The Transformation of Berlin From 'Poor but Sexy' to Rich and Unaffordable
Berlin was once an exception to the rule that cool cities have high property and rent prices. But those days are quickly ending. A new wave of private investors has led to skyrocketing prices, forcing low-earners to the city's periphery.
The Danish man who is taking Berlin away from Berliners prefers to be barefoot in his all-white loft office in the city's Kreuzberg neighborhood, though he is wearing flip-flops today. "Hi, I'm Jørn," he says. His last name, Taekker, has become synonymous with real estate speculation in the German capital. But for Katrin Lompscher, a member of the far-left Left Party in Berlin's parliament, it's a "symbol of evil."
Valeria Fiori, a native of Milan, walks up the stairs to Taekker's fifth-floor office on Paul Lincke Ufer, a street running along a canal in Kreuzberg. There is no elevator. Fiori is a little out of breath by the time she reaches the office. She is 61 and arrived in Berlin yesterday from Milan. She already owns three apartments in Berlin, and now she is buying a fourth from Taekker. "I have more confidence in Germany than in Italy," she says, adding that she hasn't spent her entire life saving money just to let the euro crisis destroy her retirement.
A few steps away from the street, three of Taekker's tenants are sitting on their rooftop deck. They don't want to see their names in print, so we'll call them Torsten, Henning and Jakob. "We really have nothing to do with all that," says Torsten. Their building has become an investment property, like many others in the area. "We just live here," says Henning.
For a long time, they didn't know that a Danish investor who almost went bankrupt in the financial crisis had purchased their building. They also didn't know that this investor is now selling apartments in the building one by one, often to ordinary private buyers from southern Europe who, prompted by the euro crisis, are seeking to move their savings to a safer place -- and that their apartments could also be on the market.
An Intoxicated Real Estate Market
The way Torsten, Henning and Jakob see the situation, their building has become the scene of multiple global economic crises. The way others see it, what is happening in the German capital in 2012 is, quite simply, a real estate boom.
In this odd environment, two types of people are coming into conflict: On the one hand, there are the foreigners, or new Berliners, who are looking for something to buy. On the other, there are the locals, the old Berliners, who wonder how much longer they'll be able to stay. Those in the first group tend to look up as they walk the streets, checking out buildings and looking for good investments. Those in the second are just trying to get home.
Despite these differences, they are all anxious. The foreigners are anxious about their modest assets, which they hope to convert into valuable real estate before the euro goes bust. Meanwhile, native Berliners are worried about the city they call home. And this anxiety, which affects all of Germany and many other European countries, is being transformed into a euphoria of sorts in the Berlin real estate market.
Torsten, one of Taekker's tenants, says: "They are trying to take our city away from us."
Valeria Fiori, one of Taeker's customers, says: "Prices are still attractive in Berlin, and it's a good investment."
Taekker himself says: "I love Berlin. Things are looking up for Berlin."
The market is in a state of intoxication. Residential real estate prices in Berlin have risen by 32 percent since 2007, which is significantly more than in the rest of Germany. There were about 32,000 real estate transactions in Berlin in 2011 alone, a 20 percent increase over the previous year, and the trend is continuing. In that same period, sales increased by 28 percent, from 8.7 billion ($11.2 billion) to 11.1 billion.
According to the German rent index, average rents have gone up by 4 percent a year since 2009, which translates into higher profits for property owners. In Germany and elsewhere, people are scraping together their equity, taking out loans at historically low interest rates and investing in real estate, preferably in Berlin, where prices are still much lower than they are in Hamburg or Munich even with the current boom. Purchase inquiries have grown by 500 percent since 2007 on Immobilienscout24, a widely used real estate website in Germany.
A Winning Formula
The Graefe Kiez, one of the neighborhoods responsible for the poor-but-sexy image that has turned Berlin into a global brand, is just outside the door of the building housing Taekker's office. The Taekker logo, with the letters a and e combined, appears on many street corners and some construction sites.
While old Berliners pronounce the name like a curse, new Berliners see it as a promise. "Yet another building has fallen into Taekker's hands," says local tenant activist Martin Breger. The entire street has been "Taekker-ed," he adds. There is even a website called Taekkerwatch that bills itself as a "self-help site for renters affected by the privatization of apartments by the Taekker group of companies in Berlin." Potential buyers, however, use the site to stay abreast of properties Taekker is about to put on the market.
"Of course we're intruding into the neighborhood. I understand why people feel anxious," says Taekker, 56, whose company owns 3,500 residential units in the city. In his own estimation, he is one of the largest private investors in the Berlin market. In his trademark jeans and worn T-shirt, he looks no different from the Berliners whose apartments he is buying up. Taekker sees himself as a capitalist with good manners. "We're obviously here to make money," he says, "but we're doing it in an ethically correct way, within the framework of the law."
The company has expanded its Berlin portfolio since the middle of the first decade of the 2000s, generally focusing on buildings built in the late 19th and early 20th centuries in the Friedrichshain, Mitte, Prenzlauer Berg and Kreuzberg neighborhoods.
When asked what brought him to Germany, Taekker says: "I was looking for new investment options in Europe." He is sitting in a glass-enclosed conference room. Hundreds of white ring binders line the walls in the open-plan office, each with an address on the spine: Böckhstrasse 13, Dieffenbachstrasse 38, Maybachufer 47. The addresses, all in good neighborhoods, have a magical sound for new Berliners.
Taekker is a carpenter and building engineer by trade. In Berlin, he discovered what he had found in Copenhagen a decade ago: "A city with a left-led government and not much money, but with a fantastic atmosphere and many beautiful and inexpensive old buildings." After the turn of the millennium, when prices were high, Taekker sold more than 70 buildings in Copenhagen. Then he went looking for a new place to apply the same simple strategy: buy low and sell high when the boom arrives.
For a while, Taekker investigated properties in Nuuk, the capital of Greenland, but he felt that Berlin had more potential. "I couldn't understand why prices were so low," he says. "Someone must have overlooked something." When Taekker talks about his job, it sounds like a game of global Monopoly, one in which players aim to occupy the right properties, collect rent, hope for a lucky roll of the dice, sell and move on.
Residential Gold Rush
Marcel Magdeburg, a broker who works for Taekker, is driving to an appointment in a blue Smart. The miniature two-seater is the perfect car for him because his job often requires some creative parking. Magdeburg grew up in Potsdam, outside Berlin, has been working for Taekker for five years, and sells or rents residential real estate throughout the city. His days consist of a lot of driving, climbing stairs and showing empty rooms to prospective buyers or renters.
Magdeburg, speaking the language of brokers, says things like: "Demand in the sales segment has grown tremendously this year." But he occasionally reverts to ordinary conversational German and says things like: "My friends, it's just madness. Sometimes you see people tossing their cash right on the table. It's hard to believe, but it's true. Just think of the euro refugees from southern Europe. There are plenty of them these days."
He has just shown a few investment properties to a Berliner with tattoos on one of his biceps. The man buys small apartments and rents them out as vacation apartments, a practice that the Berlin Senate is trying to curb with new laws. Until recently, he was working as a fitness trainer. But now he's become a savvy investor who seems to know the legal ins and outs of owning real estate in Berlin.
The upturn in Berlin -- eagerly anticipated by many since German reunification but feared by others -- seems to have finally arrived. Foreign buyers, who now make up 30 percent of the market, are also increasingly fueling demand. Most of the foreigners now investing in Berlin are Italian, Spanish, Russian, British or French.
- Part 1: From 'Poor but Sexy' to Rich and Unaffordable
- Part 2: The Rough Rules of Supply and Demand