Dr. Bütter, how would you describe your first 180 days since joining Union Investment?
The past six months have really confirmed my initial impression. I’ve been surprised on many occasions to find that the image I had of Union Investment before I came on board was actually pretty accurate looking at the inside. When I joined the company, Germany’s second lockdown was looming and the management team was being restructured – those two events naturally created a lot of expectations and changes. For a real estate enthusiast like myself, there’s nothing more exciting than now getting ready to take the next step forward, backed by an established team that delivers strong performance at every level.
With Covid-dominated 2020 now behind us, what’s your initial assessment of how things went?
I’m hugely impressed with the Group’s excellent overall result, to which we on the real estate side made an important contribution. The company is incredibly strong and has weathered the crisis very well to date, despite all the challenges involved. Various factors contributed to the positive achievements in 2020 – our strong sales team, the trust of our customers and stakeholders, robust tenants and, above all, the sheer dedication of our people. This unprecedented situation calls for even more management decisions than during normal times. Important adjustments were made around risk management and staff management in particular – including the smart, carefully considered decision to invest in our workforce rather than battening down the hatches.
Is that all about bolstering our dependability in response to the crisis?
Yes, indeed. We know how difficult it is to recruit good staff in the real estate industry, and that will be especially true when the markets pick up again. We aren’t fair-weather sailors. That strong commitment to our business and employees gave us extra momentum in an exceptional year. And the storm isn’t over yet. We need all hands on deck.
Partially due to the significant growth you’re aiming for, no doubt.
People still believe in the ability of real estate to deliver sustained returns. After all, there’s plenty of evidence. Our outstanding portfolio has so far come through this huge stress test largely unscathed. That justifies the continuing trust shown in our performance and our forward-looking management approach at all levels. This trust is vital to maintaining strong momentum and leveraging it for the benefit of our investors.
As CEO, what objectives are you specifically focusing on in the Real Estate segment?
Union Investment has a future-proof business model with its retail and special open-ended real estate funds and its tailored solutions for our institutional clients. There is enough capital out there to drive significant growth. Accordingly, we’re confident that we can double our assets under management to around €72 billion over the next six years. That means growth both of the existing funds and in our Service KVG business, and also through new institutional real estate solutions for major international clients. Our plans are realistic, but the conditions have to be right.
You mean the markets returning to normal?
Not just that. Our investment teams will be handling significantly more transactions, both in Europe and overseas. The aim is to hit around 130 deals a year in the medium term. For that to happen, cross-border travel obviously needs to return to some sort of normality. Another important prerequisite is ensuring we have enough people, especially in investment management and asset management, but also in support functions.
So there’ll be an increase in head count?
Yes. We’re initially looking to recruit 25 new employees in Hamburg and Frankfurt. That will give us a real boost and allow us to seize market opportunities as they emerge. I’m very pleased that various trainee positions will also be created to help meet our ambitious growth targets.
So counter-cyclical investment is the formula for dealing with the Covid-19 crisis?
Our aim is to make Union Investment a key player in Europe and also build a strong position globally. We’re looking very closely at the medium and long-term growth potential and asking ourselves where we need to accelerate as an organisation, where we ought to rethink our approach and what things we perhaps shouldn’t be doing. As stewards of our investors’ assets, we’re extremely cost conscious. So profitable growth is the mantra. That also means striving for greater efficiency in processes, with digital solutions playing a role there.
Will the growth targets involve changes to investment strategy?
Growth isn’t an end in itself; we’re not aiming to hit our growth targets at any price. The quality of a property and its ability to deliver sustained returns remain our benchmarks in every transaction. I therefore don’t see any fundamental shift in our investment strategy. Union Investment has traditionally had a solid focus on core products. We now intend to expand our risk/reward profile in the manage to core category in a prudent, measured fashion. At the same time, we will further broaden our portfolio. This is partly designed to leverage additional return potential, but also to mitigate the impact of increased volatility and further boost the resilience of the portfolio in a hugely dynamic market environment.
That will include entering new market segments in Europe alongside making a return to overseas markets.
Absolutely right. In particular, we intend to step up investment in residential property outside the German-speaking countries. We’ve already put down markers in Amsterdam, and Martin Brühl’s teams are currently negotiating on exciting deals in Helsinki and Dublin. We also want to tap into the highly resilient multi-family segment in the US via our office there. In terms of asset management, the plan is to work with external property managers to find appropriate solutions in the new markets. Optimising our IT interfaces is a key aspect of our existing strategy project in this context.
Does this mean a shift of focus away from office properties?
There’s been a lot of talk about the increasing importance of working from home. We firmly believe that demand for high-quality office space in prime locations will remain strong. Such properties thus remain a pillar of our core-oriented investment strategy. Home working won’t be a priority for every company in the future. There’s more of a trend towards hybrid workplace ecosystems where the traditional office serves as anchor space for brand identity, for attracting talent and for functions that need a face-to-face presence.
What else is on the agenda for 2021?
We’ll be expanding our use of forward funding – one of our specialisms – across all property types. The intention is also to acquire more multi-use properties, ensembles and campus properties.
Union Investment was a clear net buyer last year. Will that remain the case while going for growth?
Making acquisitions totalling €4.1 billion during the pandemic was an impressive achievement in 2020, as also acknowledged by our sales team. Sales activities had to take a bit of a back seat. But that’s just a snapshot. Removing non-strategic assets from our portfolio is an ongoing task that serves to steadily reduce the age of the portfolio. Our Manage to Green programme is a central element of our sales strategy. Where it would be too expensive to make certain properties climate neutral, we’ll dispose of them in a timely fashion. To put a figure on that, we aim to realise disinvestments of around three percent of our real estate assets each year.
We’re currently living with closed borders, restrictions on entering other countries and flight bans. Is direct local access to markets going to become more important?
If effective, reliable networks are in place, cross-border transactions are still possible even in exceptional times without having a fixed local presence. Having said that, a local presence in volume markets provides an increasingly important competitive edge, particularly around generating off-market opportunities. Based on the model of our branches in Paris and Singapore, we will therefore gradually establish local hubs in target markets with critical mass, initially in London, Amsterdam and Stockholm. This process will involve new and exciting career prospects for the whole team, first in investment management as a spearhead for cultivating new markets, and then also in asset management.
Talking of asset management, what kind of action does the portfolio currently require?
It’s extraordinary what our five asset management units have had to deal with for over a year now, on top of their normal duties. Working closely with our tenants, new solutions are being found almost 24/7 to chart a way through and out of the crisis that works for both sides. There have been insolvencies along the way, some of which were just down to circumstances. Overall, however, our users have survived the coronavirus crisis well or even very well so far. Agreeing lease extensions ahead of expiry, like just recently on the Radisson Blu in Berlin’s DomAquarée complex, shows that the current situation is frequently being used by companies to secure prime locations ready for the future. We’re happy to assist them.
Are hotels still on fund managers’ wish lists?
Hotel occupancy rates and revenues will remain under pressure over the next two to three years. Hospitality has been hit very hard financially, mostly through no fault of its own. On the whole, though, the hotels in our portfolio have very sustainable and efficient business models. They also occupy excellent locations, meaning that the prospects of recovery are good. We believe that things will indeed get better and we continue to invest selectively in hotels. As such, our strategy here is counter-cyclical.
What’s your view of retail property?
Retail is on the brink of a major transformation. That could provide opportunities for regeneration of city centres and also for us as an investor. Repurposing unwanted retail space will enable the creation of new concepts that combine retail with short-term accommodation, hotels or distribution facilities. It’s an exciting development that we will be monitoring very closely.
Thank you for talking to us, Dr. Bütter.