ERSTE IMMOBILIENFONDS was launched in May 2008, i.e. 15 years ago. What began with one property has developed over the years into a successful investment product. At this point, the portfolio consists of 85 properties in ten cities with real estate assets of around EUR 2bn. We spoke to Peter Karl, CEO of ERSTE Immobilien KAG, about the development of the fund and the challenges on the real estate markets in view of rising interest rates and high inflation.
2008 was no easy year on the capital markets, much like 2022 and this year. Can you remember the biggest challenges back then?
The fund was launched at a historic and challenging time in the market. The global financial crisis was just taking off from the US real estate sector. Similar to today, short-term interest rates were at a relatively attractive level. Listed Austrian real estate companies were unable to escape the crisis. In the beginning a lot of explaining had to be done with respect to the difference between an open-ended real estate fund pursuant to the Austrian Real Estate Investment Fund Act and real estate equities.
What were the reasons for the boom that started a little later?
The success story of the fund followed in the immediate wake of the first real estate purchases in the residential sector. The significant drop in interest rates after 2010 until the previous year, a real estate boom that lasted for many years with sharply increased real estate prices, and high housing demand were the drivers for the soaring volume and the positive performance of the fund. ERSTE IMMOBILIENFONDS has proven itself over the past 15 years as a long-term and stable investment in solid real assets.
“We focus on modern rented flats in urban centres with good transportation; this focus of the portfolio is complemented by office and commercial space.”
Peter Karl, CEO ERSTE Immobilien KAG
Right from the outset, you focused on affordable housing. Is that still the case? Do you see a change in demand after the interest rate turnaround and the change in living conditions brought on by the concept of the home office?
The focus of the fund has not changed in the past 15 years: we focus on modern rented flats in urban centres with good transportation; this focus of the portfolio is complemented by office and commercial space. In the residential letting sector, demand remains high due to the positive demographic development but also because of the stricter guidelines for lending to private individuals. The demand for modern and flexible office space also continues. The home office, which has emerged in recent years, has not led to any decline in demand for modern and contemporary office space. This is because entrepreneurs are currently creating an innovative and modern working environment for their employees.
15 years of ERSTE IMMOBILIENFONDS – key figures:
- EUR 2bn in real estate assets
- 85 properties in ten cities
- More than 7,000 rental flats
- 650,000 m² of usable floor space
- +47.5% performance since the launch (2.6% p.a.)*)
What is the situation like in the commercial real estate sector?
The commercial space in the portfolio of ERSTE IMMOBILIENFONDS is largely located at ground floor levels. Most of it has been rented out to tenants with strong creditworthiness, such as supermarket chains.
How does the fund management team react to the currently challenging conditions? What impact does the increase in interest rates have on the valuation of the properties?
ERSTE IMMOBILIENFONDS is financed by equity and unleveraged. The fund benefits from the fact that we did not participate in the wave of acquisitions at inflated purchase prices in the past years; our motto here has been to invest with a sense of proportion. With the sharp rise in inflation and the central banks’ turnaround on interest rates, the environment has changed at breakneck speed. In the fund, the positive interest rates lead to an increasing return on liquidity. At the same time, the adjustment of rents to inflation leads to higher rental income. Both of these factors benefit the investors of ERSTE IMMOBILIENFONDS.
With 85 completed and rented properties, around 7,000 rental flats and real estate assets of around EUR 2bn, the portfolio is well positioned for the future. We currently see little impact on the valuation of the properties. The appraisals prepared in 2023 confirm the value of the portfolio. The properties have yet again made a positive valuation contribution to the portfolio this year.
Risk notes
*) The performance is calculated in accordance with the OeKB method. The management fee as well as any performance-related remuneration is already included. The issue premium of up to 3.50% which might be applicable on purchase and as well as any individual transaction specific costs or ongoing costs that reduce earnings (e.g. account- and deposit feed) have not been taken into account in this presentation. Past performance is not a sufficient indicator of the future performance of a fund.
BENEFITS FOR INVESTORS
- Investment in real assets (land)
- The performance is independent of the development on the equity markets
- The real estate fund constitutes a stable complement to your portfolio and offers an opportunity for long-term asset accumulation
- Investment in a broadly diversified real estate portfolio
- The investment offers protection against inflation because rents are usually adjusted for inflation
- Regular investments can be made even with small amounts through s Fonds Plan (i.e. the s Fund Savings Plan).
- The real estate fund is eligible for the securities coverage of Austrian pension provisions (coverage value of EUR 103.50 or 102.00 per share, respectively).
- The real estate fund is eligible as investment for the investment-related profit allowance
Note: Depending on the performance of the investment fund, the performance of an s Fonds Plan will differ from that of a single investment (higher or lower). A loss of capital is possible in both cases.
RISKS TO BEAR IN MIND
- Properties may lose value and as such have a negative impact on fund performance
- Tenants may default and properties or parts thereof may become vacant
- This development can lead to lower income and also to the suspension of dividends
- The investment in real estate funds can cause capital losses
- The issue and redemption of fund share certificates may be suspended due to extraordinary circumstances
- The redemption of fund share certificates is still possible at the daily calculated value. Immo KAG may amend the fund regulations such that a minimum holding period of one year and a redemption period of a further year apply to the redemption of fund share certificates
- This could increase the risk of price changes as the value of the fund share certificates may fall below the cost price or below the value at the time of the irrevocable redemption declaration in the period until the fund share certificates are actually redeemed
- An amendment to the fund regulations to introduce the minimum holding period and redemption period would only come into force one year after declaration of such amendment
- Due to legal requirements, the minimum holding period and the redemption period will come into force for all fund share certificate holders no later than 1 January 2027
- The recommended holding period is at least five years
- An investment in real estate or real estate funds should be seen as a longer-term investment
For a glossary of technical terms, please visit this link: Fund Glossary | Erste Asset Management
Legal note:
Prognoses are no reliable indicator for future performance.