Investing in German Real Estate
A practical guide
Zusammenfassung
Investing in one of the most promising real estate markets in Europe offers enormous opportunities. And as with every real estate market, in Germany too, the local framework conditions must be understood and their particularities must be adequately taken into account. The authors are renowned senior executives, real estate advisors and academics, who share here their extensive experience and real life insights from countless real estate investments, covering all aspects of a successful investment process in Germany. Includes: markets, the regulatory framework and investment guidelines.
Contents:
Essentials for successful real estate investments in Germany
Macro-economic structure and dynamics of the German real estate market
Real estate investment, trends and strategies
Diverse submarkets: residential, offices, retail, hotel and nursing homes
Real estate legal, tax and audit frameworks
German REITS and ESG in real estate investments
Real estate M&A, financing, due diligence and valuations
Abstract
Investing in one of the most promising real estate markets in Europe offers enormous opportunities. And as with every real estate market, in Germany too, the local framework conditions must be understood and their particularities must be adequately taken into account. The authors are renowned senior executives, real estate advisors and academics, who share here their extensive experience and real life insights from countless real estate investments, covering all aspects of a successful investment process in Germany. Includes: markets, the regulatory framework and investment guidelines.
Contents:
Essentials for successful real estate investments in Germany
Macro-economic structure and dynamics of the German real estate market
Real estate investment, trends and strategies
Diverse submarkets: residential, offices, retail, hotel and nursing homes
Real estate legal, tax and audit frameworks
German REITS and ESG in real estate investments
Real estate M&A, financing, due diligence and valuations
- Kapitel Ausklappen | EinklappenSeiten
- 1–16 Titelei/Inhaltsverzeichnis 1–16
- 17–56 I. Fundamentals – Basics of the German Real Estate Market 17–56
- 1 Macroeconomic Structure of the German Real Estate Market
- 1.1 German Macroeconomic Key Indicators
- 1.2 Geographic Structure of the German Real Estate Market
- 1.3 German Real Estate Indicators
- 1.4 German Real Estate Investment Structure
- 1.5 Conclusion: Attractiveness and Complexity
- Bibliography
- 2 Real Estate Investment Trends and Strategy
- 2.1 Introduction
- 2.1.1 Germany’s stable investment framework
- 2.1.2 Polycentric real estate markets
- 2.1.3 Foreign investment
- 2.1.4 Demand shift towards niche markets
- 2.2 Real Estate Investment Strategies
- 2.2.1 Risk profiles with current yield expectations
- 2.2.2 Strategies for existing estates
- 2.2.3 Earlier entry into the real estate value chain
- 2.2.4 Countercyclical investment strategy
- 2.3 Deal Sourcing
- 2.3.1 Major buyers and sellers
- 2.3.2 Acquisition strategies
- 2.3.3 Local partners: investment managers
- 2.3.4 Collaboration: joint ventures and club deals
- 2.4 Conclusion
- Bibliography
- 57–178 II. Markets – German Real Estate Market Sectors 57–178
- 3 The Housing Market in Germany
- 3.1 The Provider Structure in the German Housing Market
- 3.2 Rental Accommodation in Germany – The Most Common Form of Housing, High Quality and Stable Demand
- 3.3 Housing Construction in Germany and Demand for New Housing
- 3.4 German Rent Control
- 3.4.1 German capping limit ordinance (Section 558 (3) of the German Civil Code (BGB))
- 3.4.2 Rental price brake (Mietpreisbremse)
- 3.4.3 Berlin rent price cap
- 3.5 Price Developments in the Sale of Residential Real Estate
- 3.6 Conclusion
- Bibliography
- 4 Investing in German Offices
- 4.1 Introduction
- 4.2 Germany Is Not Paris
- 4.3 Smaller Is Liquid
- 4.4 GDP Growth Is Not Alone
- 4.5 Low Yields: Small Margins of Error
- 4.6 Co-working Revisited
- 4.7 Sustainability Matters
- 4.8 The World According to Covid
- 4.9 Summary
- Bibliography
- 5 Retail Property Investment Market
- 5.1 Introduction
- 5.2 Definition and Types of Retail
- 5.2.1 Large-scale retail
- 5.2.2 Small-scale retail
- 5.2.3 Commercial buildings
- 5.2.4 Retail area definition
- 5.2.5 Structure and aspects of rental contracts
