LBBW gears up for EUR 1.4b German residential sell-off

Several large German residential portfolios are to hit the market in the coming months in response to rising investor demand. Regional bank Landesbank Baden-Württemberg is likely to be one of the biggest sellers with the expected disposal this summer of a portfolio of around 24,000 units in southwestern Germany.

The portfolio will probably sell for between EUR 1.4 bn and EUR 1.5 bn, according to analysts. Marketing on the portfolio is expected to start later this month.

'If they achieve a sale of LBBW's residential portfolio by the end of the year we could see a total residential transaction volume in excess of EUR 4.5 bn in Germany for 2011,' Matthias Franz, an associate in C&W's capital markets group in Frankfurt, told PropertyEU.

One company eyeing the portfolio with interest is one of Germany’s largest listed housing companies, Bochum-based Deutsche Wohnen. 'We're very interested in the portfolio,' a spokeswoman told PropertyEU. 'We're already very active in the Rhein-Main area, which includes Frankfurt, and Berlin. We now want to grow our presence in attractive economic areas, and Baden-Württemberg, being both geographically close to Frankfurt and an attractive area, would be a good fit for us.' However, she said that Deutsche Wohnen was waiting to find out more about where the properties in the portfolio are located and what kind of condition they are in before submitting a bid.

Austrian residential property company Conwert Immobilien Invest is also interested in the LBBW portfolio, a spokesman for the company told PropertyEU: 'However, the whole portfolio is too big for us, so I think it would make more sense for us to bid with a partner,' he said. France's Foncière des Régions is also believed to be eyeing the portfolio, although the company could not be reached for comment.

Also believed to be for sale - albeit unofficially - is the BauBeCon residential portfolio comprising around 23,000 units, once owned by private equity firm Cerberus, but which was sold to Pirelli Real Estate (now Prelios) in 2007. Around 1,800 units in the portfolio were already sold to Conwert Immobilien Invest in March this year. The rest of the portfolio would likely sell for more than EUR 1 bn, according to Maurer, and would appeal to both private equity groups and institutional investors, he told PropertyEU.

It is understood that Prelios is currently evaluating different options regarding the possible sale of the BauBeCon assets, although no decision has been taken yet. Prelios declined to comment.

Many investors who acquired large residential portfolios in 2004/2005 - including private equity groups Blackstone and Cerberus - have already exited them. Blackstone, which has invested around EUR 1 bn in German residential properties to date, has since sold most of these holdings, although it still retains a 25% stake in Germany's Vitus Group, which owns 31,000 units in cities such as Bremen and Kiel. Blackstone is now believed to be looking at additional residential opportunities with Vitus, according to a source close to the company. Blackstone declined to comment.

Between 2007 and mid-2011, around EUR 25.5 bn of German residential portfolios were sold, according to Franz. 'There's a lot of institutional appetite for residential properties, especially for high quality new buildings. Also, your typical German institutional investor only has about 7% to 8% of their portfolio in real estate. Residential properties are interesting to them due to their low volatility and stable cash flow, which appeals to pension funds and insurance companies,' he said.

Nevertheless, some institutional investors are treading carefully due to the proposed regulatory changes coming from the EU. Insurance companies will probably have to put aside extra capital to cover regulatory requirements if they are acquiring real estate. German insurers are currently analysing this to see how it will affect their investment strategy, Franz said.

Click on the link below to read part 1 of the analysis.