Many of the Irish investors who spent €1.3bn buying into the German commercial property market in 2007 are now contemplating getting some of that money back.
Some find themselves in a situation where they need money to support their Irish business activities. Others have found their German properties onerous, because they lack knowledge of the local language and tax regulations and don't have the necessary financial and legal resources to make their assets perform.
My employers, Irish property and investment consultants Farrelly & Mitchell (F&M), have reduced by €1m the borrowings of one of its investment funds which bought into a retail centre in Roethenbach in Germany.
F&M managed to take advantage of the credit crunch by offering to repay a loan to the global bank which lent it funds. The global bank was thus able to free up capital and, in turn, F&M's Alpine Private II fund was able to reduce its borrowings.
The global lender, desperate to increase its liquidity, agreed after lengthy negotiations to waive €1m of the loan principal owed on this €9m mixed-use commercial property in Roethenbach, Bavaria.
We were well-received when we sought to move the loan to a local bank. The security of a local asset, combined with the relative resilience of the German economy, meant that the notoriously conservative German banking system was willing to offer loan-to-value ratios and interest margins that the more exuberant Irish and British lenders were giving out 18 months ago.
The difficulty for most Irish investors is that they lack the local knowledge and industry expertise to exploit similar opportunities. If you want to acquire the right building; manage your tenants and leases; implement a successful exit or tax strategy; or access fresh funding from the well-capitalised German banks, then you need English-speaking German-trained professionals working for you.
Local knowledge and understanding of the language are critical in order to carry out meaningful research at the sourcing and acquisition stage. The commercial property markets in major cities such as Hamburg, Berlin, Munich and Leipzig vary, both in terms of investment characteristics and quality. The same prinicples are true when considering investing in two seemingly identical city blocks within any major city.
The language barrier will not be a big problem initially, and investors will find that German property agents, lawyers and bankers speak excellent English. However, when it comes down to the hard bargaining - over loan-to-value ratios, covenants and the finer details of leases -- the discussions will inevitably lapse into German.
This disadvantage is compounded by the fact that Germany has a different legal and leasing system. A lawyer will only examine contracts from a legal perspective, to ensure that there are no material defects. They will not examine them from an asset management or commercial perspective, to ensure that they conform to the industry norm, particularly in the area of landlord's responsibilities and recoverable expenses.
It is only after investors have gone through the stress and excitement of acquiring a property that the real work starts, in terms of sound and proactive asset management.
We have found that German-based and international property management companies don't really want mid-market business. These companies have a business model that is usually based on managing assets worth more than €20m and consider anything less to be a nuisance. This is one of the main reasons why we are setting up our own asset management office in Berlin, to service the entire German market.
Overall, Germany is still an excellent market. This was proven spectacularly only two weeks ago when an Irish investment firm sold the Zeilgalerie shopping centre in Frankfurt, generating a 70pc return for investors after only 18 months.
Investors who wish to stay in this market can take advantage of the credit crunch by boosting their liquidity. In 'The Pope's Children', David McWilliams pointed out that while Ireland is a nation of optimistic young borrowers, the older German population has saved throughout the country's economic downturn. As a result, German banks are well-capitalised relative to British and Irish banks.
Marco Henke is the Head of Asset Management at Farrelly & Mitchell. Prior to joining Farrelly & Mitchell, he managed a number of closed-end property funds in Germany