practical Valuation Aspects to Consider in the Investment Process
- Conclusion
- Real Estate Data and Addresses

Financial Due Diligence in the German Real Estate Market
- Definition, Timing and Goals of FDDs in Real Estate
- Context of FDD Services
- Financial Due Diligence in an Asset Deal - Analysis of the Property Net Operating Income
- Financial Due Diligence in a Share Deal - Supporting the Deal Considerations and SPA
- Conclusion

The Editors and Authors

Leseproben

1 Macroeconomic Structure of the German Real Estate Market

Daniel Piazolo, Utku Cem Dogan

This chapter focuses on the geographic and economic structure of the German real estate market and examines the attractiveness of various characteristics for an international investor.

Due to the longevity of the core product, i.e. buildings, the real estate sector is decisive for the long-term structure of cities and countries. Combined with the stable momentum of the overall German economy, this highlights the need for fundamental analysis of the German real estate market. Short-term developments will be faded out in this contribution. The chapter investigates the contents and aspects of the German real estate market that make Germany an interesting destination for international investors. This chapter discusses macroeconomic key indicators of the real estate market and analyses advantages of the German real estate structure.

1.1 German Macroeconomic Key Indicators

Germany is one of the most important economic nations in the world and is the largest economy in the European Union. According to many indicators, such as the health of public finance, the qualifications of the workforce, labour productivity, integration into global trade flows, the stability of the political and juridical system and transportation infrastructure, Germany offers significant benefits for investors. However, some German and international investors complain about high tax rates, restrictive employment laws, slow (albeit thorough) bureaucracy and restricted access to financial capital.

As an index for the overall size of an economy and thus a rough approximation of investment opportunities, gross domestic product (GDP) allows a first comparison with other large European countries (as set out in Figure 1.1).

Fig. 1.1: GDP across Europe 20191

The German labour market situation remains robust and is an important indicator of German economic wellbeing. In 2019, the increase in employment led to 45.4 million employees, the highest level in Germany since reunification. In February 2020, the German unemployment rate was 5.3 %2. The economic impact of the restrictions due to Covid-19 on German GDP, employment levels and tax income is severe. However, relative to other European countries, Germany is performing quite well. In the following paragraphs, the overall indicators of the German real estate markets will be examined. The relative comparison of the indicators allows valuable insights that are relevant even in an economic environment affected by the Covid-19 pandemic.

There were 83 million people living in Germany in 2019 (as depicted in Table 1.1). The capital, Berlin, is the largest city with more than 3.6 million inhabitants. Three further cities have more than 1 million inhabitants – Hamburg, Munich/München and Cologne/Köln. Within the German real estate sector, the investment focus is frequently on the seven largest cities. Consequently, three further cities – Frankfurt am Main, Stuttgart and Dusseldorf – have joined the club of the so-called »A-cities«.

City

Population

Population

Population by age group (1.1.2018)

(1.1.2019)

(1.1.2018)

< 18 years

in %

18–65 years

in %

> 65 years

in %

Berlin

3,644,826

3,613,495

588,459

16.3

2,330,755

64.5

694,281

19.2

Hamburg

1,841,179

1,830,584

302,867

16.5

1,191,397

65.1

336,320

18.4

Munich

1,471,508

1,456,039

228,340

16

968,939

66.5

258,760

17.8

Cologne

1,085,664

1,080,394

174,061

16.1

718,276

66.5

188,057

17.4

Frankfurt

753,056

746,878

125,674

16.8

504,272

67.5

116,932

15.7

Stuttgart

634,830

632,743

97,711

15.4

421,947

66.7

113,085

17.9

Dusseldorf

619,294

617,280

98,303

15.9

399,104

64.7

119,873

19.4

ø A-cities

1,435,765

1,425,345

230,774

16.2

933,527

65.5

261,044

18.3

Germany

83,019,213

82,792,351

13,538,146

16.4

51,544,494

62.3

17,709,711

21.4

Tab. 1.1: Demographic segmentation in the largest German cities3

The analysis by age group shows that on average 65.5 % of the population within the A-cities are of working age, i.e. between 18 and 65, whereas the overall percentage of this age group in Germany is 62.3 %. There is a higher percentage of people above the age of 65 in the smaller cities and the rural areas of Germany than in the seven A-cities. For the whole of Germany, 21.4 % of the population is over 65, whereas this age group represents only 18.3 % of the population in the A-cities. Frankfurt am Main, with 15.7 %, has the lowest share of people over the age of 65 out of all the A-cities.

Until the end of 2019, Germany saw a very favourable development in the job market. The unemployment rate in Germany dropped to 4.9 % (see Table 1.2). For the seven A-cities the unemployment rate was 6.2 %. All seven A-cities experienced a strong growth in jobs in the previous five years. On average, the total number of employees grew by 15.1 % for the A-cities in the five years before.

