French FdR buys German resi assets for €221m

Foncière des Régions has agreed to acquire two residential portfolios in Berlin, Dresden and Leipzig on behalf of its German residential subsidiary, Immeo, for a total of €221 mln, or a yield of 5.2%.

The first portfolio, with a value of €184 mln, comprises buildings in the Charlottenburg, Mitte and Friedrichshain districts of Berlin, with average rental income of €9.1/m2/month.

The second portfolio, bought for €37 mln, comprises assets in Dresden and Leipzig. Both packages offer potential to create value by increasing rental income.

Immeo, the 61%-owned residential arm of French listed property group FdR, said last year that it was 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 told PropertyEU.

The company will seek to build a critical size in these new cities, like it has done in Berlin and the Rhine-Ruhr region, according to 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%.

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.