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ECE Real Estate Partners

“THE MARKET CYCLE OFFERS GREAT OPPORTUNITIES”

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What makes shopping centers so attractive to investors right now?

Dr. Volker Kraft: I think it’s down to four main factors. First, valuation levels are currently at a historic low. Second, shopping centers offer highly diversified cash flows and stable distribution yields, as our property portfolio has proved emphatically over the past five years.The high level of diversification in individual centers, in terms of both tenants and sectors that are subject to different growth cycles and risks, has a highly stabilizing effect. The third factor is that there are simply more ways to actively increase shopping centers’ value than with other asset classes: through the tenant mix, the cost structures, or the flexibility to expand or reduce units in the centers as required. A fourth point: Shopping centers offer threefold protection from inflation: through the property itself, through rent indexation, and through turnover rent. We have seen very healthy rental growth in our portfolio over the last two years.

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How is ECE Real Estate Partners’ shopping center portfolio developing?

Markus Schmitt-Habersack:  Visitor numbers are significantly up, and almost everywhere are back to the pre-pandemic levels of 2019. Only in Germany and Austria are we still slightly below the 2019 footfall figures. In terms of sales, we’re up in all markets, by the greatest margin in Central and Southern Europe. Rents are rising too. So we’re delivering a stable operating performance – much to the delight of our investors.

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What types of shopping center does ECE Real Estate Partners have in its portfolio?

Markus Schmitt-Habersack: We invest in two main types of shopping centers. First, destination centers that have a strong appeal beyond the immediate area. Examples include the Megalò in Italy, the Rosengårdcentret in Denmark, and the Parque Principado in Spain, whose attractive mix of retail, restaurants, and entertainment draws in people from a wider area. The other category is centers that are strongly focused on local shopping, such as the Linden-Center and the Hallen am Borsigturm in Berlin. That was particularly relevant during COVID. Of course, there are also hybrid types, like the PEP in Munich or the Loom in Bielefeld, which are both well established as local shopping centers and have a destination character for the surrounding area.     >

•    Dr. Volker Kraft (left) and Markus Schmitt-Habersack, Managing Partners of ECE Real Estate Partners.

Investors are interested in shopping centers again. Dr. Volker Kraft and Markus Schmitt-Habersack, Managing Partners of ECE Real Estate Partners, talk about the criteria successful shopping centers must meet, how they can unlock their value creation potential, and why investing in sustainability pays off.
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15-year

TRACK RECORD OF ECE REAL ESTATE PARTNERS

>10 billion €

ASSETS UNDER MANAGEMENT

ACTIVE IN

7

EUROPEAN  COUNTRIES

  • The Megalò in Chieti is the premier shopping destination in Italy’s Abruzzo region.

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What other criteria are important to a center’s success?

Schmitt-Habersack: It’s important for shopping centers to have a leading market position. Size is always a factor. Growth potential matters, too. There are various aspects to that. There’s growth potential in terms of sales, but also in terms of the regional economy. How are things going there? And, of course, there’s growth potential in terms of rents. When I implement value-adding measures at a center, the goal is to generate more income over the longer term and so enhance the center’s value. Of course, a combination of all these things is always best.

 

Kraft: What our value-adding and growth strategies have in common is that both added value and growth generally come from within and do not necessarily require expansion of a center. Our aim is to add value by increasing productivity per square meter, and we do that by selecting the right tenants. We’re also continuously optimizing the units available to tenants, by enlarging, reducing, or relocating them. Increasing productivity per square meter is crucial if we also want to increase rents per square meter over the longer term. The old adage holds true: If you want to invest successfully in shopping centers, you need successful retailers.   >

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“Investing in sustainability is an integral part of our value-adding strategy.”

DR. VOLKER KRAFT,
MANAGING PARTNER,

ECE REAL ESTATE PARTNERS

“We’re delivering a stable operating performance – much to the delight of our investors.”

MARKUS SCHMITT-HABERSACK, 
MANAGING PARTNER, 
ECE REAL ESTATE PARTNERS  

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In 2021, in the middle of the pandemic, ECE Real Estate Partners expanded into hotel properties. What makes this asset class so attractive?

Dr. Volker Kraft: The reasons are similar to those for retail properties. First, there’s the sector’s attractive valuation levels. Second, hotels are very well protected from inflation, though it works a little differently than for shops, since hotels set their room rates on a daily basis. And in this sector too, having expertise as an operator is essential for success. That’s what sets ECE apart. It’s an area where we can play to our strengths. We have a lot of experience in the hotel sector thanks to many investments made by the Otto family’s family office in recent years. We also have experience as a hotel developer. And our stake in Ruby Hotels means we can harness their expertise as operators. This triple package of investment experience, development expertise, and access to operator expertise means we’re perfectly placed to replicate the success we’ve had with the shopping center asset class in the hotel sector too.

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ESG is becoming ever more important. What do investors expect in terms of sustainability?

Dr. Volker Kraft: Transparency and good data availability are essential. When implementing sustainability strategies, it’s important that progress is measurable – just like with financial indicators. To meet that goal, our funds actively participate in ESG rating systems such as GRESB alongside traditional building certification schemes. That entails making significant ESG investments for our center portfolio. And investing in sustainability isn’t at odds with our value-adding strategy, but rather an integral part of it.   >

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How have investors’ expectations and needs changed overall?

Dr. Volker Kraft: Since ECE Real Estate Partners was founded 15 years ago, we’ve seen significant professionalization both of fund management, due to the introduction of the AIFM Directive, and among institutional investors. That applies at every stage of the investment process, from due diligence by the fund manager to investment management and active asset allocation. We are now seeing our investors becoming increasingly data-driven too, with completely different expectations regarding data availability and transparency. But now as then, the core of our relationship with our investors is trust. Trust that we will act with integrity when managing the assets entrusted to us is the key to a successful investor relationship.

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Looking to the future: What’s the next step on ECE Real Estate Partners’ journey?

Dr. Volker Kraft:   We’re actively raising capital for our open-end shopping center fund, which yields steady, stable dividends for our investors. We’re also planning to launch a new value-added shopping center fund. The market cycle offers great prospects. Prices are low. It’s a buyer’s market. Financing is available and we have a highly attractive acquisition pipeline. We see that as a strong basis for investing in shopping centers over the next few years. We’re also looking at the topic of external financing in the shopping center and hotel sectors. And on top of that we’re working to further diversify our investor base, with a focus on international investors and family offices. We’ll be gradually expanding the portfolio managed by ECE Real Estate Partners in the next few years by making smart investments in shopping centers and hotels.   // 

INVESTMENT BUSINESS

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