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“Never Enough – Donald Trump and the Pursuit of Success”

By Dr. Rainer Zitelmann

I didn’t really know all that much about Donald Trump before he secured the Republican presidential nomination. I really enjoyed reading his books and thought he was really likable, especially as we seem to have a fair amount in common: We share the same birthday, neither of us drinks alcohol or smokes, we both built our fortunes on real estate (although he, of course, has made more money from it than I have), we have both written a number of books on success and wealth creation, have both owned modeling agencies, share a taste for beautiful women and both have a keen sense for self-marketing and PR. I hope though that this is everything we have in common. Over the last few months, my perception of Trump has become much more critical, and this biography only served to confirm my shift in opinion.

Let me make one thing clear to begin with: This is a critical biography and I do not share the author’s (left-wing) political views, which is why I am unable to agree with a number of his judgements and tendencies. Nevertheless, the book is rich in detail and well worth reading. It is the product of intensive research and countless interviews. The author spent more than ten hours in direct conversation with Donald Trump (who clearly didn’t realize that the book would ultimately be so critical of him). He also interviewed Trump’s three children and his first two wives, and had lengthy discussions with a number of Trump’s closest friends and staunchest opponents.

Trump comes from a rich family, the son of a man whose fortune has been estimated at around $200 million. The author never tires of bringing this fact up, and it is clear that he is trying to put different perspective on a number of Trump’s achievements. Whichever way you cut it, it is still remarkable that this son of a rich businessman managed to build a fortune of between four and nine billion dollars, especially given the fact that so many children from wealthy backgrounds struggle to even hold on to their money, let alone grow it to anywhere near this extent. But this is where the questions begin, and the author doesn’t shy away from repeatedly asking: Just how rich is Donald Trump? Trump’s wealth didn’t suddenly emerge as a point of contention when he declared that he would be running for president, it has always been a topic surrounded in controversy. To answer this question you first have to determine the value of the Trump brand name. In 2010, Trump claimed that independent assessors valued the Trump name at three billion dollars (p. 9). At other times, he has claimed that the brand is worth as much as six billion dollars (p. 275).

You can argue about which of these figures is closest to the truth until you are blue in the face, especially as Trump is well-known for massively over-exaggerating the extent of his wealth, as the author repeatedly demonstrates. Whether the Trump brand name is worth as much today is another point of contention. I think that his presidential campaign has actually damaged the value of his brand. After all, there are as many, if not more, people who reject his politics, as there are those who support him. The author uses a range of examples to demonstrate that simply applying the Trump name to an asset does not automatically increase its value, as Donald Trump has previously claimed (p. 198).

No reader can avoid questioning Trump’s credibility, especially as it is clear that Trump’s tendency to exaggerate has been a recurring theme throughout his entire life. Trump’s habit of boundless exaggeration is one of the qualities I like least about him, in particular as it demonstrates that he has a more than flexible approach to the truth. For example, he once claimed that his company owned 22,000 apartments when the figure was really 12,000 (p. 145). He also claimed that his stake in a real estate development project was 50 percent even though it was really 30 percent. Why? Because, according to Trump, “if the seventy percent owner puts up all of the money, I really own more than thirty percent. And I have always felt I own fifty percent, from that standpoint.” (p. 275).

When asked why he exaggerates, Trump replied: “I think everybody does. Who wouldn’t?” (p. 275). In his book, “The Art of the Deal”, Trump admitted: “A little hyperbole never hurts. I call it truthful hyperbole. It’s an innocent form of exaggeration and a very effective promotion” (p. 186). His “little exaggerations” include claims that Queen Elisabeth II (who last visited the USA in1983) asked if she could borrow his helicopter the next time she, “is over in this country” (p. 191). D’Antonio demonstrates that Trump’s exaggerations are often more than just “little” and that they are far less than “truthful”: “In his effort to sell his memoir, Trump’s hype included so many exaggerated claims that tracking them was almost impossible.” (p. 186).

