"Funds expand value creation" - Interview with Dr. Bernd Wieberneit
FOM has always found backers. Bernd Wieberneit says how he plans to attract new investors.
For Reiner Reichel, editor of "The Property Post" (TPP), the interview with Bernd Wieberneit was a reunion with a familiar interlocutor from the days when he still worked for Corpus Sireo. In keeping with the German government's policy of avoiding contact because of Covid, the two refrained from seeing each other again and spoke on the phone.
TPP: Mr. Wieberneit, the FOM Real Estate Group is known for project developments in the portfolio. Now FOM Invest GmbH, which belongs to the group, has announced a closed-end special AIF. How far have the preparations progressed?
Bernd Wieberneit: A few days ago, FOM Invest bought two Südwestbank buildings for this fund and parked them in property companies. Now we are preparing a closed-end special AIF into which we will transfer this property as soon as we have the marketing authorization for this fund from Bafin.
TPP: What do you plan to do with the properties?
BW: We will further develop and reposition the two properties. One of the buildings will continue to be used by the seller Südwestbank as its now rented headquarters. An Edeka store and a parking garage operated by Apcoa will secure rental income for the fund even during the conversion work.
TPP: There are various investment vehicles. Why did you choose the closed-end special AIF?
BW: In recent years, closed-end investment limited partnerships have become the order of the day in addition to the classic special assets as open-ended real estate funds. Such closed-end special AIFs are particularly interesting when it comes to individual large-volume real estate investments. In the case of the Südwestbank buildings, we opted for the closed-end investment limited partnership because of the properties' good micro-location and landmark character. In a special fund consisting of several properties, this outstanding position would be diluted.
TPP: How do you proceed with FOM Invest? Do you look for the investor first and then buy the property, or do you go the other way around?
BW: The FOM team does have many years of experience with various investment vehicles, including capital management companies. But as a young fund provider, we are not yet established among investors and only get attention when we can present concrete investment opportunities. That's why our current strategy is to find the property first, then look for investors. The goal is, of course, to build up a track record for FOM Invest so that investors commit money to us for future purchases within a predefined framework.
TPP: In the past, FOM had no trouble convincing co-investors of its projects. Why does the company now need a capital management company?
BW: Our co-investment model continues to work extremely well. But in the project development business, cash flow is known to fluctuate greatly. Up to now, completed projects have been sold to capital collection agencies and new projects have been launched. Now, funds are extending our value chain and perpetuating our business model through continuously flowing management fees.
TPP: Isn't the establishment of funds also a reaction to the Corona crisis, which is making it difficult for project developers to survive?
BW: One or the other developer has collected projects and is now actually finding it difficult to realize these projects successfully under the new framework conditions. But it was never FOM's business model to hoard development projects. We have always started and completed individual major projects with partners. We benefit from the fact that the real estate industry is rethinking its approach. In the market, the motto is no longer: buy buildings and keep them. Instead, it is now: buy buildings and adapt them to a changing environment. It has always been FOM's business to develop existing properties and make them more profitable, for example by changing their use and tenants. This expertise will be in demand more than ever.
TPP: Low yields have led to institutional investors such as pension funds, who are looking for security, investing in project developments. Now, project developments are becoming riskier because of Corona, which is likely to deter these investors. Aren't your project development funds coming too late?
BW: It is true that the risk appetite of pension funds, utilities and insurers is decreasing. Nevertheless, these institutions have to achieve minimum returns that cannot be achieved with core buildings alone. The decreasing willingness to take risks leads to even fiercer competition for core properties, so that their yields come under further pressure. Admittedly, anyone investing in our funds is taking a higher risk than in a forward deal or as a co-investor. On the other hand, once the revitalization is complete, we offer core properties with returns that are significantly higher than those of core investments. In this respect, our funds are not too late.
TPP: Will FOM continue to optimize existing properties and not just build new ones?
BW: We prefer projects that already offer a certain cash flow but can still be refined, as evidenced by the purchase of the Südwestbank properties. Which doesn't preclude us from tackling a greenfield development at some point.
TPP: Will you be relying entirely on closed-end special AIFs in the future?
BW: No, we will decide which vehicle fits best, depending on the project. Our most recent purchase is proof of this. The real estate we acquired in Duisburg, Hanover, Hildesheim and Mönchengladbach will be incorporated into FOMREF I, the first special fund launched by FOM Invest. The total property area of 177,000 square meters at the four locations is not yet optimally utilized. We intend to convert partial areas for apartments and local suppliers, among other things.
TPP: What did the portfolio cost?
BW: We do not wish to comment on individual investments.
TPP: That's an answer journalists don't like to hear. More generally, what volume does a property have to have for FOM Invest to get involved with it?
BW: A purchase is interesting for us from 50 million euros, and it can be a little more. In the case of office properties, we tend to look for properties worth 75 million euros or more. As far as the real portfolio is concerned, I can't tell you the purchase price, but I can say that we expect the portfolio to be worth between 300 and 400 million euros once all the development measures have been completed.
TPP: Keyword conversion: Which types of use do you prefer?
BW: We deal primarily with office, residential and retail properties, in other words, the main types of use. Pandemic has shown that apartments and convenience stores go well together. We generally see a trend toward mixed-use concepts.
TPP: In addition to the consequences of the pandemic, the industry is particularly concerned with ESG guidelines. Are you too?
BW: Of course. With the FOMREF I investment fund, we explicitly want to enable investors to make ESG-compliant investments. Our goal is to develop the fund properties so that the fund meets the guidelines of the ESG sustainability standard. We are also pursuing this goal as we launch additional funds.
TPP: In order to launch funds, FOM Invest has obtained a permit as a capital management company. You could also have commissioned a service KVG to manage the funds. Why didn't you do that?
BW: KVG, asset manager and developer must be able to sit together at the same table every day. Having our own KVG guarantees the necessary very close integration within FOM.
TPP: In the fund industry, it is estimated that a real estate KVG must manage at least one billion euros in order to operate profitably. Will FOM-KVG be able to do this within five years?
BW: FOM stands for large-volume investments. With the investments in Stuttgart and in the Real properties, we are already at around 150 million euros. The asset value of 300 to 400 million euros targeted for the Real portfolio alone corresponds to the order of magnitude by which we would like to grow annually. That's why we expect to reach the critical size of one billion euros in assets under management within three years.
TPP: Mr. Wieberneit, thank you very much for the interview.