The Swedish housing company Heimstaden Bostad is buying nearly 4,000 apartments in Berlin for €830m, in a significant deal representing a strong vote of confidence in the German capital’s residential housing market, despite the threat of excessive legislation capping the city’s rents.
The seller is a British investment group, with PMM Group acting as their transaction adviser. PMM, which recently rebranded as QSix, holds more than €1bn under management, and is closely associated with listed UK company Phoenix Spree Deutschland.
The deal, one of the biggest in Berlin this year, involves Heimstaden buying 130 separate properties with 3,902 apartments, 208 commercial units and 321 parking spaces, with a total lettable area of 282,000 sqm. The properties are located in the districts of Mitte, Pankow, Neukölln, Tempelhof-Schöneberg and Friedrichshain-Kreuzberg, among others.
Heimstaden said the acquisition is being financed with debt and equity, with leverage being “kept in line with Heimstaden Bostad’s financial policy and in support of its current rating and path to a higher rating.” Just last month Heimstaden issue a new bond for €650m via a new Dutch financing subsidiary, Heimstaden Bostad Treasury. The bond has a maturity of 6.5 years and carries a fixed coupon of 1.375% per annum.
The transaction is expected to close in the fourth quarter of 2020 or first quarter of 2021, subject to merger clearance as well as pre-emption rights held by the municipality of Berlin for a number of properties.
The Malmö-headquartered Heimstaden Bostad is a long term owner of residential real estate, with a presence in six European countries. It entered the German market in 2018,
and already this year bought two smaller portfolios in Berlin, in cooperation with Berlin-based Skerven Group, which will handle the asset management of the earlier portfolios. The second of those portfolios is, like about half of this latest mega-deal, still subject to the possible pre-emptive buying right of the relevant Berlin districts.
Heimstaden, which is controlled by Norwegian billionaire Ivar Tollefsen via his Norwegian investment company Fredensborg AS, owns and manages about 100,000 apartments, of which 44,000 are in Scandinavia, about 42,000 in the Czech Republic and about 1,500 in Germany before this latest deal. The assets have a property value of about SEK 135 billion.
In the Czech market, Heimstaden moved in with a €1.3bn acquisition of a residential property portfolio owned and operated by Residomo from funds advised by Blackstone Tactical Opportunities and Round Hill Capital. The package, the largest privately held residential portfolio in the Czech Republic, provides high-quality affordable homes and consists of approximately 4,515 assets with 42,584 residential units and 1,675 commercial units.s
Now, with this big surge in its German assets, Heimstaden is establishing its own in-house property management team with Berlin residential industry veteran Caroline Oelmann as operations manager for Heimstaden Germany. Ms. Oelmann previously worked with Zentral Boden Immobilien and Grand City Property.
The Heimstaden deal is significant in a number of respects. Firstly, it shows yet again that big investors have not been entirely scared off investing in Berlin, despite the hostile atmosphere encouraged by the city’s left-wing government towards the buying up of housing portfolios by large-scale residential investors, foreign or domestic. There is still a strong populist movement “Expropriate Deutsche Wohnen & Co.” that wishes to expropriate all companies holding more than 3,000 apartment units in the city, with opponents’ biggest bogeyman the DAX-listed Deutsche Wohnen AG.
A number of recent transactions provide evidence that investors are prepared to sign citizens’ charters protecting tenants’ rights for periods of up to twenty years into the future, confident that affordable housing demand will still likely be outstripping supply in the city even then.
Tenants associations have been urging local politicians to more aggressively make use of their “right of first refusal” to acquire properties at the market rates when they are the object of a potential sale in neighbourhoods under special protection, or the so-called Milieuschutz. Again, the regulations here are complicated. Private buyers can get around this in certain circumstances by signing an “avoidance agreement”, which protects the rights of tenants and adheres closely to local regulations. Heimstaden has not yet taken this step on the portion of the latest portfolio that would be affected by these restrictions, although it has stressed that it will abide by all local tenants’ existing protections, matching those pertaining in state-owned housing companies.
A statement from Heimstaden’s CEO Patrik Hall said, "Heimstaden and its long-term owners have an evergreen vision, we never buy to resell. On the contrary, we invest in our properties and the communities and want to work together with tenants, political stakeholders, and the communities in delivering friendly and sustainable homes and neighborhoods in the Berlin market."
"We think regulations are an important fundament for a good housing market," he said. "We first entered the German market in 2018 and see this portfolio as a good opportunity to scale up our presence and establish our own, in-house operations in Berlin."
Additionally, Heimstaden is not alone in believing the chances are good that the 5-year rental freeze currently in force in the city will be overturned shortly by Germany’s highest court. As we’ve reported before in these pages, a phenomenon making itself apparent is the rise of “Schattenmieten” or shadow rents, which landlords are making tenants sign in the event that the Mietendeckel or rent cap is judged illegal by federal judges. The reluctance of many to sign such agreements is leading to a generally greater unwillingness to move at all, compounding the effects of COVID-19 on more usual housing movements.
The view of local tenants’ association BMV Berliner Mieterverein is that such shadow rents are illegal, while landlords are basing their position on a judgement of the German Constitutional Court in March which they interpret as allowing this second, theoretical rent while awaiting final judgement of the overall legality of the Mietendeckel. Lawsuits have already been issued, with a ruling expected by the second quarter of 2021.