The author shows that Trump has always differed from other wealthy individuals in that he constantly seeks to market his wealth and success. While many rich people are uncomfortable when they appear in the Forbes’ list of the world’s richest people (fearing envy, blackmail or kidnapping), Trump is one of the few who regularly complains that his wealth is massively underestimated. In 1997, for instance, when Forbes reported that Trump had a fortune of $1.4 billion, Trump responded by claiming the magazine’s figures were wrong and that he was really worth $3.7 billion. At the end of the 90s, as Forbes estimated his fortune at $1.6 billion, Trump insisted that the correct figure was $4.5 billion (p. 241-)

PR and public recognition have always been more important to Trump than wealth. “The one consistent element in all of these interests was the value he placed on publicity, which he sought with the skill of someone who understood that celebrity is power, reporters are often lazy about facts, and image can trump reality… Trump begins each day with a sheaf

of papers detailing where and how often his name has been mentioned in the global press. The reports are typically too numerous for him to actually read, but the weight of the pages gives his sensitive ego a measure of his importance on any given day.” (p. 12)

In his youth Trump had a rebellious streak and often butted heads with his teachers and father. Interestingly, this is something he has in common with other billionaires, including Warren Buffett, Steve Jobs and Ted Turner, who were also rebellious teenagers and regularly clashed with authority figures such as their teachers and parents. Trump’s sister describes him as “extremely rebellious” and one of his classmates remembers him as a student, “who tested the rules, and the teachers, to their limits” (p. 40-). On the subject of his clashes with his father, Trump later said: “My father respects me because I stood up to him.” (p. 59)

Trump was in awe of the author Norman Vincent Peale, who became famous for writing books on success such as “The Power of Positive Thinking” (p. 52). “Donald would demonstrate positive thinking throughout his life, as it became a true habit of his heart.” (p. 54)

The author goes on to describe Trump’s rise as a real estate investor in some detail. His success was largely the result of swimming against the tide, investing in locations that other investors were largely skeptical of – for example in Midtown Manhattan. His success also owed a great deal to the financial leveraging he used, together with the fact that he always secured “non recourse” loans – he was never liable with his own fortune, he only ever pledged the real estate as security against his debts (p. 160). He also entered into a large number of partnerships for his real estate investments, benefiting from his business partners’ creditworthiness.

The author also describes in detail how Trump was able to gain the support of New York’s politicians for his projects. Without this kind of ability, no developer can be successful anywhere in the world. Nevertheless, the author paints a picture that raises questions about Trump’s methods. Without actually accusing Trump of bribery or anything illegal, the author creates the impression that Trump was always operating in something of a gray zone.

Trump is often hailed as an example of someone who has recovered from bankruptcy, repeatedly rising back to the top again. This isn’t, however, quite true. A number of Trump’s corporations (in particular his casinos) did experience financial difficulties (some even went bankrupt) and Trump also had significant financial problems at different stages in his life, but: “Donald Trump never went bankrupt. He would frequently and energetically assert this in the years after he sought the shelter of the court for his Taj Mahal casino. The filing was made by a Trump corporation, not Trump the man, and he would describe this action as a sensible business move, devoid the shame, that gave him powerful leverage in his negotiations with creditors. ‘You have to be strong enough, not to pay'” (p. 211).

What were Trump’s political views? This is a question that today, as a candidate for the presidency, is more relevant than ever before. To keep it brief: He changed his positions with some frequency. In the early 90s, for example, he called for Ronald Reagan’s tax cuts to be reversed and for the top rate of income tax to be increased from 50 to 60 percent (p. 222). In doing so, he adopted a left-wing position of the kind we are familiar with from other American billionaires such as George Soros, Warren Buffet and others. As a candidate for the so-called “Reform Party”, he adopted a number of positions more commonly associated with left-wing politics: “In the amalgamation that was his platform, Trump included items from the left side of the political menu, including a big, onetime tax on the rich to trim the federal deficit, a policy to allow gay soldiers in the military, and universal employer-based health insurance with subsidies for the poor.” (p. 247)

Trump, as demonstrated by the author with a number of concrete examples, is a man of contradictions and a man who constantly changes his position (p. 225). But there is one aspect that has remained constant at every stage of his life – and it is clear to anyone observing his performance throughout his current election campaign: “In almost every case, Trump’s opinions depended on how a person, place, or thing reflected in him.” (p. 225) And when he is attacked, it has always been his tactic to “hit back ten times harder” (p. 277).

