Tell me about PATRIZIA?
PATRIZIA has been active as an investment manager in the real estate market across Europe for more than 35 years through the acquisition, management, repositioning and sale of residential and commercial real estate. We manage more than EUR 40bn of real estate assets, primarily as an investment manager for insurance companies, pension fund institutions, sovereign wealth funds but also as a co-investor.
I am the founder and CEO of PATRIZIA and my family remain the majority shareholder after we floated the business on the Frankfurt Stock Exchange in 2006.
We aim to create sustainable, inter-generational residential developments with happy tenants.
We aim to create communities.
How important is local knowledge?
To be successful in residential development you have to first understand the local market you are developing in.
When we started building in Germany, first in the south, then in the centre in Frankfurt and then in Hamburg in the north, we found out very quickly that every area had different demands. Germany is like Europe but on a smaller basis. As you have different taxes, rent regulations, legal systems and even the accents are different!
We learnt to understand how the local market works. People are very different even within the same country. It is not about one size fits all.
In residential you always need to understand this kind of emotion and understand the people and their different needs. Renting and buying a house is an emotional decision. The product is an emotional product and if you don’t understand that you’ll never deliver the best product and the best pricing for that market.
We have 19 offices across Europe and never invest in a market where we don’t have our own local people on the ground. That is key for us. We give people the freedom to utilise local knowledge but within the PATRIZIA method and framework.
Why has it taken so long for residential to become an appealing asset class to institutional investors?
When we started, institutional investors were not interested in buying residential assets. There were two main reasons for this – management intensity and reputational damage.
Residential is the most intense asset management sector in the real estate industry so it is not easy if you have no experience in the market. There can also be issues with your investment – from the lift not working, neighbours at war or the drains are blocked – this could damage your brand as the owner. Which is why institutional investors have historically been reticent to invest.
However, in the last two to three years institutional investors have learned that over the long term PRS is one of the most stable and best performing asset classes in real estate and has become one of the most compelling sectors for investment.
Is regulation an issue for the rented sector?
At my first meeting in China with a potential investor I was explaining all the various rent laws and planning regulations in the different European countries and cities. The guy was looking at me and shaking his head. He said ‘Wolfgang, you guys are more communist than we are!’
Outside of the UK, continental Europe has more pro-active planning guidelines. The UK market is playing catch-up. It has a history of the ownership model, all the legislation in UK on planning regulations has always been geared towards the benefit of housebuilders as there hasn’t been the support for the creation of a professional rental sector.
The Montague Report of 2012 set out a number of proposals to encourage greater investment in build-to-rent. Measures aimed at boosting professional investment in good quality, privately rented homes and to help meet the nation’s housing demand. One of the key proposals –to use planning tools to ensure that new homes remain in the rental sector for a fixed period of years – was one of the few recommendations that was never implemented.
Is technology changing the way you do business?
Technology is an enabler. We created technology hubs across the globe and have so far reached out to over 3,000 tech start-ups. From these involvements we now have 30 to 40 ongoing pilot projects with technology companies.
We’re looking to see how tech is influencing how people occupy space. We’re investing in companies to help them grow and develop. We want to be part of, and own part of the disruption that is most definitely coming so we stay relevant.
For example, we have invested in a data management platform that uses artificial intelligence. As we manage GBP 10bn of residential assets, using this platform we can mine a lot of information and data from our own portfolio to give us a market advantage.
But no matter how far our business stretches across the Globe we will always be a local developer working with local people on the ground.