INTERVIEW: Phoenix Spree makes play for Berlin resi

London-listed German residential investor Phoenix Spree Deutschland is on a mission to invest the majority of its capital in Berlin’s residential sector, Jörg Schwagenscheidt, chief executive of Phoenix Spree in Germany, told PropertyEU this week.

‘We’d like to invest more in Berlin this year. At the moment, it accounts for 66% of our portfolio. The rest of our properties are in cities such as Nuremberg, Hannover, Bremen and the Hamburg/Kiel area. Our goal is to invest more in Berlin, so we may de-invest in those cities to facilitate that. We could end up with a portfolio that focuses more and more on Berlin,’ he said.

Subsequently, Phoenix Spree has earmarked €100 mln to deploy in Berlin this year: ‘We especially like off-market, value-add deals,’ Schwagenscheidt said. ‘We also like properties where we can add value via extra development opportunities, such as offices that can be converted into apartments. We did a deal in Berlin-Köpenick last year where we acquired 67 units with good links to the airport and no broker commission. We expect above-average rent increase potential there.’

Earlier this month, the group announced plans to raise up to £38 mln (€48.64 mln) to fund the growth of its Berlin portfolio by issuing 19.64 mln new shares. The initial issue price represents a premium of 0.9% to the closing mid-market share price of 166.5 pence on 8 February.

Shares are available for purchase between 9 February and 1 March 2016. Results of the initial issue will be announced on 3 March. The group has also launched a placing programme for up to 120 million new shares between 7 March 2016 to 8 February 2017 to enable the company to act quickly to take advantage of opportunities as they arise.

‘The majority of our investors are institutional investors and real estate investors based in the UK. Existing investors have already shown support for our plan to raise up to £38 mln through an initial placing to fund the growth of our Berlin portfolio,’ Schwagenscheidt said.

Huge appetite
Interest in German residential assets has soared in the past two years, driven by strong international interest in assets that are seen as both stable and highly lucrative. Berlin – which is still much cheaper than other ‘Big 6’ cities such as Munich and Frankfurt – is an obvious choice, accounting for 20%, or €5 bn, of deals across Germany last year, according to JLL. As such, investment there far outstripped residential transactions in Frankfurt, with €780 mln, or Hamburg, with €880 ml, according to JLL.

‘Demand for residential in Berlin is very strong,’ said Konstantin Kortmann, head of residential at JLL in Frankfurt. ‘There could be even more deals this year than the €5 bn transacted last year. Everyone is bidding for the same thing! There are a lot of buyers but not enough sellers.’

Last year marked a record year for residential portfolio deals in Germany, according to JLL. In total, there were 460 deals totaling €25 bn. There were also four mega portfolio transactions where more than 15,000 units were sold at a time. The biggest deal was Deutsche Annington’s acquisition of rival Gagfah for €3.9 bn. Renamed Vonovia, the companies had a combined market cap of almost €13 bn when the deal closed in March last year. After the group’s listing on the DAX in September, it became Europe’s third-largest listed real estate company after Dutch group Unibail-Rodamco and the UK’s Land Securities Group.

Consolidation in the sector is also likely to increase this year, according to Kortmann: ‘Vonovia’s takeover bid for Deutsche Wohnen failed in February. They are Germany’s number 1 and number 2, so I think that both companies could be looking at other competitors to consolidate with. Deutsche Wohnen, prior to Vonovia’s hostile bid, was interested in its competitor LEG. I don’t think Vonovia would be permitted by Germany’s monopolies commission to takeover LEG as their monopoly in certain cities would then be too high. I think it will be a very interesting year.’