Blackstone Real Estate Partners IV has agreed to acquire all shares in OfficeFirst Immobilien, the German office platform of Bonn-based real estate company IVG Immobilien, marking the biggest European property deal of the year.
Blackstone's fund paid around €3.3 bn for the portfolio and its underlying platform, according to someone close to the deal. 'Blackstone approached IVG after they shelved their plans to float OfficeFirst,' an analyst, who asked not to be identified, told PropertyEU. 'It all happened very quickly – the deal was done in less than two weeks.' Blackstone and IVG declined to comment.
However, the latest twist in a protracted saga has surprised many in the industry, not least because Blackstone was in talks with IVG just two months ago to acquire the portfolio, before the talks broke down. Shortly afterwards, IVG announced that it planned to list its OfficeFirst portfolio on the Prime Standard of the Frankfurt Stock Exchange.
At the time, IVG said that the IPO would consist of new OfficeFirst shares amounting to €450 mln as well as stock owned by IVG. The proceeds were to be used to repay debt and cover part of the conversion cost of turning the company into a REIT next year. The planned IPO was postponed a month later, with IVG citing 'negative market developments'.
The deal was 'inevitable', according to one Frankfurt-based analyst, who asked not to be identified. 'If you look at the portfolio, you can see that it's not ready for an IPO because of the all the capex requirements,' he said. 'Blackstone is one of few players who can provide that. It already owns several offices in Germany and OfficeFirst provides Blackstone with a platform to group them all together. I would expect Blackstone to clean the portfolio up and then take it public.'
Blackstone has not signalled whether it intends to uphold the conversion to REIT status.
Following its acquisition of the OfficeFirst portfolio, Blackstone now holds 1.8 million m2 of offices in Germany. Anthony Myers, head of European real estate at Blackstone, said: 'We are delighted to make another substantial investment in Germany, where we are focused on high-quality, well-located assets in the country’s largest cities. OfficeFirst meets that investment criteria, and we are excited to continue working with OfficeFirst in driving value across its portfolio.'
Office platform
OfficeFirst is one of the biggest office portfolios in Germany, comprising 1.4 million m2 or 97 properties in Frankfurt, Munich, Berlin, Hamburg and Stuttgart. The portfolio also includes The Squaire office development at Frankfurt airport. The occupancy rate stood at 91.6% at 31 March 2016. The total annualised in-place rent was around €207 mln at the end of the first quarter 2016.
IVG went through insolvency proceedings in 2013 after cost overruns at its Squaire premises made debt levels unsustainable. It is owned by 30 hedge funds, of which Anchorage Capital Group is the largest and which also includes York Capital. IVG spun off its office portfolio into a standalone entity in June this year. At the time, its CEO Michiel Jaski billed the move as a way to 'fully exploit our entrepreneurial potential that is a solid basis for our company'.
Initially, IVG struggled to find a buyer for OfficeFirst. Some would-be buyers may have been concerned that up to 300,000 m2 - or a fifth of the OfficeFirst portfolio - could become vacant because a number of existing tenants, including Allianz, are in the process of building new headquarters in Munich. Lufthansa also plans to vacate half of its existing space – or 9,500 m2 - at the Squaire scheme at Frankfurt airport. Many of the leases in question are due to expire by 2020.
'Re-letting space is potentially a capital intensive process, especially if tenants want to consolidate some of their existing space,' the analyst said.
To date, Blackstone has invested around €8 bn in Europe this year, including its acquisition of OfficeFirst. In June, the private equity giant was the sole final bidder for the Blanchardstown Centre, one of Dublin’s leading shopping centres, which it acquired from Irish developer Green Property Ventures for almost €950 mln. In the same month, Blackstone raised €5.5 bn in the first closing for its new fund, Blackstone Real Estate Partners Europe V (BREP V).
