This is the final installment in a four-part series on European investment issues.

Rainer Thaler was certainly thrown into the thick of things when he took over as GE Real Estate's German-market managing director on February 1. Not only did he take his post in the midst of what he calls the "big shock" of the open-end fund crisis, but he also faces the daunting task of bringing GE Real Estate's German activity up to par with performance in other countries. But talk to Frankfurt-based Thaler and learn a thing or two about turning challenges into opportunity. That's exactly what we did when we met the new MD at Mipim, when his title was barely a month old. At the time, and in subsequent interviews, he laid out his strategy for making GE Germany a contender on the continent. It's an ambitious program. But as you'll see, he's not one to flinch in the face of challenge.

GlobeSt.com: In retrospect, how do you view the open-end fund crisis? To what extent did it hurt investor trust and to what extent do you see it as creating opportunity?

Thaler: German open-ended funds have inherent problems with their asset valuation and although many had foreseen this issue, no one really expected it to go as far as it did with Deutsche Bank's temporary freeze. Partly, this also came about due to institutions moving significant amounts of parked money out of the funds, heavily affecting their liquidity. This all came as a big shock to the industry and has created a level of uncertainty amongst the small investors. Long-term, the question will be whether or not the open-end funds will be able to restore investor confidence and regain their previous dominance in the investment market.

However, the crisis creates a significant opportunity for other market players, like ourselves. A majority of the funds will be off-loading a significant amount of assets over the next few months. Also, the market segment previously dominated by these funds will now be open to others. The only question is how they are going to deal with their internal valuations and to what extent they are willing to accept market pricing, even if this means having to take a write-off on their book values.

GlobeSt.com: I've heard it said that the crisis is over and the market's normalized. You said in Cannes that normalization will take valuation standards. Explain, please.

Thaler: Normalization, as far as funds are concerned, will take place only when investor confidence has been restored and the funds do not have the outflows that they have been experiencing in the past few months. Part of restoring that confidence will have to be reviewing their valuation practices and developing these to conform with market values.

GlobeSt.com: Part of the problem is inflexible investment regulations. How is that due to change?

Thaler: We are hoping that in time there will be some harmonization of investment regulation across Europe, that is, making the rather inflexible German regulation follow the format of our neighbors in the Netherlands or Luxembourg. One step in that direction will be the introduction of G-REITs, which could potentially be the long-awaited savior that could transfer German real estate into the listed sector.

GlobeSt.com: Going from the general to the specific, what are your challenges as newly placed managing director?

Thaler: The German market is very important for GE Real Estate Europe's growth ambitions. It's the largest European economy, but Germany is seriously underrepresented in the €10 billion of assets that we own across Europe, and it is only natural that we try to redress this imbalance. My biggest challenge will be to increase our exposure to Germany in an increasingly competitive environment. We have a large number of German, as well as other European and US institutional funds that are all eyeing the German real estate market along with European and Middle Eastern private investors. All of this attention and money will obviously make it a more competitive environment for buyers. I am confident that we are well-positioned to reach our goals. We have more than 60 people on the ground, specializing in managing residential and commercial assets. In addition to active asset management, and unlike many of the foreign funds, we have a more-than-20-year track record across Europe, so no one should doubt our long-term commitment.

GlobeSt.com: What are your growth plans? Please explain the three "buckets" of investment you mentioned in Cannes.

Thaler: We are focused on three different areas of activity: First is the acquisition of commercial real estate portfolios or single assets, including office, retail, data centers and logistics. This is across Germany, in large and secondary cities, as well as sale-leaseback arrangements with corporate clients. Then there is our residential portfolio. We intend to grow our existing asset base of more than 6,000 units. Finally, there are healthcare facilities, and we intend to continue to invest in clinics and nursing homes across Germany with our specialized sister company, GE Healthcare Financial Services. In addition to these main buckets, we are also interested in NPL portfolios and other alternative real estate assets.

GlobeSt.com: Please explain your strategy concerning investments beyond Germany.

Thaler: Out of Germany we will also look at opportunities in adjacent markets, such as Austria and Switzerland. To date there has not been a great deal of non-domestic interest in these markets; however, we believe that it is a natural extension for us to leverage our capabilities for expansion into the neighboring markets.

GlobeSt.com: What will your assets look like a year from now? What are you targeting as an investment number?

Thaler: Our ambition is to invest more than a billion dollars over the next 18 months. This may seem like a large number for a fledgling German business, but we are well-positioned to increase our exposure significantly to this market and, given the increasing amount of activity and the gradual improvement in market fundamentals, we think this it is a realistic target.

Instant Insights /

GE Real Estate's Rainer Thaler--<i>Last in a Series</I>

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