KKR and DIC to pump €5bn into German real estate in next five years

Frankfurt-based developer and real estate manager DIC and US buyout group KKR have joined forces with a view to investing €5 bn in Germany’s real estate market over the next five years, a source close to both companies told PropertyEU.

DIC and KKR announced in a joint statement on Tuesday that they have teamed up to create Frankfurt-based investment platform German Estate Group (GEG). Each firm will hold 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 a joint interview from Frankfurt, Höller – who has resigned as CEO of DIC to take on the mantle of CEO at GEG instead - 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, both acquiring existing assets and developing them. As such, we will invest in both core and opportunistic assets, largely in Germanys’ ‘Big 7’, although we are not limited to those markets,’ Höller added.

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

For KKR, the joint venture highlights the importance of ‘having a partner on the ground in Germany’, according to Guillaume Cassou, director of KKR’s European real estate team in London and who was instrumental in bringing the two companies together. ‘DIC was a natural fit. Germany is our number one market in Europe, so it was important to us to build up a real estate portfolio to reflect that.’

As part of the joint venture, DIC’s operational business will be transferred to GEG, including 40 staff. DIC’s existing MainTor (Frankfurt) and Opera Offices (Hamburg) projects will continue to be owned by DIC but will be 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.

Germany’s real estate market continues to entice investors, despite the economic slowdown across Europe. There were around €40 bn of commercial real estate deals in Germany last year, up almost 30% on the previous year and the fifth consecutive annual increase, according to JLL.

KKR launched its real estate platform in 2011 and has since committed more than $1.6 bn of equity in Europe, the US and Asia. DIC had €3.4 bn of AUM as of end-Dec 2014. KKR had $100 bn of AUM globally, including in real estate, at the end of 2014.