For many investors, investments in real assets have replaced bonds in recent years. They are considered to be just as secure and, unlike many bonds, also make long-term, regular payouts. But anyone who, like the Frankfurt investment boutique Faros, advises insurance companies, pension funds or family offices on investments in tangible assets will work up a sweat in times of corona. Because there is a serious crisis in two important segments of the so-called real assets: office and retail real estate.
“Many segments of the real estate market are not an attractive investment at this time, and I am particularly skeptical about the office market,” says Uwe Rieken, founder and boss of Faros, in an interview with Personal-Financial.com. “We are experiencing a market upheaval, much less office space will simply be required than before. So far, there have been few rental payments, but the value of the property is at risk. “
It looks even more dramatic in the retail segment. “There are drastic failures in everything that has to do with shopping,” says Martin Dürr, chief investment strategist at Faros. “Even before the corona pandemic, there was a difficult situation due to Amazon, Zalando and Co., this trend has now intensified. The goods now move to the customer and the customer no longer moves to the goods. ”Dürr’s observation coincides with the latest warnings from the Frankfurt Chamber of Commerce and Industry for retailers in the German financial center. In a report on the market for commercial real estate it says: “So far, stationary retail has been most affected by the effects of the corona pandemic in the submarkets examined. The first bankruptcies have been reported in both the textile and catering sectors. “
However, Dürr also sees opportunities arising from this trend, including in logistics areas where products ordered online are handled and in health care facilities, so-called healthcare properties. Living is an anchor of stability in the real estate sector. “Residential properties are extremely stable,” emphasizes Rieken. “So far, I have not seen any economic effects on demand. Residential properties are still in high demand. “
From forest to radio towers
But Faros does not only count real assets as real assets. A second important segment is infrastructure, but here too it is important to differentiate. “Airports are currently the worst possible infrastructure investment,” emphasizes Dürr. From his point of view, however, the segments of renewable energies (such as wind farms), digital infrastructure and communication infrastructure (so-called “cell towers” or radio masts) are currently of interest to investors. Real assets also include natural resources such as forests.
Faros typically invests in listed companies or funds. “In contrast to closed-end funds, real assets listed on the stock exchange generate income from day one,” explains Rieken. And Dürr adds: “With Listed Real Assets you invest in listed companies or funds that have the character of a portfolio.” These are investments that have their assets on the balance sheet, “so that we are, so to speak, co-owners and of benefit from regular distributions. “
Faros typically works on behalf of institutional investors and puts together portfolios for these. Because the company has now gained a lot of experience – Rieken started his own business in 2003 – a separate fund was launched this year through the Ampega company. According to the company, the “Faros Listed Real Assets” acquires shares “from issuers who have invested a substantial part of their assets in real assets, for example real estate, infrastructure facilities or agricultural land.”
Currently 45 percent of the fund’s assets of 12 million euros are invested in infrastructure, 30 percent in real estate, 20 percent in renewable energies and five percent in natural resources. “Our Listed Real Asset Fund is very similar to a portfolio of portfolios and funds of funds,” explains Dürr. In the next two to three years, the fund is expected to grow to a volume of EUR 300 million. This year private investors can also join. With a target return of 5 percent and an annual distribution of 3.5 percent, however, you should also keep in mind that it could be difficult for you to sell an institutional fund through your house bank or broker in the future.
Offer is very small
“Our goal is to achieve stable returns. That is why we have boring-looking assets in the fund, ”says Rieken. “In addition, ESG criteria are used in our fund. On the one hand, this is what more and more investors want. On the other hand, political developments such as the EU’s Green Deal ensure that the ESG and climate protection will be important return drivers for corresponding assets. “
And then there are not just worries about parts of the real estate market. Because many investors flock to the segment, prices could rise significantly, which would reduce returns for investors. “Many investment managers of closed funds have large amounts of cash that they want to invest,” observes Dürr. “However, the supply of good assets is limited and the pipeline of new projects is not growing. That’s why it’s difficult to invest without driving up prices right away. “
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