Even Franklin D. Roosevelt knew that real estate is an outstanding investment. It is the most secure investment in the world, he said. At least if it is carried out with common sense and due diligence. Precisely this could be the reason for the increasing popularity of club deals. Because, from a point of view of private investors, smaller pension funds and family offices, this type of co-investment offers all the advantages of open-ended real estate funds, but shields investors from the disadvantages. In this article you can learn more about this type of investment and why it has become such a trend since the last financial crisis.
To put it simply, club deals are nothing more than a co-investment of several wealthy capital investors. This means, for example, that several private investors join forces to collectively buy a property that they could, possibly, not afford otherwise on their own. Smaller pension funds and family offices that invest on behalf of affluent families, too, have increasingly been using this form of investment This development is also reflected in impressive figures: while European investment volume in 2009 was still standing at 20.5 billion euros, it had already tripled to 86.3 billion euros by 2014. What is typical for these club deals is the fact that the scope of investment tends to be in the single digit millions range or low double digit millions range and is performed collectively by two to three investors. Furthermore, family offices abroad are noting a particularly high demand for investment opportunities in Germany. This heightened interest is due to the German real estate market being considered a safe haven - with stable returns.
The advantages of a club deal
As mentioned before, the main reason for the heightened interest in club deals is found in the fact that it protects investors from a grave disadvantage of real estate funds - sudden emergency sales. As Matthias Thomas, the Chief Executive of the European Fund and Asset Management Association, explains, this had increasingly led to financial woes and even massive losses during the last financial crisis. After investors withdrew their capital in panic from the investment vehicles, the funds had no choice but to sell off properties far below market value. This in turn also caused painful losses for those investors who had not become infected with the general nervousness. Club deals, on the other hand, are not subject to this risk. As there are only few investors involved and the terms and conditions can be contractually governed, single investors can be prevented from withdrawing their investment prematurely. In addition, this type of investment still offers all the advantages of a fund, namely risk reduction through a diversification of deployed capital as well as higher potential returns through joint investments. Thus, it is not surprising that professional investors as well as wealthy private investors tend to favour this strategy. Private investors in particular can, with the help of co-investments, als buy commercial or residential properties that they could not afford otherwise on their own.
The strong and secure economic situation in Germany makes the German real estate market attractive for investors and for club deals in particular. If you are looking for a suitable investment property, you are most welcome to visit the website of Engel & Völkers Commercial, our commercial property division. As one of Germany’s leading real estate companies, we can support you optimally with the realisation of your plans.