Property Management Through the Ages
The way in which property as an asset class is managed has changed significantly over the decades we have been operating in Germany. In our view, this change is primarily attributable to the increased market presence of international investors with global investment strategies.
In a nutshell, this development could be summarized as follows: the traditional expectation of returns from a fixed asset made of stone, with recurring income, has been replaced by yield-driven securities trading, which—within the real estate asset class in a previously stable economy like Germany—seeks relatively low-volatility, secure returns in order to diversify into less reliable investments.
That’s fine, but it’s actually something completely different.
What is the situation? A landlord who respects the Basic Law and accepts that ‘ownership entails responsibility’ invests regularly in maintaining the value of their property. This is rewarded by the tenants, who are able to rent a well-maintained, modern property and are prepared to pay a reasonable rent for it. Provided the investments are made and spread out sensibly, the owner reaps a return – and the property retains its value. A pipe dream!
What’s going on? Due to a number of factors, a fund management company is unable to deliver the return it promised its investors on a particular fund. However, it wants to continue raising money from investors and avoid losing their trust. Of course, there’s only one way to resolve this dilemma, and it’s the same as always, no matter where you look: increase revenue or cut costs—and ideally, do both.
Fund Company 1 decides to cease making any further investments, to reduce costs to an absolute minimum and to continue skimming off the agreed rent and value protection. The decline takes place over a number of years. By the time things go pear-shaped, the fund managers responsible have long since moved on. In the intervening years, we find ourselves caught in the middle. The tenant gets more and more annoyed every year, whilst the fund receives an increasing number of recommendations and disclaimers from us and, in turn, becomes annoyed as well. Take a guess as to whether we’re happy to find ourselves in this situation…
Fund Company 2 decides to sell a property in the fund so that the target return is met again—or even exceeded. At least in the short term. We’ve poured our heart and soul into building a personal relationship with the tenant, drawing up and executing our budgets to the best of our knowledge and belief, and getting the building’s systems under control—in short, getting the whole thing running smoothly. If everything is running smoothly, the property becomes attractive for sale. We then get to fill out the data room and answer questions from prospective buyers. If the sale goes through, we receive an extraordinary termination notice. Attractive? Take a guess…
Fund Management Company 3 decides to transfer a well-performing property from a fund that is performing better than planned into the weaker fund. The properties continue to operate without a hitch; there is a little extra work involved in setting up a data room, as this needs to be established here as well. But all in all, the extra effort is worth it. We get to keep our ‘foster children’ and can continue to look after them well. That? That’s fine.
We’re such a small company. There are only ten of us. We serve a niche market. We’re looking for clients who trust us, whom we can trust, and who value having their properties professionally maintained and managed with personal dedication over the medium to long term.
After all, we currently manage 1.8 million square meters of rental space for five clients—four international and one German—with annual rental income of approximately 120 million EUR. We are proud of that.