Trump has always been famous for the same quality that has made him so successful over the last few months of campaigning, but which has also caused him so many problems: His love of provocation. “Trump was willing to say and do almost anything to satisfy his craving for attention. But he also possessed a sixth sense that kept him from going too far” (p. 255). Whether Trump still has this “sixth sense”, or whether it has been replaced by the boundless hyperbole and hubris fueled by his election successes, is something that will determine not just the future of Trump, but potentially also the future of the United States of America. R.Z.

For more reviews of interesting business books, see Zitelmanns Book Reviews

Germany needs to reduce construction costs

The construction industry had an extremely strong Q1 2016, reported the BÖRSEN ZEITUNG on 31.05.2016. The weather remained favourable throughout and there were no construction shutdowns, which helped the industry beat its earnings from the same prior year period by almost 5 percent. According to the industry’s trade association, the €11.5 billion earnings represents the best first quarter result for 15 years. Incoming orders also enjoyed a significant rise, adding close to 14 percent year-on-year. The industry’s flying start to the year was largely driven by housing construction, and in particular the development of multi-family houses. Revenues in this segment were up by close to 13 percent and orders rose by 18 percent. Even with this strong growth, the FAZ reported on 29.05.2016, nowhere near enough affordable housing is being built in Germany. Although the Federal Statistical Office revealed that more building permits were issued in Q1 2016 than in any quarter for 12 years, construction activity is still not at the level required. A total of 320,000 new apartments were completed during 2016. Nevertheless, not enough affordable rental apartments for average-earners are being developed. In Munich, for example, less than a third of the units offered by developers were on the market for less than €450,000. Two-thirds of new apartments are out of the financial reach of 80 percent of the population. It seems that supply is not being matched to demand. But for developers, it is nearly impossible to develop affordable housing. Prices have been driven higher by a shortage of development land and by excessive statutory requirements, such as the new energy consumption regulations (EnEV). A recent study from the Kiel-based Institute for Sustainable Construction (ARGE-SH), commissioned by seven leading construction and real estate associations, has shown that the cost of developing a multi-family house has risen by more nearly 40 percent since 2000. The tightening of energy-saving regulations in the construction sector is alone responsible for 12.5 percent of the cost explosion. A stricter version of EnEV, introduced at the beginning of 2016, has added a further 7.3 percent to housing construction costs. A large number of small and medium-sized construction companies can no longer satisfy the complex technical requirements of the updated energy laws, and even major construction companies are experiencing difficulties. In the social housing sector, there is no way for developers to recover these increased costs. The development of normal rental housing is becoming less and less attractive for investors. If the extra costs of these energy regulations were transferred to tenants in full, rents would shoot up by an average of €2.80 per square metre per month. Many tenants would simply not be able to cope with increases on this scale. Only the development of high-priced condominiums now makes economic sense. At the same time, the energy savings delivered by the host of new regulations has been nowhere near as high as forecast. There are two approaches to solving the problem: Politicians either need to allow exceptions for a range of sectors, permitting developers to sarisfy a reduced set of minimum standards, or they need to roll back the latest EnEV regulations and allow developers to work with the 2014 version. Either of these approaches would cut potential energy-savings by just 0.02 percent, but would mean that each square metre of housing would cost €100 less. In terms of the housing due for construction in 2016, this would represent a saving of around €1.6 billion, which could easily be invested in the construction of even more housing.

