Academic Star Publishing Company

Economics

ISSN: 2155-7950
Journal of Business and Economics

Real Estate Investment and Management Strategies

in German Speaking Countries

Michael C. Truebestein

(Lucerne University of Applied Sciences and Art, Switzerland)

Abstract: Based on an empirical survey among institutional investors in Switzerland, Germany and Austria, the paper analyzes current and future investment strategies in direct real estate and indirect real estate vehicles. In cooperation with the ASIP (Association of Pension Funds), questionnaires were sent to pension funds/staff pension funds, life insurance companies and foundations in the 1st quarter of 2016 and analyzed. The empirical results were furthermore compared with a similar study conducted in 2015 in these three countries. In total, 149 questionnaires were evaluated, representing US$/CHF 1’060 bn of invested assets and US$/CHF 110 bn of invested capital in real estate. The investors were clustered (k-means) in active and passive investors based on their attitude towards real estate asset management. Furthermore the institutions were analyzed by similarity of legal structures and requirements, thus: (1) Investors based in Switzerland and Liechtenstein and (2) Investors based in Germany and Austria. Due to a clear dominance of Swiss investors in the sample (24 French-Swiss and 99 German-Swiss institutions), the foci are set on these groups.

Findings: In the area of direct real estate investments, it can be observed, that the choice for external asset management services are mainly based on reputation and track record. Currently, returns in direct real estate investments are estimated to be at 4-5% — in the future a further decrease is estimated. Although the current portfolios are already invested in Switzerland for more than 90%, further new investments will mainly be undertaken in Switzerland, especially in Swiss residential real estate, contradicting the portfolio theory. Professional software, simulation and management solutions are not seen as a necessary item for the management of the portfolio. Similarly, Swiss investors consider their home country as more attractive for real estate investments than those abroad, which also explains the sub-optimal investment allocation. In addition, some institutions invested abroad in 2007 and were confronted with market disruptions afterwards, whereas the Swiss markets have been increasing constantly. In conclusion, a suitable strategy for an internationalization of the portfolio, and an optimal asset allocation thereof, may be challenges for the future. In the area of indirect real estate investment returns are decreasing accordingly. Investments in an investment-foundation are mainly influenced by the organization and structure of the management, the return and the investment-targets. Corporate governance structures are of minor importance. Investments in listed companies are mainly influenced by transparency, portfolio-structures and reputation/track record of the management. Also with indirect investments, Swiss investors are marked by a strong “home-bias”, also in the future with a strong preference in residential real estate. Finally, Swiss investors consider their home country for real estate investment opportunities to be more attractive than those abroad, which also explains the sub-optimal investment allocation

Concluding, a suitable strategy for an internationalization of the portfolio, and an optimal asset allocation thereof, may be challenges for the future. Swiss investors are marked by increasing investment volumes in real estate, but are still highly home-biased when taking investment decisions, resulting in a suboptimal portfolio allocation. Tendencies to convert direct investments into indirect real estate vehicles cannot be confirmed for all institutional investors in general. Nevertheless, the study illustrates some selected approaches concerning how future investments in indirect real estate investments will be undertaken and optimized by investors in Switzerland as well as in Germany and Austria.

Key words: real estate; asset management; investment management; institutional investors; Germany;
Austria; Switzerland; direct investments; indirect investments; empirical study
JEL codes: G23, G11, F21