Total employees (2018)

Change over five-year period in %

Computer balance

Addition through Commuter

Unemployment rate in % (12/2019)

Berlin

1,476,248

20.2

135,496

9 %

7.7

Hamburg

974,482

11.5

225,059

23 %

6.0

Munich

874,099

15.7

207,723

24 %

3.4

Cologne

568,635

14.0

152,427

27 %

7.6

Frankfurt

584,220

13.2

277,744

48 %

5.0

Stuttgart

416,667

12.2

156,005

37 %

4.2

Dusseldorf

419,244

11.6

173,412

41 %

6.5

ø A-cities

759,085

15.1

189,695

25 %

6.2

Germany

32,868,611

11.0

4.9

Tab. 1.2: Job market characteristics in the largest German cities4

Where all German cities are concerned, the employees commuting from other cities are important additions to their own employees for the workforce. On average, one in four employees in an A-city does not live in that city. In Frankfurt am Main, almost every second employee (48 %) does not live in Frankfurt.

The inflation rate in Germany is low. The average increase in harmonized consumer prices was 1.4 % in 2019, which was less than aimed for by the Central Bank. Since Germany is part of the European Monetary System and shares the Euro currency with 18 other countries, overall monetary policy is set by the European Central Bank. The financing conditions in Germany are favourable for investors with good credit ratings, since the expansionary orientation of monetary policy keeps the interest rate low. As in previous years, the financial market in Germany faces low interest rates, because monetary policy will continue in an expansionary mode as long as several Euro countries struggle in economic terms and as long as the inflation rate remains low.5

1.2 Geographic Structure of the German Real Estate Market

In Germany, the country’s federal structure means that there is no one dominantmetropolis like London in the UK or Paris in France. Rather, the important real estatemarkets are spread over several metropolitan regions including the above-specifiedA-cities, frequently referred to as the »Big Seven«.

In addition, cities like Hanover, Dresden, Leipzig, Nuremberg, Essen and Dortmundrepresent promising second-tier real estate markets.

Fig. 1.2: Major real estate...

Über Autor(innen)

Hackelberg, Florian
Prof. Dr Florian Hackelberg is Professor of Real Estate Economics and Management at the HAWK University of Applied Sciences and Arts in Holzminden, Germany. Before that, he was a senior manager in the Real Estate Transactions team at PricewaterhouseCoopers, based in Berlin and Shanghai. After studying Civil Engineering and Management in Germany, England and China, Hackelberg received a PhD from the Technical University of Berlin. He also holds a master's degree in International Relations from the University of Cambridge, where he was awarded the Madingley thesis prize. Hackelberg is a Professional Member of the Royal Institution of Chartered Surveyors (MRICS), a member of the RICS Professional Group Valuation and a member of the German Society of Property Researchers (gif). He is also a member of the Höxter committee of valuation experts (Gutachterausschuss). He has written and co-written numerous books and articles on various real estate topics.

Hennig, Dirk
Dirk Hennig is a transactions partner with PricewaterhouseCoopers, focusing on real estate advisory services. He has over 25 years of hands-on consulting and deals experience from serving multinational clients with their real estate investments in Germany. He has worked in PwC offices in Berlin, Düsseldorf and New York. Hennig has a master's degree in Engineering from the University of Dresden, and the title of Expert for International Valuation of Real Estate from European Business School, Oestrich-Winkel. He is a board member of the Federal Association of Publicly Appointed, Sworn and Qualified Experts e.V. (BVS); a member of the German Property Federation (ZIA) working group 'Accounting and Valuation'; and a member of the Tangible Assets Board of the International Valuation Standards Council (IVSC). He was a member of the working group of the Institute of Public Auditors in Germany (IDW) for the publication of the IDW S 10 standard 'Principles for the Valuation of Real Estate'.

Florian Hackelberg

Prof. Dr Florian Hackelberg is Professor of Real Estate Economics and Management at the HAWK University of Applied Sciences and Arts in Holzminden, Germany. Before that, he was a senior manager in the Real Estate Transactions team at PricewaterhouseCoopers, based in Berlin and Shanghai. After studying Civil Engineering and Management in Germany, England and China, Hackelberg received a PhD from the Technical University of Berlin. He also holds a master's degree in International Relations from the University of Cambridge, where he was awarded the Madingley thesis prize. Hackelberg is a Professional Member of the Royal Institution of Chartered Surveyors (MRICS), a member of the RICS Professional Group Valuation and a member of the German Society of Property Researchers (gif). He is also a member of the Höxter committee of valuation experts (Gutachterausschuss). He has written and co-written numerous books and articles on various real estate topics.

Dirk Hennig

Dirk Hennig is a transactions partner with PricewaterhouseCoopers, focusing on real estate advisory services. He has over 25 years of hands-on consulting and deals experience from serving multinational clients with their real estate investments in Germany. He has worked in PwC offices in Berlin, Düsseldorf and New York. Hennig has a master's degree in Engineering from the University of Dresden, and the title of Expert for International Valuation of Real Estate from European Business School, Oestrich-Winkel. He is a board member of the Federal Association of Publicly Appointed, Sworn and Qualified Experts e.V. (BVS); a member of the German Property Federation (ZIA) working group 'Accounting and Valuation'; and a member of the Tangible Assets Board of the International Valuation Standards Council (IVSC). He was a member of the working group of the Institute of Public Auditors in Germany (IDW) for the publication of the IDW S 10 standard 'Principles for the Valuation of Real Estate'.