However you look at it, the Mietpreisbremse is not fit for purpose

According to two new studies commissioned by Berlin’s Tenants’ Association, the Mietpreisbremse, introduced in Berlin twelve months ago to limit rental increases, has had no impact whatsoever on new rentals, revealed the FAZ on 03.06.2016. Advertised rents were on average 31 percent, or €2.18 per square metre, higher than permitted by the rental brake. The biggest breaches of the Mietpreisbremse were reported for rental apartments in pre-1918 buildings, with rents averaging €3.32 per square metre more than is allowed. The average advertised rent was €8.67 per square metre in 2015, excluding offers not covered by the Mietpreisbremse legislation. Both studies were based on an analysis of more than 50,000 apartment listings on the real estate portal Immobilienscout 24 since June 2015, together with a random analysis of listings in March 2016 and data from the tenant advisory service offered by the Berlin Tenants’ Association as part of their “Mietpreisbremse Check” campaign. Against this backdrop, Berlin’s Senator for Urban Development, Andreas Geisel (SPD), is working on a parliamentary initiative to force landlords to inform would-be tenants of the former tenant’s rent. Michael Psotta appeared in the FAZ on 05.06.2016 to explain why he believes that even this will not result in a functioning Mietpreisbremse. The problem, according to Psotta, is that the legislation was poorly designed from the start, and that the correct rental prices can only be determined on the basis of qualified rent indexes compiled according to strict scientific criteria. The problem is that very few municipalities actually have appropriate rent indexes. Following its own assessment, the IVD has declared that the two studies are worthless. This was reported by DIE IMMOBILIE online on 01.06.2016. The IVD criticised the limited scope of the IFSS and Regiokontext studies for Berlin’s Tenants’ Association. In the IVD’s view, the studies took no account of previous rental prices, can only be applied to Berlin and did not use representative data sets. A number of politicians have called for Mietpreisbremse reform in order to correct its failings, but the IVD believes that these calls are without any scientific basis. Instead, politicians should engage with experts, rather than worsening an already counterproductive law or planning the next Mietpreisbremse. It would be far better if politicians, “responded to the hysteria generated by one local tenants’ association […] with a productive housing construction policy,” said the IVD’s Michael Schick. In the HANDESLBLATT on 02.06.2016, Reiner Reichel observed that any law needs to be backed up with potential penalties if it is to be obeyed. He also commented that investors can avoid the restrictions anyway, by selling or letting newbuild apartments: “The positive side effect for our society: The number of apartments will increase. The current housing shortage has over-heated prices and rents, but these will

gradually normalise.”

Buying is better than renting in 10 out 12 Berlin districts

According to a report in the IMMOBILIEN ZEITUNG on 02.06.2016, an empirica study has revealed that it buying rather than renting an apartment makes more financial sense in ten of Berlin’s twelve districts. The study analysed property listings in Berlin’s major daily newspapers and compared the cost of an apartment bought with a 25 percent deposit and a monthly mortgage payment of 5 percent with equivalent advertised rental prices. The study found that it is only cheaper to rent than buy in Friedrichshain-Kreuzberg and Berlin-Mitte. Buyers stand to benefit most in Lichtenberg. Taking the average price of €115,000 for an existing apartment, buyers in Lichtenberg can save €170 per month

compared with renting. The saving in Neukölln amounted to €150 and in Marzahn-Hellersdorf, Steglitz-Zehlendorf, Reinickendorf and Treptow-Köpenick, savings ranged between €52 and €83. Asking prices for existing condominiums have risen by 9 percent since 2013, to €2,920 per square metre.

Estate agents expect rents to fall in Hamburg’s prime locations

As the IMMOBILIEN ZEITUNG reported on 02.06.2016, a significant number of estate agencies are forecasting declining rents for commercial properties in Hamburg’s best locations. Footfall has reduced by 20 percent since 2006. Fierce competition between Hamburg’s fashion retailers and their online counterparts, who are able to offer an expanded range of products and brands, along with the growth in retail space in the vicinity and in local centres, are blamed for this forecast decline. In addition, households are spending a smaller proportion of their incomes on clothing, preferring to spend their money on technology and recreation. The premium fashion segment has been hit particularly hard by these developments. BNP Paribas believes that rents are over-priced and have developed laterally since 2014. A large proportion of the retail space in Hamburg’s prime retail districts is simply too large for luxury retailers. As Philipp Hass of CBRE commented: “The stores on both sides of the Neuer Wall extend from the street-front to the Fleet and measure at least 300 square metres.” Tenants are primarily interested in spaces of between 50 and 200 square metres right now. Many retailers are struggling to pay their rents, but landlords are unwilling to compromise and continue to demand the nominal rent. Shopper frequency needs to increase, possibly as the result of ncreased diversification.

Prices rise in Leipzig’s eastern districts

The FAZ on 03.06.2016 reported that rents and property prices in Leipzig’s eastern districts have been rising, despite the area’s relatively poor image. The neighbourhood around Eisenbahnstraße, with so many unrenovated turn-of-the-twentieth-century apartment buildings, is especially popular in Leipzig’s emerging real estate market. Outside observers are already comparing the neighbourhood with Hamburg’s Schanzenviertel, which developed from a problem area into Hamburg’s trendiest quarter inside a few short years. Leipzig’s rapid population growth has pushed the apartment vacancy rate down to 6.6 percent. The strongest population growth has been seen in Volksmarschen, which has established itself as an alternative to Leipzig’s more expensive central districts. But prices are increasing here too, even for unrenovated properties, which now command between €800 and €900 per square metre. The average rent in Leipzig has risen to €5.50, and is set to climb further. According to figures put together by JLL, advertised rents rose by 8.1 percent last year.

