FdR’s resi arm to expand beyond Berlin stronghold

Immeo, the 61%-owned residential arm of French listed property group Foncière des Régions (FdR), is looking to enter new German markets as competition increases in Berlin, its historical base.

‘Berlin was very cheap but it is catching up fast,’ commented Thierry Beaudemoulin, CEO of Immeo, the owner of some €2.7 bn of assets in Germany. 'We are looking at a number of potential new markets such as Dresden, Leipzig, and Hamburg,' he added.

The company will seek to build a critical size in these new cities, like it has done in Berlin and the Rhine-Ruhr region, added FdR’s CEO Christophe Kullmann. ‘With a critical size we can have a team on the ground which is important because German housing is a local business,’ Kullmann noted.

FdR initially entered the German residential market in 2005 but did not start pursuing an active acquisition programme until 2009. Over the past four years, the Paris-headquartered group has largely restructured its holdings with the sale of around €1 bn of properties and the acquisition of €1 bn of prime, well-let and well-located units largely in the German capital. The company targets net yields of 5% after costs and an Internal Rate of Return of 11%.

‘We have a clear strategy on offices in France and in Italy and then we diversify our portfolio by investing in German residential and hotels. This is an opportunistic diversification which allows us to profit from growth opportunities and higher profitability in other markets,’ noted Kullmann.

In Germany, the company has enjoyed strong capital growth thanks mostly to the evolution of the market which has seen appetite for housing increase dramatically in the recent past. But as competition for German residential assets puts increasing pressure on yields, Beaudemoulin says the group is looking for new drivers of performance.

'We strongly believe in German residential even though there has been growth for a while now. The question is where performance will come from in the future, particularly in this European no-growth, no-inflation environment. For us, it will come from decreasing our cost of debt (which is currently at 3.5%) and from driving up rents thanks to asset management,' Beaudemoulin concluded.