In 1998 when I first arrived in Berlin to study at the Goethe Institute the world was a much different place than today. Back then people still read newspapers, amazon.com was only 4 years old and Google had just been released on the World Wide Web. Back then not everyone had email addresses, there was no such thing as Facebook, no ipod, ipads, or iphones. In fact most people did not even own mobile phones. The twin towers in NYC were still standing and the only Iraq war we knew was the one in 1990. Americans were still blissfully ignorant of all goings on outside their boarders and notion that the American way of life was the zenith of civilization was not questioned in the least. In short it was a simpler, gentler time.
I arrived in Berlin on the first of May and was shocked to discover that due to a generous valuation of the American economy my $1 was worth 2 Deutschmarks. This meant that the standard poor person’s meal , a doner kebab, cost me $1 and beer was between .30-.75 cents in a supermarket and about $1.50 in a bar. My rent back then was only $125 a month. In short I was in student heaven. I had graduated in 1996 and had been working full time in the two years since then at a Starbucks in Boston. This was my first time living outside of the States and my only responsibility was having to show up for my 5 hours of German lessons 5 days a week. It was a pleasant return to what felt like my freshman year of university at Boston College. Much like back then I did not waste too much time worrying about foreign policy, economics, business opportunities, or why it was that the German capital was still so run down and so much cheaper than the rest of the country.
It was only a few years later when I started working as a tour guide that I had realized I had let the opportunity of a lifetime pass me by. Working under the indefatigable Terry Brewer I slowly came out of my cocoon of ignorance and misinformation I considered an education. Suddenly I understood what was going on in this city. Before WWII the population of Berlin was four and a half million and today it is only at 3.5 million. When the Wall fell in 1989 many easterners struck out for the promised riches of West Germany and the already undersaturated real estate market became even more attractive for bargain hunters. The district of Mitte which is the historic and geographic heart of the city was given in its entirety to the Soviets after WWII. They promptly neglected it and when I arrived in 1998 there were still many undeveloped vacant lots that had been destroyed by bombs. Sixty years after the war ended many of the buildings were still covered in bullet holes and shrapnel damage. Yet this was the soon-to-be Manhattan of Berlin!
Many investors tried to capitalize on this cheap yet potentially valuable real estate by buying it all up in the early 1990’s but they all lost money sitting on the property waiting for Berlin to experience a boom which did not occur until the government finally arrived in 1999. And so it was, that up until 2000 and the arrival of the Euro anyone could come to the German capital and buy a beautiful 1000 square foot apartment in the city center for under $100,000.
After 2001 of course that all changed. Not only did the dollar lose strength and the Euro gain value but renovations in the city were progressing at full steam and as the beautiful old buildings were renovated from top to bottom the prices climbed steadily. Not only did the buying price per square foot begin to increase but rents were also rising at a pace. If I had a nickel for every time an outraged Berliner told me how cheap the prices used to be back in the day I would be rich. I would also be rich if I had managed to convince any of my well-off friends stateside to invest in property in Berlin back before the Euro.
Today however the real estate market is still booming and is still an incredible investment relative to markets worldwide. In the mid 2000’s I too was caught up in the fever and dreamed about coming up with the 20% downpayment I would need to buy my own 40 acres and a mule. There were two options I considered in my apartment hunt. The first was the top of the line 200,000 Euro 1000 square feet apartment. With this option I would have complete control of materials used in the renovations as well as the ability to decide the layout of the apartment. The second more realistic option considering my budget would be to take the smaller more conservative 500 square foot two room apartment for half the price. Tragically I was never able to come up with the money and to this day it has still remained a dream. A dream which gets more and more expensive with each passing year. Considering the cost of living, security , the growth of the city, and the fact that Berlin is rapidly becoming known as the Silicon Valley of Europe, prices will continue to rise and my investment would continue to increase in value.
I know this because for the past decade I have not be alone in watching the growth of the city. For the past five years I have been subletting furnished apartments in Berlin and it has not proven hard at all to find people willing to pay good money to rent a fully furnished apartment in the city center. This and other business trends I will explore in part two of why the German capital is an entrepreneur’s dream.