Real estate price growth slows

New figures from the F+B real estate institute have shown that although prices for residential real estate in Germany are still increasing, they are no longer doing so at the same rate as in early 2015. F+B’s figures were highlighted by the FAZ on 08.06.2016. Despite the fact that prices for condominiums (plus 5 percent) and single-family houses (plus 4.4 percent) rose during Q1 2016 in relation to the same prior year period, the increase over the preceding quarter was more moderate. In a number of cities, including Munich, property prices actually fell in comparison with Q4 2015. Prices for condominiums are still rising, but the average rate of growth across Germany weakened significantly compared to Q4 2015, slipping to 0.2 percent in Q1 2016. In the first half of 2015, prices grew by 1.8 percent. Over the same period, the pace of single-family house price growth halved from 1.6 percent to 0.8 percent. Rents for new and existing condominiums also increased more moderately over the past twelve months. Net cold rents were 2.9 percent higher in Q2 2015 than in the same prior year quarter, whereas this growth slowed to just 2 percent between Q1 2015 and Q1 2016. Rental price growth for units in the existing apartment segment was even slower, with growth for the same periods slowing to 0.9 and 1.2 percent respectively. Variations between Germany’s cities were significant. Price growth in Berlin continued to be ahead of the national average, at 6.5 percent. In Munich, Hamburg, Cologne, Stuttgart and Düsseldorf growth was more restrained, ranging between 1.3 and 5.5 percent in the condominium segment. Munich maintained top spot in the city rankings, both in terms of purchase prices (averaging €5,290 per square metre for condominiums) and new rentals (€12.70 per square metre per month for a ten-year-old, 75-square-metre apartment). Rents remain comparatively low in Berlin compared to the other big cities in Germany. At €7.70 per square metre for a standard apartment, the German capital ranks 116.

Insurers’ real estate allocation at record levels

As DPA-AFX, REUTERS, the IMMOBILIEN ZEITUNG, DIE IMMOBILIE and a range of other online media reported on 07.06.2016, along with the FAZ on 08.06.2015 and 10.06.2016, EY Real Estate’s “Trend Barometer Real Estate Investments of Insurance Companies 2016″ has revealed that Germany’s insurance companies increased their real estate investment allocation from 7.6 to 9.3 percent in 2015. Office was the most popular real estate category, representing 75% of total real estate investment. In light of the current low interest rate climate, a growing number of the 30 surveyed insurance companies have turned to real estate investments in order to satisfy their guaranteed interest rate commitments. The surveyed insurance companies plan to invest an average of €417 million in real estate this year, a considerable increase on the previous year’s €298 million. By the end of the year, the insurers’ real estate allocations are forecast to rise to almost 10 percent. Office real estate is the most popular category (75%), followed by retail and residential (65% each). Insurers have clearly become more tolerant of higher levels of risk. Almost half are planning value-add acquisitions (prior year: 33 percent), and 45 percent are ready to invest in their own projects (prior year: 27 percent). Insurers continue to focus firmly on investments in German real estate. In comparison with the previous year, Core+ objects have gained in attractiveness and have risen to become the insurance companies’ favoured risk category. The interest in value-add investments has also increased significantly since last year. “Of course, insurance companies will naturally continue to invest a majority of their funds in low-risk real estate,” said Dietmar Fischer, Partner at EY Real Estate and responsible for the study. Yields, particularly in the in-demand core segment, have continued to fall. “Nevertheless, insurance companies’ yield expectations have hardly changed – indicating that the companies have moved a rung or two higher on the risk ladder.” Interest in low-risk investments remains high, but has narrowed over the last twelve months. Insurance companies have long steered clear of project developments, but even this has changed, with 45 percent now saying that they favour such investments. Insurers rely on a range of additional measures, such as closer monitoring of construction, in order to minimise their risk exposure. The fact that there is a limit to how much risk the insurance companies are willing to accept is demonstrated by their tendency to acquire completed developments. A majority of the survey’s respondents ruled out investments in real estate in B and C locations. Insurers expect a yield of 4.3 percent from the properties in their portfolios, whereas indirect investments should generate annual returns of 4.9 percent. Indirect investments are currently dominated by open-ended special real estate funds and closed-end funds. Providing financing for third-party real estate represents an attractive alternative for 20 percent of the surveyed companies. “They are looking for niches that offer the inherent security of real estate investments, but with somewhat higher yields,” said Fischer. It may be that only 30 percent of the companies are planning direct or indirect infrastructure investments, but seven out of ten companies admit that they are exploring their options in the sector. Each of the surveyed insurance companies owns real estate worth an average of around €3.5 billion.

