Cerberus to sell 20,000-strong German residential portfolio

The sale is being taken as the latest sign that buyers of large-scale residential portfolios in Germany are failing in a strategy to sell homes for a profit or to increase rents.

Cerberus is reportedly selling a portfolio of 20,000 former trade union flats that the US firm bought for €1 billion ($1.3 billion) three years ago.

In a report in FT Deutschland, an unnamed source is quoted as saying: “Cerberus is disappointed by the investment.” The US firm had not achieved the returns it had expected, the person said, adding that the fund might even have to inject fresh capital.

Cerberus had initially planned an IPO for the portfolio, which is owned by Hanover-based vehicle Baubecon, but cancelled the plans. The report also cites Pirelli, the Italian real estate company, as a possible buyer.

Carlo Puri Negri, the head of Pirelli RE, recently told reporters that the group was closing in on a transaction that would be larger than the acquisition of German residential company Deutsche Grundvermögen AG (DGAG). It bought DGAG in conjunction with RREEF, the asset management arm of Deutsche Bank, for approximately €440 million last October.

A long list of investors including The Blackstone Group, Goldman Sachs, Fortress, Morgan Stanley and Terra Firma have been active in acquiring large German residential portfolios from municipalities and corporations keen to tidy up their balance sheets. Many have done so in the belief that a turnaround in Germany’s economic fortunes would lead to Germans buying their own homes or being able to afford higher rents.

Fortress, the US hedge fund and private equity group, bought a €3.5-billion portfolio in 2004 and floated it on the stock market, but share prices have now nose dived.

Terra Firma, the UK private equity firm took over Viterra, the housing arm of utility Eon, in 2005 for €7 billion and folded the 135,000 flat-portfolio into Deutsche Annington, but was reportedly trying to sell it earlier this year.