By Stefan Stute, Head of Investment Consulting Wüest Partner, and Sebastian Schöberl, Founder and Managing Partner of Montano
Traditionally, real estate is considered a tangible asset investment that offers stable income and is valued by investors due to its forecast reliability. If the term is expanded to include “real assets”, other material goods such as raw materials and gold, even art and collectibles such as classic cars can also be included. However, another important sub-area of “real assets” is social, digital and energy infrastructure.
Critical infrastructure: the best of both worlds
Just like “Real Estate”, this sub-area is characterized by its physical substance and long-term earnings orientation. The difference lies mainly in the user structure: real estate is usually rented out to the private sector and is therefore dependent on the market or supply and demand. Infrastructure projects, on the other hand, often offer state-backed returns, for example in the case of nursing or educational facilities or electricity grids with regulated remuneration. Regulated tariffs, such as those for electricity grids, thus offer even more forecast certainty than, for example, a lease agreement with a tenant with a strong credit rating and are therefore even more likely to be regarded as a core investment.
Due to these characteristics, the demand for real assets continues to grow strongly. It is driven by global megatrends that require large amounts of capital, such as: decarbonisation, digitalisation and demographic change. According to studies (e.g. Preqin, INREV, IPE Real Assets), around 150 billion euros flowed into real assets outside traditional real estate worldwide in 2024 – around 45 billion euros into renewable energies, 30 billion euros into digital infrastructure and 20 billion euros into social infrastructure. Germany is one of the most active European markets with a share of about 12%.
Improved framework conditions for investments
In February 2025, a new infrastructure quota was introduced in the Investment Ordinance, making it easier for regulated investors such as insurance companies and pension funds to make targeted investments in infrastructure projects. This ratio amounts to 5% of the guarantee assets and ensures that investments in infrastructure are not restricted by other ratios. In addition, measures have been taken as part of the Second Future Financing Act (ZuFinG II) to simplify fund investments in infrastructure and renewable energies. In the future, real estate funds will be allowed to invest in photovoltaic systems on their own roofs and up to 15% of their assets in infrastructure project companies. This allows funds to participate directly in the energy transition and invest more sustainably. The law is to come into force in 2025.
Access to the asset class
Access to “critical infrastructure” differs significantly from the classic real estate business and also from “classic” infrastructure investments such as airports, bridges or motorway networks. These properties, such as schools, medical facilities or security-related buildings, are highly specialised and subject to strict legal requirements and safety requirements. They are often systemically important, have long-term leases (often with government tenants) and thus offer stable cash flows and forecast security. Nevertheless, they require active asset management, specialist knowledge – especially in dealing with this special type of tenant – and technical know-how.
Access to this asset class is usually provided by specialized investment managers who have early contacts with project developers, authorities or government agencies.
Social Infrastructure Assessment – Challenges and Specifics
When evaluating social, digital or energy infrastructure, it is particularly important to determine the right evaluation parameters. Since these systems are often used over the long term, the valuation bases differ greatly. For example, a nursing home is assessed differently than a retirement home, and a school differently than a daycare center or a computer center.
Overall, it is a complex market environment in which specialist knowledge is required. In order to invest successfully, it is important to understand the legal requirements, industry-specific characteristics and the interplay of supply and demand in detail. When determining a market rent, for example for a nursing home, not only location and demand play a role. Rather, the lease prices are determined on the basis of fixed cost rates. Factors such as occupancy, compliance with single room quotas or the forecast of the proportion of social welfare recipients are also decisive and differ significantly from other commercial properties.
Another example is data centers: here, it is usually not the space that is rented, but individual server racks, and the “rental” often includes providing access to power, cooling, and ultimately processing capacity.
The examples show how complex the evaluation of social infrastructure can be, as social trends such as a shortage of skilled workers, delayed cost refinancing or co-payments for care costs have to be taken into account. These assumptions are best represented by a dynamic cash flow valuation, i.e. the discounted cash flow (DCF) method. This method is more suitable in the long term than static valuation methods, which are often used in Germany for classic real estate.
The view of institutional investors
More and more institutional investors are interested in social infrastructure projects. As an additional asset class, social infrastructure offers another opportunity for diversification within the real estate or real asset portfolio and stable predictable cash flows, which are often secured by government-backed contracts or inflation-linked agreements.
Furthermore, these investments are less often affected by economic fluctuations and offer institutional investors the opportunity to channel private capital into urgently needed areas of public infrastructure. Due to the investment backlog in many areas such as education, care or the “blue light stations”, there is a lot of catching up to do here.
Social infrastructure is increasingly developing from a niche existence to an established asset class in the field of real assets. Challenges include the development of scalable project pipelines and standardized valuation methods to efficiently invest existing capital and develop win-win situations for society and investors.
Case Study
A practical example is the House of Lifelong Learning (HLL), which Montano Real Estate acquired for institutional investors in 2023. It is a large-scale school and university campus in Dreieich near Frankfurt am Main, which is leased to the district of Offenbach on a long-term basis.
The investment offers forecast security, inflation protection due to the indexation of the lease and ultimately an attractive distribution yield due to the financing structure.
