REAL ESTATE – US private equity firm Fortress plans to float part of its German real estate holdings on stock exchanges by the start of 2007, a spokesman for the firm has confirmed.
Since entering the German market in 2004, Fortress has acquired three residential property firms, including Gagfah, Nileg and Woba. These firms own and operate 160,000 flats around Germany. Their aggregate market value is estimated at around €8bn.
The spokesman said Fortress would float part of the holdings by the start of 2007, adding that by the summer, the firm would select an investment bank to advise its on the initial public offering.
According to Germany’s Börsen-Zeitung, the US banks Lehman Brothers and JP Morgan are both vying for the IPO mandate from Fortress.
Meanwhile, the Fortress spokesman did not comment on press reports putting the worth of the partial IPO at €2bn. However, he did say that Fortress would retain a majority stake in the three residential property firms even after the IPO.
The spokesman added that Fortress had not decided whether to do the IPO on a German stock exchange or elsewhere in Europe. Germany is currently at a disadvantage in this regard, as it has not yet legalised Real Estate Investment Trusts (REITs). The German government aims to do so by the beginning of 2007.
Considering its business model, Fortress’ decision to begin floating its German real estate holdings less than two years after entering the market is no surprise. A classic short-term investor, the firm’s strategy is to quickly acquire properties and then sell them when it can realise a decent profit.
The fact that Fortress and Terra Firma, another UK private equity firm active in German real estate, are highly leveraged is another reason why these investors act quickly. If they do not, they face the problem of rising interest rates.
Separately, the Financial Times Deutschland reported Monday that a pension fund in Quebec, Canada had acquired properties from Deutsche Bank’s embattled real estate fund Grundbesitz-Invest. The value of the transaction was not disclosed.
Deutsche is currently selling €1bn of Grundbesitz-Invest’s holdings in an attempt to restructure the fund.