- 5.3 Retail Property Market Structure
- 5.3.1 Economic framework and consumer markets
- 5.3.2 Purchasing power index
- 5.3.3 Retail locations and location factors
- 5.4 Development of the Retail Property Investment Market
- 5.4.1 Development of retail rents
- 5.4.2 Development of prime yields
- 5.4.3 Transaction volumes
- 5.5 Challenges for the Retail Sector and Changing Shopping Behaviour
- 5.6 Summary and Outlook
- Bibliography
- 6 The Logistics and Industrial Property Investment Market
- 6.1 Introduction
- 6.2 Definition and Types of Logistic and Industrial Properties
- 6.2.1 Transhipment centres
- 6.2.2 Distribution properties
- 6.2.3 Fulfilment centres
- 6.2.4 Corporate real estate warehouse and production
- 6.3 The German Logistics Investment Market
- 6.3.1 The logistics market
- 6.3.2 Structure of the German logistics market
- 6.3.3 Investment market
- 6.3.4 Development of logistics rents
- 6.3.5 Rent contract conditions and durations
- 6.4 Trends in the Logistics Real Estate Sector
- 6.5 Summary and Outlook
- Bibliography
- 7 Hotel Investment Market
- 7.1 Introduction
- 7.2 Supply and Demand in the German Hotel Market
- 7.3 German Hotel Investment Market
- 7.4 Types of Hotels
- 7.5 Definitions of the Most Important KPIs for Investors in Hotels
- 7.6 Hotel-specific KPIs and German Market Characteristics
- 7.7 Operator Models
- 7.8 Summary and Outlook
- Hotel Data and Addresses
- Bibliography
- 8 Nursing Home Investment Market
- 8.1 Introduction
- 8.2 Types of Care Provision and Properties in the Senior Housing Segment
- 8.2.1 Inpatient care/nursing homes
- 8.2.2 Assisted living
- 8.2.3 Selected aspects of rental contracts
- 8.3 Demographics
- 8.4 Market and Location Analysis for Nursing Homes
- 8.5 Structural Requirements for Nursing Homes
- 8.6 Regulatory Framework
- 8.7 Consolidation and Concentration in the Nursing Home Operator Market
- 8.8 Transaction Market and Prime Yield Development
- 8.9 Opportunities and Risks of this Asset Class
- 8.10 Summary and Outlook
- Organizations
- Market Reports Databases
- Bibliography
- 179–282 III. Framework – German Regulatory Real Estate Framework 179–282
- 9 Legal Real Estate Investment Framework
- 9.1 Introduction
- 9.2 Accessibility
- 9.3 Acquisition Structure
- 9.4 Relevant Legal Aspects for Risk Assessment
- 9.4.1 Property
- 9.4.2 Public law
- 9.4.3 Leases
- 9.5 Acquisition Process
- 10 Tax Aspects of Real Estate Investments in Germany
- 10.1 Overview
- 10.2 Income Tax (Einkommensteuer) and Corporate Income Tax (Körperschaftsteuer)
- 10.2.1 Resident companies and individuals
- 10.2.2 Non-resident companies and individuals
- 10.3 Withholding Tax Regime
- 10.4 Trade Tax (Gewerbesteuer)
- 10.4.1 Extended trade tax deduction (Erweiterte Gewerbesteuerkürzung)
- 10.5 Real Estate Transfer Tax (Grunderwerbsteuer)
- 10.6 Value-added Tax (Umsatzsteuer)
- 10.7 Land Tax (Grundsteuer)
- 10.8 German Anti-hybrid Considerations
- 10.9 Mandatory Reporting of Cross-border Tax Arrangements
- 10.9.1 General remarks
- 10.9.2 Reportable arrangements
- 10.9.3 Reportable persons
- 10.9.4 Procedures and deadlines for reporting
- 10.9.5 Sanctions for breaches of the reporting obligation
- 10.10 Tax Summary
- 11 Real Estate Accounting
- 11.1 Introduction
- 11.2 Components of Accounting and their Functions
- 11.3 Accounting and Valuation Principles
- 11.3.1 Allocation to fixed assets or current assets
- 11.3.2 Acquisition or production costs
- 11.3.3 Depreciation and appreciation
- 11.4 Conclusion and Meaningfulness of the Valuations
- Bibliography
- 12 Real Estate Investment Trust (REITs) in Germany from the Perspective of Investors
- 12.1 Introduction
- 12.2 Two Major Types of REIT Investor
- 12.2.1 Specialists’ (dedicated real estate investors’) view
- 12.2.2 Generalists’ (equity funds managers’) view
- 12.3 Investors’ View on the German REIT
- 12.3.1 Qualifying activities
- 12.3.2 Residential real estate constructed before 2007 does not qualify for REIT status
- 12.3.3 Trading of properties: Disposals limited to 50 % of the average investment portfolio within five years
- 12.3.4 Gearing: Limited to 45 % of the immovable property (valued at IAS 40 Fair Value Method)
- 12.3.5 Payout ratio
- 12.3.6 Taxation of profit at REIT level
- 12.3.7 Taxation at shareholder level
- 12.3.8 Possible double taxation for investors paying corporation tax
- 12.4 The German REIT Sector
- 12.5 Case Study: Hamborner REIT AG
