DIC, KKR JV launches twin-track investment strategy with €160m Munich deal

German Estate Group (GEG), a Frankfurt-based joint venture of private equity firm KKR and property investor Deutsche Immobilien Chancen-Group, has completed its first major transactions by acquiring two assets in Munich for a total of €160 mln.

The Sapporobogen office building was bought from Württembergische Lebensversicherung, a Stuttgart-based insurance company, for €90 mln.

It provides around 27,500 m2 of office space on 11 floors and is located to the northwest of downtown Munich. The building is almost fully let with an average remaining lease term of six years.

CBRE brokered the deal. Law firm GSK Stockmann + Kollegen advised the buyer.

The second asset, Neue Pasinger Mitte, was bought for GEG's opportunistic business from DIC Asset for €70 mln, in a deal financed by BayernLB. Located in the Pasing district of Munich, it includes a medical centre, tower block and retail building complex along with a vacant plot yet to be developed. A local development plan for the entire estate has already been finalised.

The medical centre and tower block are to be redeveloped, while the retail building complex will be entirely rebuilt to offer 11,000 m2 including 80 new residential units near the Pasing Arcaden shopping centre.

Construction is scheduled to start in the fall of 2016, and is expected to take around two years to complete.

NEW PLATFORM
Frankfurt-based developer and real estate manager DIC and US buyout group KKR first announced in January this year that they were teaming up to create Frankfurt-based investment platform GEG. Each firm holds a 50% stake in the new venture.

The move marks KKR’s first foray into German real estate, although it has been active in other sectors in the country over the past 15 years, investing $4.4 bn (€3.3 bn) across 15 companies.

Speaking in an interview from Frankfurt, Höller – who has resigned as CEO of DIC to take on the mantle of CEO at GEG - recently described the venture as ‘a fantastic opportunity to deepen our German footprint’.

‘Our aim is to build up an important portfolio together within the next few years. We will invest in offices, residential and also retail, acquiring both existing assets and developing new ones. As such, we will invest in both core and opportunistic assets, largely in Germany’s "Big 7", although we are not limited to those markets,’ Höller added.

For opportunistic investments and developments, GEG is targeting returns of around 15%. For core assets, the range typically is between 4%-6%, he said. GEG invests using both its own capital and third-party money.

As part of the joint venture, DIC’s operational business has been transferred to GEG, including 40 staff. DIC’s existing MainTor (Frankfurt) and Opera Offices (Hamburg) projects continue to be owned by DIC but are now managed by GEG. In addition to its venture with KKR, DIC still holds a 33% stake in its listed S-DAX parent company, DIC Asset AG. Previously, DIC has formed other alliances in its home market, including ventures with both Starwood and Morgan Stanley.