Only two percent of apartments are suitable for seniors

More apartments are needed for seniors, revealed DIE WELT on 08.06.2016. Only 2 percent of Germany’s housing stock is currently suitable for senior residents. Studies have shown that there are around 700,000 barrier-free apartments in Germany right now, far short of the number required for the country’s twelve million senior households. Between 2035 and 2040, forecasts suggest that there will be almost 24 million people in the 65-plus age group. Compared to 2011 (34 percent) this will represent 60 percent of the entire population. A 2014 study from the Institute for Construction Research (ibac) claimed that two million apartments need to be developed for residents over the age of 70 by 2025. The latest projections indicate that even this will not be enough. The study highlights the need for investors to become much more involved in the sector, and calls for more project developers to specialise in building housing for senior citizens.

Rent increases particularly strong in Berlin

As revealed by the IMMOBILIEN ZEITUNG on 09.06.2016, Berlin’s tenants are now spending almost the same proportion of their household incomes on rent as their counterparts in Munich. This was the conclusion drawn by the joint “Housing in Germany’s 20 Biggest Cities” study published by the Hamburg-based Institute of International Economics (HWWI) and Berenberg. Berlin was ranked first in relation to the rate at which the city’s net cold rents are growing. Between 2004 and 2014, net cold rents for average rental apartments in Berlin rose by 57%, the fastest rate of growth among the 20 cities analysed for the study. Nevertheless, mid-range rents in Berlin continue to offer comparatively good value, averaging €7.45 per square metre per month, although household incomes are relatively low. In terms of available household income, Berliners have an average housing cost burden of just over one-fifth (21 percent), almost identical to the figure for Munich. On average, tenants in Munich spend one percent more of their household incomes on their housing costs (22 percent). Munich is also the city with the highest rental prices. Three-room, 70-square-metre units with mid-range fixtures and finishings cost €12.00 per square metre per month, while better then average apartments cost €14.10 per square metre per month. “Even just in terms of averages, it is clear that households face an elevated housing cost burden in Germany’s biggest cities,” said one of the study’s authors, Dörte Nitt-Drießelmann, Economist at HWWI. 70 percent of households have below-average incomes. Rising numbers of refugees and an increase in the number of single-person and pensioner households make it even more difficult for low-earners, single-parent families and students to find affordable housing in an already ultra-competitive market. Berlin needs to build around 17,200 new apartments per year through to 2020 if the city is cope with its growing population. Munich ranks second in terms of demand for new housing, requiring roughly 9,800 new apartments per year, followed by Hamburg, which needs 8,300 and Cologne with 4,400. Only Frankfurt, Düsseldorf, Dresden, Münster and Bielefeld built more new apartments in 2014 than forecasts indicate will be needed to satisfy future demand. The high proportion of tenants in Germany (in the 20 biggest cities three-quarters of households live in rental housing) makes it an extremely attractive market for investors.

Plaintiff’s lose challenge against Berlin’s vacation rental ban

Berlin’s ban on vacation rentals has been deemed constitutional, reported DIE WELT and the FAZ on 09.06.2016. Berlin’s Administrative Court dismissed a legal challenge mounted by a group of holiday apartment owners. The plaintiff’s based their case on a so-called “negative confirmation”, which they claimed allowed them to continue to offer their properties as vacation rentals to tourists without the need for specific approval from local authorities. They argued that Berlin’s ban on vacation rentals was unconstitutional as it violates their freedom to exercise a trade, their freedom to own property and the principle of equal treatment before the law. Haus & Grund criticised the volume of legislation and red tape that burdens apartment owners, claiming that there are too many incompatible and contradictory regulations that achieve nothing, except to make life more difficult for private property owners.

