Realtor Realities

Size Doesn’t Matter

Michael Zahn at Deutsche Wohnen's Berlin headquarters. Source: Handelsblatt/Butzmann
Michael Zahn at Deutsche Wohnen's Berlin headquarters.
  • Why it matters

    Why it matters

    Deutsche Wohnen holds two-thirds of its apartments in Berlin, where young people are moving in and rents are rising rapidly.

  • Facts


    • Deutsche Wohnen was founded by the Deutsche Bank, in order to pay tax-free dividends.
    • In 2007, Berliner Gehag and the private equity firm Oaktree took over Deutsche Wohnen.
    • It resulted in the second largest stock exchange-listed landlord in Germany, managing 148,000 apartments.
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Michael Zahn, the boss of real estate developer Deutsche Wohnen, recently arranged the largest capital increase ever for a German real estate firm. Sellers of large housing portfolios know him as a man who stands by his word, whether bidding for apartments or orchestrating takeovers of rivals GSW and Conwert. He managed to acquire GSW, but not Conwert. He spoke recently with Handelsblatt about what drives the company.

Handelsblatt: Mr. Zahn, the capital increase worked, but not the purchase of Austrian property group Conwert. What did the failed deal cost you?

Michael Zahn: Nerves and time.

No more?

And €7 million ($7.4 million). Every euro I lose that way annoys me.

The Conwert price has risen since then and the value of Deutsche Wohnen has suffered. Was it due to the capital increase or because of the new, expensive apartments?

Each capital measure initially puts pressure on prices. A 6 percent markdown is comparatively low. We obtained a portfolio with modernized apartments for 20 times the annual rent. That sounds expensive. On average, renters pay €5 per square meter. The new rent contracts, however, are about €6 on average. So we have some room for rent increases.

With low interest rates, it makes sense to increase debt and therefore the returns on equity capital. You are doing the opposite. Why?

We are moving from 50 percent indebtedness to 40 percent. We believe from talks with rating agencies that it can have a positive effect on the rating.

Are better interest terms also a consequence of a better rating?

After a capital increase and replacement from old credits, our average interest burden goes down to less than 2 percent. With that, we have the lowest debt costs of all the market-listed real estate companies in Germany.

Is a debt component of 40 percent optimal for a real estate company?

That’s hard to say. I like to have options and alternatives. There are more at 40 percent than at 60 percent indebtedness. One of the worst mistakes investors can make is to finance with too much outside capital. In a recession, for example when values have to be written down, you can land in a debt trap.

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