- 12.5.1 Abstract and outlook
- Bibliography
- 13 ESG in German Real Estate Investments
- 13.1 Political and Regulatory Background
- 13.1.1 Sustainable development goals
- 13.1.2 EU Action Plan on Financing Sustainable Growth
- 13.1.3 The European Green Deal
- 13.1.4 EU Taxonomy Regulation
- 13.1.5 EU Disclosure Regulation
- 13.1.6 German energy regulations
- 13.2 Market Trends and Value Drivers
- 13.2.1 Stakeholders’ demands
- 13.2.2 Market tools and industry initiatives (i.e. voluntary requirements)
- 13.3 Overview of ESG Measurement and Key Performance Indicators (»KPI«)
- 13.3.1 Measurement methodology of ESG criteria
- 13.3.2 Environmental, social and governance criteria
- 13.4 Implementation in Investment Processes (ESG due diligence)
- 13.4.1 Transactions and project development
- 13.4.2 Capex investments
- 13.4.3 Challenges
- 13.4.4 Best practice guidance
- 13.5 Implementation in Contracts and Legal Documentation
- 13.5.1 General considerations
- 13.5.2 Common understanding of the parties
- 13.5.3 Clauses on data exchange
- 13.5.4 Adaptation to new regulatory requirements and/or market trends
- 13.5.5 Recommendations for different life-cycle phases
- 13.6 Outlook
- 283–370 IV. Management – Guidelines for Investing in German Real Estate 283–370
- 14 Real Estate Mergers & Acquisitions
- 14.1 Real Estate M&A Processes
- 14.1.1 Introduction
- 14.1.2 Auction and off-market process
- 14.2 Best Practices
- 14.2.1 Avoid NDA breaches
- 14.2.2 Understand buy-side transaction costs
- 14.2.3 Pay attention to potential broker fees
- 14.2.4 Understand the transaction and communicate with the sell-side
- 14.2.5 Avoid exiting the process right before submitting indicative offers
- 14.2.6 Stand by your indicative offer
- 14.3 Conclusion
- Bibliography
- 15 Financing Real Estate in Germany
- 15.1 Sources of Capital
- 15.2 Types of Security
- 15.2.1 Land charge and mortgage
- 15.2.2 Other security
- 15.3 Long-term Debt Financing
- 15.3.1 Characteristics
- 15.3.2 Mortgage loans
- 15.3.3 Linear-payback mortgage loan
- 15.3.4 Interest-only loans
- 15.3.5 Building societies
- 15.4 Conclusion
- Bibliography
- 16 Real Estate Valuation in Germany
- 16.1 Introduction
- 16.2 Basis of Valuation
- 16.2.1 Value definition and concept
- 16.2.2 Purpose of valuation
- 16.3 Valuation Framework in Germany
- 16.3.1 Immobilienwertermittlungsverordnung
- 16.3.2 Committee of valuation experts (Gutachterausschuss für Grundstückswerte, GAA)
- 16.3.3 Standard land value (Bodenrichtwerte, BRW)
- 16.3.4 Valuation experts and organizations
- 16.3.5 Valuation process
- 16.3.6 Fundamentals for determining the value of land
- 16.4 Valuation Methodologies
- 16.4.1 Market approach
- 16.4.2 Income approach
- 16.4.3 Cost approach
- 16.4.4 Non-standardized valuation methods
- 16.4.5 Derivation of the market value
- 16.5 Fundamentals for Determining the Mortgage Value
- 16.6 Practical Valuation Aspects to Consider in the Investment Process
- 16.6.1 National vs. international valuation methodologies
- 16.6.2 Use of the valuation report and related requirements
- 16.6.3 Clear definition of valuation subject: asset vs equity
- 16.6.4 Qualifications of the valuer
- 16.6.5 Plausibility of the valuation and reasonable valuation assumptions
- 16.7 Conclusion
- Real Estate Data and Addresses
- Bibliography
- 17 Financial Due Diligence in the German Real Estate Market
- 17.1 Introduction
- 17.2 Definition, Timing and Goals of FDDs in Real Estate
- 17.3 Context of FDD Services
- 17.3.1 Buy-side financial due diligence
- 17.3.2 Vendor financial due diligence
- 17.3.3 Vendor assistance
- 17.4 Financial Due Diligence in an Asset Deal – Analysis of the Property Net Operating Income
- 17.4.1 Subject and goal of asset deal FDD
- 17.4.2 Considerations regarding the type of use
- 17.4.3 Assessment of data
- 17.4.4 Analysis of rental income
- 17.4.5 Analysis of service charges and service charge leakage
- 17.4.6 Analysis of quality of earnings
- 17.4.7 NOI projections
- 17.4.8 Obligations in an asset deal
- 17.5 Financial Due Diligence in a Share Deal – Supporting the Deal Considerations and SPA
- 17.5.1 Considerations for real estate deals
- 17.5.2 Assessment of database
- 17.5.3 Review of the balance sheet – quality of net assets
- 17.5.4 Impact of the FDD on the sale and purchase agreement
- 17.6 Conclusion
- Bibliography
- 371–380 The Editors and Authors 371–380
