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Things I’ve learned from my encounter with a German Real Estate Manager

Things I’ve learned from my encounter with a German Real Estate Manager

I believe that real estate (especially residential) is very close to most Singaporeans’ hearts. After all, we need a house to live in. And for the well-to-do ones, they are likely to buy residential properties for investments.

However, I find that not much is being talked about an institutional asset class like office space and I thought since my work encompass it, why not just share it with the readers here?

(FYI, investing in commercial property is not subjected to any ABSD in Singapore.)

Back in September 2019, I was in Frankfurt to meet with a German Real Estate Manager.

This German Real Estate Manager was established by two co-founders who used to worked closely together at Bank of America Merrill Lynch. If you watch soccer, you will know that Germans are very technical in their play and in their work. Their investment strategies are mainly ranging from core through to value add where they in the latter, they use their hands-on asset management approach to increase / maintain the value of their assets.

Source: Sportsnet. Germany winning the 2014 World Cup Final with a score of 1-0 over Argentina.

What prompted them to start this outfit? Firstly, during the 2008/09 Global Financial Crisis, Merrill Lynch was taken over by Bank of America and this outfit was formed as a spin-out of the former Merrill Lynch real estate team in Germany. Secondly, I believe that for most bankers / investment professionals with an “entrepreneurial” mindset, usually they will learn the ropes in a global firm, and then leave to set up their own outfit so as to implement their own ideas and ways of doing things. That way, they are not bound by strict corporate guidelines. Also, once they have learned the best practices and built up their network, it is better to set up their own firm as they are able to retain a larger portion of the fees that they earn while doing investment / asset management work.

We visited 2 properties for our asset tour, which allowed me to understand more about the German real estate market. Fun fact: if you notice for other European countries, they usually have one main city where investment volume is concentrated. However, in Germany, they have at least 5 main markets (eg. Berlin, Hamburg, Munich, Frankfurt, and Dusseldorf)!

Below are some pictures of the properties we visited.

Source: Finance and Toast. Asset Tour #1: This was a large office space at the outskirt of Frankfurt where office rents was significantly lower than the main CBD of Frankfurt.

Source: Finance and Toast. Asset Tour #2: This is an office / retail space in a neighbouring location of Frankfurt’s most luxurious shopping district.

From this trip, I’ve learned a couple of things through my interaction with the co-founders and also from the asset tours, which I thought could be interesting to share with our readers.

A. Always push for that 10% more in anything that you do

Working in a top firm like Merrill Lynch and going through different real estate cycles has shaped the way the co-founders think. Hard work does not necessarily guarantee results, but without hard work, you are less likely to succeed.

Pushing that 10% more lets you see how far you can go and who knows that 10% more may translate into luck. For example, even 5 minutes more of an activity or job each day can significantly add up over time. I’m sure many readers know about the effect of compounding.

Source: Unsplash

B. Relationships matters

“It’s not what you know, but who you know”. I’m sure many of us have heard of this before. Hence, relationships in this day and age matters.

The two co-founders have built up an extensive relationship of network over their illustrious career and this broad network allowed them to find the best deals. They are not just able to obtain deals faster than other brokers, but also able to negotiate the price downwards due to their relationships. This is what they call “off-market transactions”.

I believe this is same for the Singapore residential real estate market. Your real estate agent matters. Someone with strong connections and a wide network will be able to help you find your ideal house.

Source: Unsplash

C. Stick with someone with a proven track record

This applies to whether you are putting your money with an asset manager or trying to find a real estate agent who can help you with buying / selling your house.

It is tempting to find someone who can give you discounted fees, since after all, money matters.

But I strongly believe in getting for what you pay for. A real estate agent who charges 2% commission but is able to help you find your dream house is probably more worth it than an agent who can give you a discounted commission but unable to show you good houses.

Also, someone with a proven track record means he / she knows what they are doing, whether is it the nitty-gritty stuff like the paperwork or even recommending you to the right banker / lawyer.

D. Sometimes, spending money on renovation can increase the value of your property

Just like how this German real estate manager pursue value-add strategies for their investments to increase the value of their properties, I believe that one can increase their home’s value through renovation, especially if it improves the liveability of the house.

Take a look at articles written from 99.co and Propertyguru on this topic. However, I have to caveat that prudence matters when it comes to renovation and setting a strict budget.

Source: Bo Renovation Bangkok

E. Office space is being rethought

We have seen how COVID-19 has accelerated trends in companies’ working arrangements.

For example, Schroders have announced that staff are not require to come into the office for 5 days a week and they can continue flexible working from home arrangements even after the end of the pandemic.

Likewise for Google, there is direction from the firm to extend their global voluntary work from home option through 30 June 2021 for roles that do not require to be in the office.

Hence, this could mean that demand for office space may reduce in the future if more firms allow such flexible arrangement although the longer-term impact on office space demand is yet to be seen.

This will have spillover effects to the residential market as more people will pursue bigger homes with the work from home culture being set in.

What are some of the things that you have learned from meeting someone interesting in your life?

Share with us in the comment box below.

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Cheers,

Finance and Toast



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