Patrizia-led JV acquires LBBW portfolio for EUR 1.4b

A consortium led by German listed property company Patrizia is acquiring 21,000 residential units in Germany for EUR 1.4 bn. The consortium emerged ahead of buyout firms Blackstone and Cerberus, and a local consortium including the city of Stuttgart, in the race to buy the portfolio from Germany's biggest public-sector bank LBBW.

The deal - totalling EUR 1.43 bn - received approval this week by LBBW's supervisory board and is expected to be completed by the end of the first quarter. It is the first large disposal by a German public or semi-public institution to private investors since the divestment of the LEG portfolio to Whitehall Street Real Estate Fund, a unit of Goldman Sachs Group, in 2008 for EUR 3.5 bn.

The consortium led by Augsburg-based Patrizia consists of five German insurance companies, which represent about 40% of the equity, including LVM Insurance; two foreign pension funds with a 30% stake - the Swedish national pension fund AP3 and a Swiss pension fund; three German pension funds, which hold a 25% stake combined; and a Baden-Württemberg-based savings bank, with 3%. Patrizia will act as investment and asset manager while also being an equity investor with a EUR 15 mln cash injection in the deal. 'Patrizia is not only a services provider but also co-investor,' Patrizia' CEO Wolfgang Egger said, adding that there are no plans to merge LBBW Immobilien and Patrizia.

The assets will be retained in the medium to long term, with an investment of EUR 25 mln being planned to revamp the portfolio.

LBBW started the sale of the flats in July to comply with European Union requirements. In addition to Patrizia, peer listed company Deutsche Wohnen also submitted an offer but was excluded from the bidding process at an early stage, due to an alleged breach of non-disclosure agreements.

Patrizia’s acquisition of Landesbank Baden-Württemberg’s portfolio of 21,000 residential units in a joint venture for EUR1.43bn marks the largest portfolio that the Augsburg-based company has acquired to date, Matthias Moser, head of Patrizia’s alternative investments arm, told PropertyEU. ‘We were attracted to the location and quality of the assets, which are core properties. The investors in the consortium were already investing in residential assets and are very interested in this sector. We’re now looking at acquiring other portfolios like this,’ Moser added.

The sale price came in just above LBBW’s minimum target price of EUR1.4bn but failed to hit its upper-end target of EUR1.5bn. Nevertheless, it enabled the bank to meet its goal of selling the portfolio by the year-end, thereby complying with European Union stipulations following a EUR5bn bailout by its owners during the financial crisis, including the state of Baden-Württemberg and some regional savings banks.

Patrizia triumphed over other would-be investors due to the attractive price offered, as well as the long-term strategy for the portfolio, an LBBW spokesman told PropertyEU. According to Moser, Patrizia also had the advantage that it has ‘good access to blue-chip equity sources’.

Moser, who was formerly head of Fortress in Germany, also added that he doesn’t think that private equity groups will be big investors in Germany in the near-term, due to the cost of capital for them. LBBW provided the debt financing for the portfolio, or 60%, with the consortium putting up 40% of the equity, Moser added. Following the acquisition, Patrizia - which has vowed to safeguard jobs at LBBW - now holds EUR7bn of asset under management. It manages around 80% of its assets on behalf of third parties, which are largely insurance firms, pension funds and savings banks.

The deal is good news for the market and could pave the way for further transactions such as the sale of GBW Immobilien, which is currently owned by another state-owned Bavarian bank and where the EU is also forcing a disposal by 2013, market experts say.

'We regard the transaction as a milestone for the company's transformation process from an investor on above-average residential properties with a turnover-based business model towards an asset manager for third parties,' commented Kai Klose, an analyst with Berenberg Bank in London. The deal increases Patrizia's assets under management to almost EUR 7 bn, 80% of which managed for third parties.

'It could be the biggest residential deal in 2011/2012, so it’s a very big deal for the market,' commented Malte Maurer, head of residential development at JLL in Germany. There were around EUR 7 bn in residential sales in Germany last year, according to JLL. This year, Maurer estimates that there will be between EUR 6 bn and EUR 10 bn in such deals.