Fund provider Real I.S. plans to invest 600 to 800 million euros over the next two years, primarily in the logistics and residential sectors. This was stated by the designated CEO Christine Bernhofer in an interview with the Börsen-Zeitung.

The share of these types of usage in the portfolio will grow significantly. Currently, 9% of the total portfolio of 12.5 billion euros is in the residential segment, with logistics accounting for 7%. Offices dominate with a share of 58%, said Bernhofer. She will take over the management of the BayernLB unit on 1 October. The current CEO, Jochen Schenk, emphasised that Real I.S. can push ahead with new products thanks to its resilient positioning: „We have a number of other ideas beyond residential and logistics," he said.

The designated CEO is convinced that the current interest in logistics is price-driven. While portfolios used to be traded at 32 times the annual rent in some cases, multiples are now a third lower. „Decent logistics properties in reasonable locations will remain attractive in the medium term," she said. The approach to customers for the first pure Real I.S. logistics fund will start in autumn.

Residential property, on the other hand, was still ignored by investors a few decades ago, said Bernhofer. On the one hand, the yields were considered too low compared to office investments. On the other hand, there were reputational risks if tenants felt badly treated. But it is now generally recognised that money for residential space must also be made available for usage such as senior housing. Although residential investments do not deliver maximum yields, the returns are decent.

The recently launched pan-European residential fund „Modern Living“ should be fully invested by the end of 2024, said Bernhofer. There is a shortage of residential property across Europe, in some cases more than in Germany. Real I.S. already has a number of residential investments in Ireland, which is particularly affected, and is currently offering a focussed „Residential Ireland“ fund. „There is investor interest,“ she continued. The pan-European follow-up fund to „Modern Living“ will include a variety of residential property types and locations in Europe.

Bernhofer is naturally aware that the residential/logistics duo is also being exploited by competitors: „Of course, everyone is now focussing on these types of use because there is demand there.“ But Real I.S. is optimistic because "unlike perhaps one or two of our competitors, we have not reduced our acquisition staff.“ Furthermore, the fund provider is not only active in Germany, but also in other locations, emphasised Schenk.

In general, the situation on the property markets remains challenging, said Bernhofer: „Supply and demand have not yet found each other.“ The price corrections are not yet complete. Customers are cautious, but interest is increasing: „There is a lot of looking and checking again, but no action yet.“

Uncertainty is particularly noticeable when it comes to office property, said Bernhofer. She is convinced that high home office quotas make no sense for employees or employers in the long term: „We have a lot of office space and we believe in the office," she said. However, the spaces need to be modernised. For example, three to four years ago, hardly anyone knew what the term „end-of-trip facility“ meant. These areas, where employees – arriving by bike or jogging shoes – can change and shower, are now part of the top facilities.

Devaluations on Real I.S. properties totalled 1.4% last year, explained Bernhofer. A similar figure is expected in the current period: „There is currently no sign of any great demand for office space.“ However, institutional investors, Real I.S.'s main clientele, would not panic if valuations fell slightly for a foreseeable period of time. Bernhofer is convinced that although offices will ultimately no longer be as important as they were before the pandemic, they will become noticeably more relevant than they are now.

The corrections would therefore be far below the values of other listed properties, such as those in Anglo-Saxon countries, because the valuers working in accordance with the corresponding German regulation did not rigorously write up property values to market values during the upswing. The approach is a long-term investment, not mark-to-market, said Schenk.

In his view, two other factors are ensuring stability. Firstly, the occupancy rate last year was just under 97%, only slightly below the previous year's figure. Values above 95% correspond to full occupancy.

Secondly, Real I.S. has many properties in its portfolio that were built after 2012 and will have to accept small valuation discounts for future decarbonisation. As the only asset manager in Europe with broadly diversified investments, the BayernLB subsidiary was therefore able to book 75% of the portfolio as sustainable in accordance with Article 8 of the EU Disclosure Regulation last year. In the current year, the ratio will probably rise to 90% if investors agree.

The portfolio fees cover the fixed costs well, said Bernhofer. The parent company BayernLB accepts that profits are significantly lower in the current phase, since Real I.S. cannot decouple itself from the market. Schenk added that profits are likely to increase in the coming years with the expected market recovery.

Last year, pre-tax profit fell from 31 to 27 million euros despite high performance-related remuneration. In BayernLB's annual report, the decline is explained by the fall in transaction volume. According to Bernhofer, it had slumped from 1.1 billion euros to 0.5 billion euros, of which 300 million euros went to acquisitions. The cost-income ratio rose from 65% to 69% last year and is expected to increase to around 80% in the current year.

According to Bernhofer, Real I.S. is operating at a lower market level with around 300 employees (265 on a full-time basis). The transaction volume is nevertheless expected to rise to 1.2 billion euros, although this target is very ambitious. Half of this is budgeted for acquisitions, in particular for the ramp-up of the logistics fund. Assets under management fell from 13.1 to 12.4 billion euros last year, said Bernhofer. They currently stand at 12.5 billion euros. The open-ended mutual fund Realinvest Europa had recorded inflows of 58 million euros and the gross volume had risen to around 810 million euros.

Last year, 260 million euros in equity capital was raised. However, the majority came from the contribution of a residential property portfolio that Real I.S manages for a pension fund. Since March 2023, this asset management business area for third parties has increased the portfolio by around 200 million euros from around 490 million euros. Real I.S. has 191 buildings in its portfolio. The space under management has grown from 2.7 to 2.9 million square metres.