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Sal Oppenheim bets on property recovery

With headlines about real estate ever more gloomy, it might be reassuring for market participants to observe that Europe’s largest private bank, Sal Oppenheim, is positioning itself for a recovery.

Real estate special focus

With the establishment of a new global Reit fund in June, managed by Claudia Reich Floyd, until recently vice-president of Citi Property Investors, Sal Oppenheim is betting that by the end of the year – when the fund will be open to a wide range of investors – enthusiasm for property will have returned.

The move is the latest stage in the restructuring of Sal Oppenheim’s real estate operations following the acquisition of 25.1% of listed German real estate giant IVG Immobilien and the sale of 50.1% of Oppenheim Immobilien-Kapitalanlagegesellschaft (the market leader in German open-ended funds) to IVG in 2004. More recently, in January 2007, the bank set up the 4IP European Real Estate Fund of Funds, which focuses on non-listed, indirect European real estate investments.

The new global Reit fund complements 4IP and will leverage its fund of funds platform. The Reit fund launched with seed money from Sal Oppenheim – an undisclosed but “sizeable and sufficiently large” sum to facilitate a diversified global investment portfolio, according to Reich Floyd, head of global real estate securities, who will be based in Zurich. The fund is initially seeking money from institutional investors and larger private clients, mostly in German-speaking countries. By the end of the year, most of Sal Oppenheim’s private clients will have access to the global Reit fund through the bank’s existing distribution platform.

The Reits team will include a trader and analysts and will make use of Sal Oppenheim personnel in areas such as working capital management, according to Reich Floyd. In addition, the team will have a presence in New York and Hong Kong through existing Sal Oppenheim offices that are currently focused mainly on private equity investments. Reich Floyd aims to build a portfolio of funds, focused primarily on Reits but with some non-Reit listed real estate investments, especially in Asia. Sub-funds will be regionally focused to enable investors to tailor their exposure to real estate. It has yet to be decided whether Sal Oppenheim’s global Reit funds would be benchmarked against the FTSE EPRA/NAReit Global Reits or Non-Reits Index Series.

So why set up a Reit fund now? “Many institutional investors are in the process of re-configuring their exposure to real estate,” explains Reich Floyd. “As part of that, there is a shift towards indirect exposure – either through funds of funds or though Reits. The attraction of indirect exposure is simple: greater liquidity than is possible with direct ownership of real estate. “Liquidity is the main investment qualification for many institutional investors,” she says.

More specifically, the timing for a Reit fund is fortuitous because the series of corrections seen in recent months presents opportunities for investment, according to Reich Floyd. “We’re certainly not at a stage when the Reit sector looks dirt cheap but long-term valuations appear to offer fundamental value,” she says. “Volatility will remain problematic for some time but we are confident that investment at this anti-cyclical point makes sense: it will take time for equity investors to come back to the market but for real estate investors this is a great opportunity.”

Moreover, the importance of real estate investment is likely to become more apparent in the coming months. “As the focus of many investors increasingly switches to combating inflation, real estate will once again gain favour,” says Reich Floyd. “It is a great way to hedge inflation. We expect that for this – and other fundamental reasons – sentiment towards the property sector will have changed by the end of the year, by which time we will have an established portfolio and a track record.”

Unsurprisingly, Asian real estate  – which has continued to boom even as much of the rest of the world has been adversely affected by the global financial crisis – will be an important focus for Sal Oppenheim’s global Reit fund. However, investments will have to be carefully chosen, according to Reich Floyd. “It is vital to ensure that you make the right choices in Asia,” she says. “No one wants to find themselves in a situation where you have funded a start-up that then cannot secure additional financing.”

In Europe, the market clearly will enjoy less growth than in Asia but still offers selective value and is, according to Reich Floyd, “more sustainable” in terms of long-term returns. However, in the UK market – one of the region’s largest – Reich Floyd remains negative on both retail and office space. “Clearly, both are suffering at the moment and it is not clear than the worst of the pain is over,” she says. Meanwhile, after a surprisingly strong few months in the US, Reich Floyd says that the “overweight period may be over” but adds that there remain opportunities.

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