Corestate eyes €1 bn of club deals this year

Swiss-based private equity group Corestate is targeting €1 bn of club deals this year, focusing on distressed assets in both new and existing markets, its founder Ralph Winter told PropertyEU this week.

‘We’d like to do a €1 bn in real estate investment deals with partners this year, providing up to €400 mln in equity ourselves,’ Winter said. ‘Having talked to investors, we’re in a position to enter into larger deals with pre-committed equity from our club deal partners. The only barrier is the lack of opportunities in the market. However, we’ve learned from the financial crisis that there is an appetite for clear, structured club deals,’ he added.

The private equity group is counting on institutional investors to partner with going forward, Winter said. ‘Our focus is ‘special situation’ (distressed) assets whereby we can create value and restructure the debt. The mixed-use German portfolio we bought this week falls into this category. We put around 10% of the equity into this deal, which was our first deal this year. Typically, we hold a property or portfolio for three-to-five years and then sell it on as repositioned core-plus asset,’ Winter explained.

Earlier this week, Corestate announced that it had acquired a distressed German mixed-use commercial and residential portfolio with a market value of around €290 mln. It has not disclosed how much it actually paid for the 114,000 m2 portfolio, although it is likely to have been acquired at a significant discount. The commercial component comprises six offices in cities such as Berlin, Bonn and Freiburg. The 6,000 residential units are located in North-Rhine-Westphalia.

The sale comes on the back of a forced administration but the properties have already been recapitalized. The portfolio has an average rental yield of 9%, although Corestate expects that to compress as it improves the underlying properties over time.

In a further sign that Corestate is looking to deepen its European footprint, the Swiss investor will also venture into new markets this year, Winter said. First up is Austria, where Corestate has already acquired a plot of land in Vienna, near to the university, to develop student housing with Frankfurt-based student housing developer Youniq. Corestate also holds a majority stake in Youniq.

The development, which will comprise 500 units, is due to start in the fourth quarter of this year and is expected to be completed in the third quarter of 2015, Winter said. He declined to say how much Corestate will invest in the scheme but said it should be worth around €80 mln once completed.

In addition, other new markets are also on the cards: ‘We are also looking at France and Spain, where we are not yet active, because of the stress - and opportunities - in these markets. However, we’d want to set up our own teams on the ground first as local knowledge is critical and helps to create value,’ Winter said.

Last year, Corestate invested €400 mln in European real estate and would like to increase that amount this year if it can find the right opportunities, Winter said. It is especially keen to commit more to office and residential properties in Germany, which are performing well.

There were €10.6 bn of offices transacted in Germany last year, according to JLL, which is forecasting a similar deal volume this year. Interestingly, residential sales outstripped offices, with €11.1bn of residential deals, although this figure is skewed by some big portfolio sales, including Patrizia Immobilien’s acquisition of Landesbank Baden-Württemberg’s (LBBW) portfolio of 21,000 residential units in a joint venture for €1.43 bn.

In total, there were five large residential portfolios sold in Germany in 2012, according to Oliver Schötz-van der Hoff, head of regional residential investment at JLL in Cologne. Other sales included BauBeCon’s €1.2 bn portfolio, Speymill’s €900 mln portfolio and TLG Immobilien’s €1.1 bn portfolio. ‘The five biggest sales alone accounted for €5.1 bn. Now investors will be looking to optimize these portfolios, so we expect the deal volume this year to fall,’ he said.

Subsequently, JLL is forecasting that residential sales will fall to around €9 bn this year as fewer assets hit the market.
Corestate has invested more than €2 bn in European real estate since it was founded in 2006. It has since opened partner offices in Frankfurt, London, Luxembourg and, most recently, Singapore.