Interest in German real estate finance market remains high among South Korean investors, says FAP
South Korean investors, major players in the German real estate finance market over recent years, are currently holding back, in the main due to the travel restrictions imposed because of the coronavirus pandemic.
Once the situation relaxes, and travel restrictions are lifted, these important institutional investors will strive to re‑establish their presence in the German market as quickly as possible, according to FAP Group, an independent consultancy in Germany for the arranging and structuring of capital for property acquisitions and development projects.
In November, FAP conducted a survey among South Korean institutional investors regarding the German real estate finance market. The results show that South Korean investors have been facing intensified competition from local German investors – and specifically because of the current pandemic. The vast majority of South Korean investors require a physical inspection of the target property to be financed, and travel for this purpose is now impossible. German institutional investors are also able to conclude deals more quickly and offer conditions which often fall outside of the South Koreans' required return profile.
“The interest of the South Koreans in the German real estate financing market is still as strong as ever,” says Hanno Kowalski, Managing Partner at FAP Invest. “Our contacts say that they want to get back into the market as quickly as possible and that they are already positioning themselves for this. Their interest continues to be on large-ticket core properties in the best locations – in three simple words: ‘Big, prime and secure!’ And to the extent that suitable direct property investments cannot currently be carried out, interest in alternatives is, in parallel, likewise growing.”
Until recently, South Korean investors have been important providers of capital in the German market particularly for large-ticket individual property transactions. In the current market, however, this interest has also been extending to loan portfolios which bundle together various individual loans ranging from EUR20 to EUR50 million. "In this way, these important investors can not only reach their target investment amounts in the three-digit-million range but also gain the benefits of risk diversification," explains Kowalski.
The demand for risk profiles which can be better managed and controlled has also been increasing, particularly after loan defaults on large individual properties in the United States in which the Koreans were financing participants.