Aareal Makes Foray into German Multi-Family

First, the foreign private equity funds swooped in, buying massive quantities of German multi-family properties; now domestic institutions are part of the mix. Aareal Bank of Wiesbaden, through its Aareal Asset Management subsidiary, just acquired 1,400 multi-family units for the investor Geres S.a.r.l., Luxembourg from subsidiaries of Allianz Group. Though the price was not disclosed, it was rumored to be around ?90 million (U.S.$113 million).

This marks the first acquisition for the new Aareal German Residential Fund, which will leverage ?200 million (U.S.$252 million) of equity into ?800 million (U.S.$1 billion) of acquisitions. "In the pipeline, we're bidding on projects worth ?300 million (U.S. $378 million)," Charles Pridgeon (pictured), CEO of Aareal Asset Management, told CPN. "It is a 7-year fund and we should be fully invested by 2008."

The multi-family properties acquired are in Hamburg, Hannover, Rhineland and in the Rhine-Main are, which are regions in Germany where the population is increasing. "We're less keen on most of the eastern federal states, Bremen and Lower Saxony," Pridgeon said. "In Germany there has not been enough construction of new multi-family stock in the past 10 years."

He noted, "The portfolio we bought is not top of the range stuff. It's middle class, not worker estates. The units have tenants that can afford to own their own flats." And turning properties into condominiums is part of Aareal's exit strategy.

"A quarter of the units in the fund will be sold as condominiums," Pridgeon said. "In the portfolio we just purchased, one-half of the units can be converted into condominiums and sold to tenants or other buyers, with the mortgage payment at the same level as the rent. Only about 40 percent of Germans own their own flat and we think this rate will rise rapidly."