Germany’s residential market remains buoyant, despite deals taking longer to go through due to an operational slowdown in the wake of the COVID-19 pandemic.
‘The market hasn’t stopped yet but deals are getting slower because of the operational problems – not all of the banks have the infrastructure for people to work from home,’ Dr. Konstantin Kortmann, head of residential investment at JLL in Germany, told REFIRE. ‘The demand side for residential is still strong, it’s still much sought-after. However, we’re just at the first level of the coronavirus. If it gets to the stage where we can’t cope with it, that will have a knock-on effect on the whole economy and could then include both the healthcare and the residential market,’ he added.
Yet in a sign that the market is taking a ‘business as usual’ approach there are some sizeable portfolios being traded. JLL is understood to be selling ‘Portfolio Acht’ in Berlin on behalf of an unnamed Family Office for an undisclosed sum. As the name suggests, the portfolio comprises eight properties across 140,000 sqm, or 2,000 units, all in Berlin. The base rental income is believed to be around €13m per year. It’s likely to be signed in the third quarter, according to market sources and Deutsche Wohnen is believed to be among the bidders. JLL and Deutsche Wohnen both declined to comment.
Earlier this month, residential investor Deutsche Asset One acquired around 715 residential and commercial units in Munich worth in excess of €300m from MEAG. The properties will be held in various Union Investment institutional open-ended real estate funds that are aimed exclusively at cooperative securities account investors (Depot A). Deutsche Asset One intends to invest around €500m in German residential assets this year.
‘We are pursuing a long-term and sustainable strategy with all our properties,’ said Thilo von Stechow, managing partner at Deutsche Asset One. ‘The careful and cautious treatment of tenants and property maintenance for a quality of life throughout the city are becoming increasingly important in transactions in the residential sector.’
The seller was advised by BNP Paribas Real Estate GmbH; Deutsche Asset One was advised by Noerr LLP and Drees & Sommer.
Also this month, Berlin-based Capital Bay announced the formation of its latest subsidiary specializing in the development of capital projects and urban quarters with €500m of projects in the pipeline. CB District Development Management will offer a full range of services, including feasibility studies and obtaining planning permission to functional planning, design of public spaces, marketing and handover to operations and the development of utilisation concepts.
‘With CB District Development Management GmbH, we are expanding our overall CB Group value proposition by placing this unit on a so far uncovered element of the value chain,’ said Rolf Schneider, COO of Capital Bay. ‘We strive to include integrated urban quarter development into our profile and have been able to attract an outstanding management team for this purpose. All three represent the development of innovative and sustainable neighbourhoods.’
For Karin Richter, managing partner of CB District Development Group, the aim is ‘to create liveable quarters that are geared to the needs of their residents and in which the dynamics of urban life can be experienced’: ‘We want to reconnect peoples’ phases of life with the life cycles of the district,’ she said. ‘In doing so, the idea of common good plays a major role. Housing should become affordable again – for example, through digitally initiated, modular development, planning and construction across all asset classes.’
Also this month, BF.direkt brokered and structured financing of around €35m for the construction of a residential estate in the Berlin-Brandenburg region. In addition to the bank loan, the investor is also receiving KfW funding. Once completed, the project will comprise around 200 residential units across around 20,000 sqm. The project also includes underground parking facilities and a supermarket. Completion is scheduled for autumn 2021.
‘I am glad that we have been able to success-fully arrange this financing in the Berlin-Brandenburg region,’ said Francesco Fedele, CEO of BF.direkt. ‘The structuring of financing comprising both bank borrowing and KfW loans was a particular challenge. We, too, are now feeling the effects of the corona crisis. Deals are being delayed and some investors are putting off investment decisions.’
Other German investors are turning their attention to further-flung markets. German real estate developer and asset manager Trei Real Estate GmbH announced this month that it is developing its second residential project in the US with local partner Middle Street Partners, in which it is investing almost €50m. The development, located in Mount Pleasant, Charleston, in South Carolina, will include 224 rental apartments spread across three buildings. Construction started in January and is due to be completed in early 2022.
‘Following our successful entry into residential real estate development in the US with our first project in Charlotte, NC in late 2018, we are consistently implementing our residential real estate strategy with a second project in Charleston now,’ said Pepijn Morshuis, CEO of Trei Real Estate. ‘Our strategy for the US is to sell some of the properties that we develop stateside. However, the location of our project in Charleston—given its proximity to the ocean—is so unique that we likely will keep it in our portfolio upon completion.’
Nonetheless, it remains to be seen just how big an impact the coronavirus pandemic has on the residential sector, both in Europe and further afield: ‘We’ll have to see what the coronavirus cost will be to the market in the second and third and possibly even in the fourth quarter this year,’ Kortmann warned. ‘The wider economic and political context will determine how the market develops.’
