Real Estate Forum - October 2009

global digest

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Z blin Focuses on Sustainable Office

Swiss listed group Z blin Immobilien Holding, which owns a majority stake in a French SIIC/REIT and an unlisted German subsidiary, has shifted its focus toward a portfolio of sustainable offices and cutting back non-core assets, says the group’s chief executive officer, Bruno Schefer.

Schefer relates that Z blin, whose origins reach back to the German tycoon who also founded a now-separate construction company, is the sole listed Swiss company with investments outside the Alpine nation. While this brought

depreciations, the net result came in at a loss of €134 million, turning round a tidy profit in 2007 and 2008, and, although rental income was off marginally, its operating result was a slightly higher € 23 million. On the financing side, loan-to-value rose by a quite strong seven points to 67.2%, though the target is to cut this to 60% or perhaps 55%. However, gross and net yields across the portfolio rose, to 7.5% and 6.6% respectively, and the average vacancy rate held fairly steady at 9.6%.

Z blin aims to return to a pure office

“Within the next two years, 100% of the portfolio will

be office at prime locations in a very few cities and all

the properties should be energy efficient.”

BRUNO SCHEFER, Z BLIN IMMOBILIEN HOLDING

benefits in the past, it also meant net depreciations in 2008 of around 21% in France, 9% in Germany, and 15% in Benelux. However, Z blin holds firm to the aim set at foundation 10 years ago of being a pan-European investor.

“That was and is, from a Swiss point of view, our uniqueness,” Schefer relates. “We remain convinced it is the right strategy for the longer term—even if in the last two or three years it would have been better to invest only in Switzerland. Value creation can be bigger internationally than if you only stay in Switzerland.”

The Zurich-based group retains 59% of equity in French REIT Z blin Immobiliere, though full conversion of an outstanding series of convertible bonds could cut this to under 50%. In Germany, the group had been poised to list Z blin Immobilien as a G-REIT, but was defeated by the crisis. At its financial year-end in March 2009, Z blin held investment and development properties worth € 1. 1 billion. Because of the

focus. “We are pretty much targeted today on prime office, but we still have certain interests in logistics and in retail, especially in Germany,” Schefer says. “But the strategy we adopted 18 months ago is that within the next two years, 100% of the portfolio will consist of office assets at prime locations in a very few cities and that all the properties should be energy efficient. Of course, the latter aspect is a long-term goal over five years, but when we buy new assets we pick out energy-efficient buildings, or we upgrade existing ones.”

The move is not about labels but achieving genuine reduction in energy assumption. “But to do that, first of all you have to measure it. And that is where transparency comes in,” he notes. “In our Annual Report, we show how much energy we use per building and how we achieve this. We believe firmly that future tenants will demand this.”—Allan Saunderson, Property Finance Europe via GlobeSt.com

While the rest of the world may still be seeing the bottom of the recession, Asia Pacific has seen a 50% increase in investment transactions in from the second quarter 2009 to the end of Q3. It’s estimated the region experienced $17.1 billion in investment this quarter alone, according to a new report by the global real estate advisor DTZ.

“We have seen a rapid turnaround in both sentiment and transaction activity as more favorable economic conditions provide support to the investment market,” says David Green-Morgan head of Asia Pacific Research at DTZ. “A number of domestic investors have returned to the market seeking to benefit from the favorable pricing.”

In China, Australia, Hong Kong, and Singapore transaction volumes in US dollar terms increased throughout Q3. The only major market to see a decline in investment activity was Japan, which had a record-break-ing Q2 with a number of large deals, including one worth more than $1.2 billion.

“Activity across the region continues to be driven by mainly private domestic purchasers, although a growing interest from the institutions is emerging,” Green-Morgan says. “With debt markets only showing gradual signs of loosening, the majority of activity is centered toward lower lots (sub-$100 million).”

DTZ believes the period of market distress is over and investors are beginning to move forward again now that prices are stabilizing and there is value to be found in prime real estate assets. Investors are still skirting around secondary assets, as those prices have yet to stabilize and better deals may be in store down the line.—Katie Hinderer ◆