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Eyeing outbound Asian real estate capital

For ING Real Estate Finance, its presence in Asia and knowledge of European property go hand in hand
Monday, June 1, 2015 - 05:50
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'You need to work internationally, but also bring in local sector expertise and knowledge, differentiating even within cities and streets what a good investment is.' - Robert Scholten, ING's Asia head of real estate finance

WITH Asian investors' appetite for European real estate investments growing, ING Commercial Bank is looking to meet this demand with its Asia-Pacific headquarters in Singapore and its pan-European presence.

In an interview with The Business Times, Robert Scholten, just four months into his new role as ING's Asia head of real estate finance, said that he sees Asian investors drawn to gateway cities in continental Europe beyond the traditional - some say over-saturated - London market.

"Investors are branching out to France, Germany, the Netherlands, Belgium, Italy, and Spain. It's a natural evolution. We even have investors investing in Poland."

According to CBRE, Asian capital made up 10.1 billion euros (S$14.8 billion) or just 6.1 per cent of capital flows into European commercial real estate in 2013. This grew to 10.5 billion euros in 2014.

German cities such as Berlin, Munich, Frankfurt and Düsseldorf are especial favourites with Asians because of their transparent, regulated and liquid real estate markets which also offer stable returns, explained Mr Scholten. ING-DiBa also happens to be the third-largest retail bank in Germany; with its volume of deposits, it would have ample liquidity to offer competitive funding to clients.

As for destinations that Asians may initially be less familiar with, Mr Scholten said that it is a continuous educational process: "We are fortunate that we are on both sides, as a bank in Europe and Asia, so if a client asks what we think of Poland, we can respond."

He added that Asian investors are looking to diversify their portfolios, and so are eyeing high-grade assets with stable yields that surpass European bonds' historical low returns. The prevailing low interest rates and weaker euro versus other currencies add to the appeal of real estate buys there.

Attractive yield

Yields are attractive. Data provided by ING shows that in Q4 2014, prime offices in Frankfurt's banking district enjoyed a net initial yield of 4.6 per cent, while those in Amsterdam's South Axis, Milan's CBD, and Warsaw's city centre yielded 5.3 per cent, 5.6 per cent and 6 per cent respectively.

ING manages a book of about 25 billion euros in real estate finance in Europe and Asia-Pacific. It was named top 2014 bookrunner in European real estate finance, with 14 deals worth 2.5 billion euros, accounting for a 14-per-cent market share, according to Dealogic.

Its clientele is very diverse - ranging from non-bank financial institutions to government-linked companies (for example Chinese state-owned enterprises), real estate investment trusts (Reits), funds (private equity, sovereign wealth, pension), asset managers, family offices and high net worth individuals. They span China, Hong Kong, Singapore and Australia.

Asian insurance firms especially have recently started increasing their allocations to overseas real estate, especially after China, Taiwan and South Korea liberalised their regulations permitting insurers to do so.

This is coupled with a lack of investment-grade core properties in Asia. According to a 2014 CBRE report, compressed prime office yields and record high capital values make it difficult for insurers to make acquisitions at home, thus driving them to explore other regions.

China's Ping An Insurance was one of the first PRC insurers to buy an overseas property - the Lloyd's building in London for £260 million (S$535.8 million) in July 2013. Hyundai Marine and Fire Insurance followed, co-investing with a Korean pension fund to buy Marks & Spencer's London headquarters at Paddington Waterside for US$327 million in late 2013.

CBRE believes there will be a "moderate" increase in Asian insurers' allocations to real estate from the current 2 per cent level. The improvement will be gradual, it said.

From his experience, Mr Scholten who was formerly based in Hong Kong, said that he finds Asian investors to be "very well-educated and measured".

"They don't go overboard or go out there to speculate; they go for solid investments," he said.

Stabilised assets

ING finances investments in stabilised assets such as offices, retail, hospitality (including serviced apartments), logistics and mixed-use developments, but not their development or construction. Of these, it finds that demand is strongest among Asians for office, hospitality and logistics properties because they require less active management compared to retail malls.

ING Real Estate Finance also does not broker deals, but as a financier, would work with law firms and property agencies to help clients explore investment opportunities.

It could not disclose many of its clients' names, but one that it could was Samsung SRA Management Group. Early this year, Samsung led a consortium to buy Frankfurt's Silberturm (Silver Tower), a 166-metre high office tower with 72,000 square metres of floor area.

ING Real Estate Finance Germany was lead arranger and underwriter and paired with two other large German banks to loan over 250 million euros to the purchase.

For now, Mr Scholten is working on improving the connectivity of ING Real Estate Finance's platforms across Europe, Asia-Pacific and the US to ensure that they are all working in sync. The reason for this, he said, is because real estate is as much a local business as it is a global one.

"You need to work internationally, but also bring in local sector expertise and knowledge, differentiating even within cities and streets what a good investment is. You need to understand the intrinsics of the brick and mortar in a certain location," he said.

"That is why we are so fortunate to be represented in many locations in Europe where we know the market."

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