Blackstone sells German residential portfolio for €1.6bn

The private equity firm has sold a majority stake in its German residential company to Morley Fund Management and Round Hill Capital.

The Blackstone Group has agreed to sell its stake in its German residential portfolio, the Vitus group, to a consortium of investors including Round Hill Capital and Morley Fund Management in a transaction valued at approximately €1.6 billion ($2.1 billion). Blackstone will continue to hold a minority stake in the company.

The private equity firm acquired the Vitus portfolio, which comprises 31,000 housing units, from the WCM Group for approximately €1.4 billion in 2004. Since the acquisition, Blackstone has restructured the company’s capital structure, as well as implemented a modernization program for individual properties.

“Today’s agreement is the first step for a further widening of the investor base of the Vitus group with the goal of laying the financial groundwork for the group’s further growth,” Blackstone said in a statement.

In recent years, Germany has been a fertile investment ground for foreign private equity firms such as Cerberus, Fortress, Goldman Sachs and Terra Firma. Last year, Fortress listed a 20 percent stake in its German residential business, Gagfah, which raised €850 million and became the country’s largest listed real estate company in the process. In another blockbuster transaction, this one in 2005, Terra Firma acquired the Viterra residential portfolio from German utility company E.on in a deal valued at approximately €8 billion. Now, market rumors are flying that Gagfah may look to acquire the Terra Firma portfolio, named Deutsche Annington.

Nevertheless, private equity firms have faced difficulties in meeting their original business plans: buying huge swaths of apartments and then either selling the individual units back to their German inhabitants or raising rents. Although those initial plans have been slow to materialize, many investors have been able to recoup decent returns through financial engineering and the liquidity in the capital markets. Terra Firma, for example, is also exploring a public flotation of Deutsche Annington.

Both Fortress and Terra Firma were reportedly bidders in the auction for Vitus.