Editor’s letter: What’s your risk appetite? A question for Germany

Andy Thomson
Andy Thomson

“The whole market is moving up the risk curve”. This was one of many striking pronouncements made at our REC Germany Forum 2016 in Frankfurt in mid-February.

While claims were made that the German market is generally in good shape, and there are no immediate signs of lenders or investors reining back their activities in a significant way, competition for core assets appears intense. This raises an intriguing strategic question: whether to stay put within your comfort zone and see your margins squeezed, or expand the parameters within which you are prepared to operate in the hunt for something more profitable?

For some of those who contributed to the event, either as keynote speakers or panellists, it appeared to boil down to how much you prize liquidity. Some investors were prepared to take on more risk to venture into higher yielding parts of the market – whether based on sector or location – in full acknowledgement of the liquidity consequences. Others, to put it bluntly, were not – the prospect of liquidity was viewed by them as the thing to be preserved at all costs.

The Forum betrayed the nervousness caused by an increasingly uncertain political environment. Concerns over the implications of the refugee crisis are arguably nowhere more keenly felt than in Germany. Add to that the turmoil on stock markets, the plunging oil price and the UK’s June referendum on European Union membership, and you have a collection of reasons to adopt a risk-averse approach – ironically, at a time when investors and lenders are being tempted to try something different. It will be interesting (to say the least) to see what gives.

Also at the Forum, Daniel Cunningham took the opportunity to catch up with Thomas Staats, head of origination, international property finance, at Deutsche Hypo. The German mortgage bank has been a major player not just in its domestic market but also various other European countries. Staats provides insights into the bank’s strategic approach and priorities in the face of current market conditions.

Also in this issue, we have a series of features on the subject of capital flows, in which we track the various movements of real estate capital around the world and make the observation that it has never been more mobile. In addition, we have a feature looking at the results of negative interest rates in Japan and an article reviewing hot topics raised at the LNR/HPI CRE Debt Forum in London.

Accompanying this issue we have our Annual Review of 2015, in which we reveal the winners and runners-up in 27 awards categories as well as a number of features reflecting on the year’s highlights and major themes.