GERMANY - Union Investment Real Estate – formerly DIFA – has sold a substantial, multi-city German office portfolio to Morgan Stanley and IVG for €2.56bn.
The portfolio comprises 53 commercial properties and a separate office development.
Morgan Stanley paid just over €2bn for 28 buildings in Rhine-Main, Berlin and Frankfurt while the balance will go to IVG who also which recently paid insurer Signal Iduna €465m for a 54-property German office portfolio to add to a real estate investment trust (REIT) later this year.
Last week’s acquisition has seemingly accelerated Union Investment’s longer term drive to offload some of its office stock in prime cities.
Spokesman Fabian Hellbusch said strong international investor demand for German real estate led the firm to sell a year earlier than planned, and said Union had chosen to divest these "heavyweight properties" because they "needed a bigger property portfolio".
The deal returned Union Investment a profit of €324m – 14.5% above book value.
"Berlin and Frankfurt are not as strong as they have been in the past," said Hellbusch. "Our share of German properties was too big. We were too strong in Germany – especially in specific regions [notably, Berlin and Frankfurt] and in office. We wanted to diversify more than we have in the past," he added.
Despite a strengthening domestic economy and rising rents, German office has underperformed in recent years relative to the rest of Europe.
Insurer Allianz announced recently it would sell domestic real estate worth €3.5bn.
With the rebalancing of the portfolio away from Berlin and Frankfurt, Union Investment is now scouting further property investments in cities such as Munich and Hamburg.
It is also diversifying away from office towards retail and hospitality across Europe, including Germany. The two sub-sectors will each make up 15% of the firm’s overall property portfolio, with the other 70% – as now – comprising office.
The firm retains ownership of 80 German properties in two funds.