Berggruen Says German Real Estate Vulnerable in Euro Breakup

Billionaire Investor Nicolas Berggruen
German real estate, one of the biggest beneficiaries of the European debt crisis, would be hurt by a breakup of the euro, according to billionaire investor Nicolas Berggruen. Photographer: Michele Tantussi/Bloomberg

The German real-estate market, one of the biggest beneficiaries of the European debt crisis, would be hurt by a breakup of the euro, according to billionaire investor Nicolas Berggruen.

“Germany has been a safe haven, but if the euro disintegrates, it will be in trouble,” said Berggruen, a German-American whose assets include homes and other Berlin properties valued at about 300 million euros ($375 million). Investors should take a “very cautious view,” he said.

In the first quarter, investors spent 3.52 billion euros on German residential portfolios of at least 50 homes, 76 percent more than a year earlier, CBRE Group Inc. estimates. They were attracted by the resilience of the country’s economy and the prospect of higher rents, the Los Angeles-based brokerage said in an April report.

That resilience is likely to be tested in the next 12 months. Italy and Spain are heading for sovereign bailouts, which could undermine even Germany’s creditworthiness, Jamie Stuttard, Fidelity Investments’ head of international bond portfolio management in London, said by telephone on June 19. The southern European countries have combined government debt of 2.8 trillion euros.

Converted Factory

Berggruen, 50, said he won’t be deterred from investing more money in Berlin. His company owns about 90 buildings in the city, including Cafe Moskau near Alexanderplatz and a former factory in the Treptow neighborhood that was converted into offices and homes. It also has properties in Tel Aviv and Istanbul.

“We take a very long-term view,” he said in the interview at his suite at the Regent Berlin hotel. “We don’t need to show quick results.”

In 1985, Berggruen founded a company to manage his investments and a small family trust. Today, Berggruen Holdings has offices in Berlin, Amsterdam, Istanbul, Mumbai, New York and Tel Aviv and owns assets valued at more than 1.5 billion euros.

The company bought Karstadt Warenhaus GmbH, Germany’s biggest department-store chain, in September 2010, more than a year after the retailer filed for insolvency. Karstadt operates 119 outlets including Berlin’s KaDeWe, the second-largest department store in Europe, according to Berggruen Holdings’ website.

Berggruen Holdings owns and manages residential buildings, offices and hotels. In Tel Aviv, Berggruen has hired Richard Meier & Partners Architects LLP to design a luxury-apartment tower on Rothschild Boulevard.

Newark Project

His company is also developing 15 million square feet (1.4 million square meters) of homes, stores and offices in Newark, New Jersey, to revitalize the downtown area. “Newark is more a labor of love than anything else,” Berggruen said.

Berggruen’s father, Heinz, was an art dealer who amassed one of the world’s most significant collections of works by Paul Klee and Pablo Picasso, as well as works by Alberto Giacometti and Henri Matisse, after World War II. The Museum Berggruen, a state-owned institution in Berlin’s Charlottenburg district, houses more than 100 pictures by Picasso.

Germany’s residential property market had a better 2011 than most of the countries that share the euro. Prices rose by an average of 2.6 percent, up from 0.5 percent a year earlier, according to data compiled by the European Central Bank. In the rest of the euro region, the average increase was 0.3 percent.

Investment Opportunities

Prices fell in most southern European countries, led by Spain, where there was a 7.4 percent decline, the ECB estimates. Berggruen sees investment chances in Barcelona, Madrid, Milan and Turin, though not until the sovereign debt crisis is resolved.

“It’s too early now,” he said. “Wait until the whole thing collapses properly. Even if it stabilizes, there will be opportunities.”

At a conference in Berlin today, Chancellor Angela Merkel said European leaders have to eradicate the “deficiencies” that developed when the economic and currency union was founded 20 years ago.

Berggruen said the euro’s long-term future can only be secured by closer fiscal integration. “Europe is like an unfinished building,” he said. “Certain elements that are key to making the structure work are missing.”

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