Highest volume of construction in Hamburg for a decade

8,521 apartments were completed in Hamburg last year, reported the IMMOBILIEN ZEITUNG on 09.06.2016. That was 22 percent more than in 2014 and more than in any single year since 1996. The number of completed apartments has more than doubled since 2012. A majority of the new apartments are located in Hamburg-Nord. In 2011, a total of 485 new apartments were completed in the district, whereas in 2015 the total had quadru-

pled to 1,905. In Wandsbeck, developers delivered 5,625 apartments, and in Altona they completed 5,233. At the same time, there was a noticeable fall in the number of building permits being issued. Authorities issued a total of 10,923 permits during 2014, but in 2015 they only approved 8,634. The 1,421 permits issued during Q1 2016 represented a 9.5 percent drop in comparison with the same quarter one year earlier.

Hamburg’s office rents climb steeply

As reported by the IMMOBILIEN ZEITUNG on 09.06.2016, the peak office rent in Hamburg is set to climb to €30 per square metre per month within the next four to five years. Rental prices of €30 per square metre have long been standard In Frankfurt and Munich, but Hamburg’s peak rent has so far ranged between €20 and €24 per square metre per month. The city’s peak rent has now climbed to €25. Recent increases have primarily been driven by rising construction costs, more expensive development land, the repurposing of office space for residential use and to accommodate refugees, and demands for higher-quality, modern office space. According to the article, Hamburg’s office rents need to climb further developers are to recover their higher land and construction costs. In central Hamburg, the price of land has already broken through the €2,000 per square metre threshold. The supply of buildings in the city suitable for smaller-scale redevelopment projects of around 5,000 square metres has almost entirely dried up, and such developments are no longer profitable.


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Feri Real Estate Market Rating

The Feri Real Estate Market Rating provides a forward-looking assessment of potentials and risks for investment return on regional real estate markets. Ratings are based on detailed econometric forecasts of regional real estate markets including regional economic development. The rating currently includes more than 150 cities in Europe, in the United States and in Asia.

In this issue:

Real Estate Market Rating for Rome

Rome, as Italy’s capital and main administrative center, has a very large public sector. Another factor tending to reinforce this characteristic is Rome’s status as Italy’s largest university city, and the location of numerous research facilities. Rome, together with Milan, is also Italy’s most important transport junction. International transport connections are very good. Overall the region has great growth potential. However, the oversized public sector dampens the dynamism of the overall performance. Furthermore, national economic and fiscal policies have not been particularly conducive to growth in recent years, either.

Feri rates Rome as a business location “C”, which is unchanged compared to the 1st quarter 2015. It translates into “average potential, average risk”. With this rating result the city ranks 24th in the comparison of European Metropolises.

Office Real Estate

Regarding office real estate Feri rates Rome “C”, which is downgraded to the 1st quarter 2015. The city ranks 10th among office locations of European Metropolises. Feri awards the office top locations “C” and the side locations “C”

Rome’s office market with its size of more than 9 million square meters is the second largest market of Italy and is, compared to other European office locations, of average size. Due to Rome’s function as political center it is generally interesting for businesses. Rome is together with Milan the largest financial location in Italy. Demand is relatively inflexible, thus the quality of office space is relatively low compared to Europe. The scarcity of high quality office space is also reflected by a positive trend of rent development since the mid-1990s as well as in comparably high rents. Primarily, risks are seen in transparency and volatility.

The European crisis and the economic and debt crisis have hit Italy’s office market sharply. This is especially visible in Rome. Companies appear rather reluctant on the rental market which reflects in take up on space. Weak demand has pressured rents. Due to the difficult rental situation, building activity has dropped down significantly. There were even no new office deliveries resp. very low levels in 2013 resp. 2014. Indeed building activity has increased since 2015. In the current year approx. 60.000 sqm of new office space will come to the market. This is still below the long term average of 140.000 sqm. It still enquires a clear impetus of the employment market for a turnaround in the rental market.

During the latest economic crisis, net initial yields for Grad A offices in Rome have risen and have achieved their interim high in 2013. This and the rental correction has led to a decline in purchasing prices. Since 2014 a counter-movement has set up and in 2015 a sharp decline in yields for prime office properties was observed. Future performance will depend both on rental development and by a shift of rental yields.

