GERMANY – Fund manager Heitman has acquired 75% of a €232m German residential portfolio for €54m on behalf of an unidentified institutional investor.

Heitman agreed the 3,000-unit acquisition with listed residential specialist firm Grainger, which already owns the portfolio and will hold a 25% stake in the joint venture.

Grainger, which counts the Norwegian sovereign wealth fund and Dutch pension fund manager APG among its shareholders, will continue to manage the assets.
The deal reflects Grainger's strategy, announced earlier this year, to pull in third-party investors and increase its recurring and fee income to avoid reliance on capital growth.

Heitman will pay management and incentive fees on the portfolio, which spans six German regions, including Bavaria and Baden-Wurttemberg.

Although a Grainger spokesman said there had been "no cherry-picking" of assets, Heitman Europe co-head Rob Reiskin identified assets in these difficult-to-enter regions as one of the drivers of the deal.

The JV comes with a 65% loan-to-value ratio after Grainger transferred €152m in debt to the vehicle – significantly higher than most pension funds would be willing to accept.

Laure Duhot, director of capital markets, told IP Real Estate she saw no broader softening of pension funds' position on debt, even where – as in this case – the portfolio comprises core-income producing assets.

"I still think the majority of investors prefer lower leverage, around 30% LTV," she said. "This case was a bit unusual."

Heitman – which had recently won a mandate to invest in German residential – was one of the first investors Duhot approached with the JV proposal.

But she said she saw continued investor appetite for residential in both the UK and Germany and was speaking to potential capital partners about JV development projects, as well as those involving existing assets.

In separate news, Grainger has set up a social housing subsidiary to manage the majority of its current and future large-scale development projects.

In a statement, the firm said the entity would enable it to better manage 7,000 units to be built over the next two decades, although it did not rule out working with other social housing providers.
Its current projects include a contract with the UK ministry of defence to develop obsolete barracks, and a second agreement with London's Kensington and Chelsea local authority to develop residential and subsequently share the rental income.