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In Booming East German Property Market, a Big Takeover

A side street in East Berlin. Investors are still eyeing the city's property market. Source: DPA
A side street in East Berlin. Investors are still eyeing the city's property market.
  • Why it matters

    Why it matters

    Private equity firm Terra Firma took Deutsche Annington public last year, and the company is using the money to buy in a booming property market.

  • Facts

    Facts

    • Deutsche Annington is Germany’s largest residential real estate group, with over 185,000 units, worth €11.4 billion.
    • German home ownership is 43 percent. In Berlin, it is 18 percent.
    • The Bundesbank says house prices in big cities are overvalued as much as 25 percent.
  • Audio

    Audio

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Germany’s biggest residential property owner, Deutsche Annington Immobilien, on Tuesday said it would spend €320 million ($420 million) to buy a rival in a deal that underlined the emerging strength of the Continent’s largest real estate market.

The company said it will acquire more than 5,000 apartments and 210 commercial units in Berlin and key east German cities from CitCor Residential Group, a venture involving Citigroup, which like Annington is also based in Düsseldorf.

About half the properties Deutsche Annington brought are in Berlin and the rest are in eastern German cities including Dresden, Jena, Leipzig and Erfurt.

The deal was worth €320 million ($420 million), the Deutsche Annington investor relations manager, Michael Tegeder, told Handelsblatt Global Edition.

Emanuele Boni, a real estate expert and investor who is based in Berlin, said Deutsche Annington’s acquisition should be taken as a sign of faith in the German property market.

“This is the largest owner of real estate in Germany. If anyone knows how the real estate market is going in Germany, it is Deutsche Annington,” he told Handelsblatt Global Edition.

Demand for property is soaring across Europe as the low-interest rate environment frees capital in search of solid investment returns unavailable on the financial markets.

Demand for property is soaring across Europe, as the low interest rate environment frees capital in search of solid returns unavailable on the financial markets.

“Investors are looking for alternative asset classes,” Helge Scheunemann, the head of research at the German arm of real estate company JLL, told Handelsblatt Global Edition.

“Property has become an interesting asset class, especially in Germany with its stable economy,” Mr. Scheunemann said. “There are many residential centers spread across the country instead of one large metropolis. This creates a bigger choice of investments which draws buyers to Germany.”

JLL said the transaction volume of the residential investment market in Germany has jumped from €3 billion in 2009 to more than €15 billion in 2013.

In the past year, the market value of 10 German property stocks, including residential and commercial property funds has also risen 59 percent, data from the European Public Real Estate Association, an industry group, showed.

By comparison, a similar index for the euro zone as a whole, the FTSE EPRA/NAREIT Eurozone, showed a 42 percent jump.

One of Germany’s main attractions is that it is still a nation of renters. Mr. Boni, the Berlin investor, pointed out that home ownership rates in Germany are just 43 percent, compared to between 70 to 80 percent across the rest of Europe.

And in Berlin, the rate is 18 percent.

This means that companies can still buy and trade large property portfolios, instead of dealing with several hundred individual homeowners. In addition, several properties in former East Germany were state owned, and have come on the market in large blocks.

“East Germany is the only place you can come and buy entire portfolios of rented properties,” he said.

Property companies are relatively cash rich at the moment. A series of high profile IPOs has left the sector with money to spend. Deutsche Annington sold its first shares of stock on the Frankfurt Stock Exchange last year, raising €400 million months after German property company LEG Immobilien raised €1.3 billion ($1.7 billion) through its own IPO.

 

A housing block in Moabit, Berlin. Most Berliners still rent rather than buy. Source: DPA
A housing block in Moabit, Berlin. Most Berliners still rent rather than buy. Source: DPA

 

In January 2013 in the United Kingdom, Foxtons Group, Crest Nicholson and Countrywide also came on the market amid strong demand. Overall in Europe, real estate IPOs raised $6 billion (€4.6 billion) via 18 IPOs according to Ernst & Young.

Deutsche Annington’s chief executive officer, Rolf Buch, said the deal is part of a strategy to “generate value from our existing portfolio and to develop new, high-quality portfolios with the acquisition.”

Deutsche Annington bought the property portfolio from CitCor Residential Group, a joint venture of Citigroup Property Investors and Corpus Sireo.

Earlier this year, Deutsche Annington also bought 41,500 apartments from two housing companies — Vitus and Dewag — for €2.4 billion.

Shares of Deutsche Annington were up 0.3 percent at €22.86 in Frankfurt trading, and have risen significantly since the company’s €16.50 IPO price.

 

The authors are editors at Handelsblatt Global Edition in Berlin. Contact: dowling@handelsblatt.com, m.selva@vhb.de, g.kreijger@vhb.de

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