Before the crisis hit the market rental yields had continued to decrease. Since the accession to the Monetary Union the market is more interesting to foreign investors. Beside greater security the increase in liquidity has made its contribution. Another factor was the improved quality of office stock. The uncertainty on credit markets and the tightening of credit terms caused increasing rental yields. For the years to come we expect a fair rental yield of 5.9%. Thus we view the current market at strongly above fair value.

Retail Real Estate

In the comparison of European Metropolises regarding retail real estate Rome placed 20th with a rating result of “B+”, which is unchanged compared to the 1st quarter 2015. Feri awards the retail top locations “B+” and the side locations “B+”.

Italy´s economy is showing a slow but steady recovery. Although the unemployment rate is still significantly higher than before the financial crisis it is decreasing and stands already below 12%. The consumer climate has since recovered significantly. Retailers operate more expansive in this environment. They focus on prime high street locations in the business centers of the country. Prime locations in Rome benefited from double digit rising rents. The city’s attractiveness for tourists from all over the world is high. The retail sector benefited most from the extra purchasing power of tourists. Rome’s demographic outlook and income growth prospects remain fairly positive. This, along with ongoing robust tourism, should enable retail rents to continue to trend upward over the medium term.

Residential Real Estate

When it comes to residential real estate, Rome placed 18th among European Metropolises with a rating result of “C”, upgraded to the 1st quarter 2015.

Rents for both existing and new apartments in Rome began to rose steadily for many years. This development came to an end in 2008. The worsening of the economy and the retrogressive income development affected the rental market negatively. Rome’s rental market, similar to other regions in Southern Europe accounts for only a quarter of its whole residential market, far lower than the typical ratio for comparable Northern European cities. Rome’s reputation attracts people from all over the world. This factor, in conjunction with an ongoing tendency towards more single-person households, will support further rent increases in future years. Rome is burdened with a large stock of older, almost unmarketable apartments, but this will have a positive impact on the development of rents for high-quality, wellequipped units, both existing and new.

The meaning of residential property in Rome is much higher than in other European capitals. Rome’s high preference for home ownership helped to foster many years of continuously rising prices for both town houses and condominiums. However, the period of strongly rising sale prices has ended for now, due to the comparable subdued current economic situation. Similar to other Italian towns, purchasing prices for home ownership are dropping. Within the next economic cycle, we expect demand for home ownership, supported by an improved income situation, to recover. The outstanding development will for now come to an end, due to the moderate purchasing price growth rate projected for the coming years.


Franz Wolfgang Kubatzki, wolfgang.kubatzki@feri.de, phone +49 (0) 6172 916-38 11

Feri Real Estate Market Rating

The “Feri Real Estate Market Ratings” issued by Feri appraise the value potential of regional real estate markets, taking into account the attendant risks. The methodological approach underlying Feri Real Estate Market Ratings is rooted in the empirical observation that the performance of a given real estate market depends essentially on the economic power of the respective city. Before this background, Feri develops a separate prognostic model for each city, mapping the regional economy as a system of independent equations.

For the purpose of compiling its ratings, Feri uses a detailed regional forecast to analyse the socio-economic development, the economic structure, as well as the ten-year indicators specific to the respective real estate market. The forecast findings are evaluated using a mathematical rating algorithm.

The objective behind the ratings is to make the markets more transparent, and thereby to support pending investment decisions of private and institutional investors. Feri ratings are updated on a quarterly basis, and are currently available for 67 German cities and counties, as well as for 60 European cities outside Germany, and 45 cities in the United States.

Feri EuroRating Services AG

Feri EuroRating Services AG is a leading European rating agency, specializing in the analysis and valuation of investment markets and investment products. Feri is also a major economic research and forecasting institute. At present, Feri employs a staff of around 60 professionals to manage about 1000 customer accounts. The company is headquartered in Bad Homburg near Frankfurt, Germany, with sales offices in the United Kingdom, France, and the United States. In addition to its global industry analyses and ratings of companies, countries, capital and real estate markets, Feri regularly appraises the investment funds registered in each country. Annual market surveys on institutional and mutual funds as well as on closed-end participations provide an overview of the perspectives and actions of institutional investors. In the real estate sector, Feri conducts global real estate research, performs real estate valuations, and provides ratings of companies, REITs, real estate, real estate portfolios, and indirect real estate investments (open-end and closed-end real estate funds).

For more information on Feri EuroRating Services, please go to http://fer.feri.de/en/about-us/portrait/.

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